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CONTEMPORARY ISSUES IN BANKING, INSURANCE AND FINANCIAL
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Contemporary Issues in Banking,
Insurance and Financial Services
Editors:
Bhag Singh Bodla
Rajan Sharma
Associate Editors:
Anil Kumar
Jai Kishan Chandel
Institute of Management Studies
Kurukshetra University, Kurukshetra, Haryana
Printed at:
ABC Computers Printers
Raghunath Mandir Chowk,
Railway Road, Kamal - 132 001
Copyright© Editors and Kurukshetra University, Kurukshetra 2022
© All right reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted
in any form or by any means without the prior written permission of the editors.
Preface
The banking, insurance and financial services sectors are undergoing a paradigm shift. The
recent changes are driven by new competition from Fin-techs, changing business models,
mounting regulation and compliance pressures, and disruptive technologies. The emergence of
Fin-Tech is changing the competitive landscape in financial services, forcing traditional
institutions to rethink the way they do business. As data breaches become prevalent and
privacy concerns intensify, regulatory and compliance requirements become more restrictive as
a result. Further, the new industry entrants are forcing many financial institutions to seek
partnerships and/or acquisition opportunities as a stop-gap measure. Also, today’s consumer is
smarter, savvier, and more informed than ever before and expects a high degree of
personalization and convenience out of their banking experience. Changing customer
demographics play a major role in these heightened expectations. Besides above challenges,
data security is one of the leading financial sector challenges and an issue of major
concern. RBI’s Financial Stability Report (FSR) of 2020 indicates a surge in the Gross NPA
ratio of the banking sector up to 13.5 percent in September 2021, from 7.5 percent in
September 2020. India has a more difficult task than other countries because we had a legacy
of bad debt before COVID-19. Sustainable success in any type of business requires insight,
agility, rich client relationships, benchmarking effective practices and continuous innovation.
The present book titled ‘Contemporary Issues in Banking, Insurance and Financial Services’
includes the articles and research papers addressing the above mentioned emerging issues. The
book contains 57 articles/ research papers belonging to contemporary issues in financial
system. The papers published are classified into four categories viz. Banking, Insurance,
Financial Services and Miscellaneous. The section on banking covers papers on themes such as
Performance of India’s banking sector, NPAs in banking, financial inclusion and Micro
Finance, Customer satisfaction, digital banking, HR issues in banking, etc. The section on
insurance encompasses studies on Govt. initiatives during Covid and performance of insurance
sector, growth of insurance in India, role of insurance in socio-economic development, Prime
Minister Fasal Bima Yojana, implementation of Auyshman Bharat scheme, attrition and
retention strategies in insurance sector in India, insurance repository, Micro-insurance, etc. The
research papers and articles included in ‘financial services’ section are on topics: scientometric
analysis of research in digital finance, digital marketing for new age banks, Fintech services
for BFSI, cashless economy, consumer perception toward e-wallet, FII and Indian Stock
Market, awareness regarding old pension and new pension scheme, energy efficiency and
financial sector, Growth of ETFs, Financial inclusion through self-help groups, HR issues in
financial sector, financial literacy among women, Atal Pension Yojana, financial health of
automobile sector, gold prices impact on stock market, and performance of mutual funds
during Covid-19 Pandemic. The last section (i.e. Miscellaneous) includes papers on Workplace
spirituality in IT sector, Stock split and shareholders’ wealth, Nifty companies, merger and
acquisitions, online learning during Covid, crowd funding, workforce diversity, and employee
empowerment.
It is expected that the book will be immensely useful to the policy makers, stock exchanges,
insurance companies, bankers, academicians, researchers, strategic consultants and
practitioners who needs to keep themselves update of emerging business environment in
corona virus era. A due care has been taken in selecting papers for this book. However, the
authors of the articles have the ultimate responsibility regarding originality and contents and
the editors are not responsible in any way in this regard.
We hereby acknowledge all the contributors of articles/research papers and support of all
others who have directly or indirectly helped in the publication of the book and in the smooth
conduct of the conference. We also acknowledge all the administrative approvals and
functional support provided by Kurukshetra University, Kurukshetra. More specifically, we
express our thanks and gratitude to our Hon’ble Vice-Chancellor Prof. Som Nath Sachdeva for
presiding over the conference and extending administrative and financial support in successful
conduct of the seminar. We also extend our thanks to the resource persons, faculty members
and research scholars of Institute of Management Studies for their continuous support and
motivation. We are grateful to Dr. Anil Kumar, Dr. Jai Kishan, Dr. Archana Chaudhary, Dr.
Saloni Pawan Diwan and Dr. Rajesh Kumar for contributing at various stages of the
conference like idea conception, wide publicity of the event, and screening of articles. The
editors are also thankful to ABC Computers Printers (Karnal) for extending full cooperation
and coordination in the publication of the book.
Editors
CONTENTS
BANKING
1
2
3
4
5
6
7
8
9
10
11
An Empirical Examination of the Efficiency in Indian Banks Using Data
Envelopment Analysis
Priya Sood
Corporate Social Responsibility Initiatives in Indian Banks: A Case Study
of HDFC Bank
Nidhi Garg & Shakti Singh
Impact of Working Capital Management on Profitability and Liquidity of
Public Sector Banks in India
Nirmala Devi
Comparative Analysis of Capital Adequacy Ratios of BRICS Nations
Arvinder Kaur
Customer Satisfaction towards Internet Banking: Empirical Evidence
Sunita Bishnoi and Deepak Kumar
Performance of State Bank of India: A Descriptive Study
Amita and Pawan Kumar
Financial Inclusion Through Self Help Groups- An Analysis
Dalbir Singh Kaushik and Mamta,
Implementing Social Customer Relationship Management in the Banking
Industry
Rupali Lamba and Saloni Pawan Diwan
Current HR Issues in Indian Banking Industry: A Review of Literature
Kanchan Bagri and Priyanka Yadav
Emotional Intelligence in Banking Sector: A Literature Review
Vandana Sharma and Pradeepika
Customer Satisfaction: A study of Central Co-operative Bank,
Kurukshetra
1 -8
9-15
16-23
24-29
30-42
43-49
50-57
58-67
68-72
73-81
82-89
Karnika Gupta and Ishu Garg
12
13
14
15
16
Environmental Sustainability Trough Green Banking: A Study with
reference to India
Namarta and Nirmala Chaudhary
Corporate Governance in Banking: A Comparative Perspective
Shivani and B S Bodla
An Empirical Examination of Measures taken by Public Sector Banks for
the Management of Non-performing Assets (NPAs)
Vijay Kumar and Chanchal Rani
An Assessment of Spiritual Intelligence among the banking sector
employees
Rajan Sharma and Sumit Saini
Non-Performing Assets and Profitability: A Case of Indian Banking Sector
Mukul
90-97
98-105
106-114
115-121
122-129
17
18
19
20
A Comparative Analysis of NPA in Priority Sector of Public Sector and
Private Sector Banks in India
Ananya Bhatia and Jagdeep Dahiya
A Study on Financial Saving Behaviour during COVID 19 Pandemic
Sangeeta and Pradeep Kumar Aggarwal
An Analysis of Education Loans and NPAs in India
Vineet Kumar and Archna Chaudhary
130-135
HR Issues in Indian Banking Sector
Ravneet Kaur
157-162
136-144
145-156
INSURANCE SECTOR
21
22
23
24
25
26
27
Social and Economic Impact of Insurance: A Case Study of India
Amita
Efficiency Analysis of Indian Insurance Sector: Technical Efficiency, Pure
Technical Efficiency and Scale Efficiency
Garima Dudeja and Archna Chaudhary
A Study of Farmers’ Awareness towards Pradhan Mantri Fasal Bima
Yojana
Rachna and Ajay Suneja
Implementation of Ayushman Bharat: A way Towards Universal Health
Care in India
Pooja Pandey
The Progress of Micro Insurance Business During Covid-19 Pandemic in
India
Rajesh Kumar
A Study on Employee Attrition and Retention Strategies of Sales
Departments of Indian Private Life Insurance Companies
Anil Chandhok
Insurance Repository System in Insurance : A Step Towards
Digitalization
163-171
172-181
182-190
191-203
204-213
214-217
218-225
Sunil Kadyan
28
29
Pradhan Mantri Fasal Bima Yojana (PMFBY): Analysis of Issues,
Challenges and the Way Forward
Niti Pandeya
Government of India's Initiatives for Wider Penetration of Insurance
during Covid-19 and Growth of Insurance Industry
Jitender Singh; Saloni Pawan Diwan; and Rajesh Kumar
226-234
235-240
FINANCIAL SERVICES
30
Scientometric Analysis of Research on Digital Finance
Manjinder Singh and Deepinder Kaur
241-253
31
32
33
Digital Marketing for New Age Banks
Devesh Gupta and Samarth Singh
Fintech Services: Changing landscapes of BFSI
Pankaj Chaudhary and Rupinder Katoch
Prospects of Cash less Economy in India: A Theoretical View
254-259
260-265
266-273
Sunita Bishnoi and Nidhi Turan
34
35
36
37
38
39
40
41
42
43
44
45
A Measure of Consumers’ Perception toward e-wallet (Digital Payment
Method)
Divya Malhan, Mohan Kumar, and Preeti
Foreign Institutional Investors and Indian Stock Market
Sushma Rani, Beauty Das and Naina
274-278
Awareness Regarding Old Pension Scheme and New Pension Scheme
among Government Employees
Khujan Singh and Aarti Devi
Growth of Global and Domestic Exchange Traded Funds (ETFs)
Akanksha
Human Resource Issues in Financial Services Sector: Opinions of
Researchers and Professionals
Beauty Das and Sushma Rani
Energy Efficiency and The Finance Sector: Policy and Regulatory IssuesConceptual Framework
Kamaljit Singh and Simmi Vashishtha
A Comparative Study of Analysis of Financial Health of Automobile
Industry
Vicky and Aishwerya
Impact of Gold Prices on Indian Stock Market
Sahil Kapoor and Anil Kumar Mittal
A Study of Performance of Mutual Funds during Covid-19 Pandemic:
Evidence from India
Sumit Bodla
Financial Literacy among Women: The Need of the Hour
Geetika Shukla,Neha Bathla and Neha Jain
Rural Exposure towards the Atal Pension Yojana of Financial Inclusion
in Fazilka District of Punjab
Aman Bishnoi and Shailinder Sekhon
288-294
Financial Literacy and Financial Inclusion: A Review of Literature
Manoj Kumar and Annu
353-358
279-287
295-303
304-311
312-315
316-322
323-331
332-340
341-344
345-352
MISCELLANEOUS
46
Workplace Spirituality and IT Sector: Practices & Policies
Vani Jain and R. R. Saini
359-363
47
48
49
50
51
52
53
54
55
56
57
Stock Split and Shareholders’ Wealth – An Investigation using Event Study
Methodology
Shaili Gupta and Bhag Singh Bodla
Intellectual Capital Performance of CNX Nifty Companies
Suman and Satpal
An exploration of the Varied Aspects of Mergers and Acquisitions
Suman Monga
Challenges and Opportunities for Online Learning during COVID-19
Aarti Deveshwar and Saloni
An Assessment of Emerging Landscape of Skill Development in India
Dipika and Ajay Solkhe
An Assessment of States’ Own Revenue and Their Own Revenue Spending
on Development Services
Darshini J S
Crowd funding: A Way of Entrepreneurial Finance
Simmi Vashishtha
Significance of Employee Empowerment in Banking Services: A Critical
Evaluation of Literature
Kuldeep Chaudhary and Rinki
Workforce Diversity in the IT Sector of India
Ritesh Kumar and Raj Pal Singh
Role of Self Help Groups in Economic Empowerment of Rural Women:
An Empirical Study
Mamta and Dalbir Singh Kaushik
Modernity of Banking Products and Services
Shreya Bareja and Diksha Nanda
CONFERENCE PROCEEDINGS
AUTHOR INDEX
364-373
374-382
383-388
389-393
394-402
403-408
409-418
419-424
425-431
432-437
438-442
443-447
448
Banking
Contemporary Issues in Banking, Insurance and Financial Services
An Empirical Examination of the Efficiency in Indian Banks Using
Data Envelopment Analysis
Ms. Priya Sood, Research Scholar
Department: Department of Economics, Panjab University, Chandigarh.
Email: priya.sood20@gmail.com
Abstract
The banking sector in India has considerably undergone the process of reforms over the last three decades.
The major reforms include the deregulation of interest rates, waving off the entry restrictions for foreign and
private banks, slashing of statutory pre-emption, relaxing of directed credit rules and expansion in the
ownership of public sector banks. The present studyendeavors to explore the varied efficiency levels - overall
technical, pure technical, scale efficiency scores (year wise as well as over the time period during 1997-2017)
alongwith the inclusion of a proxy for off-balance-sheet activities in the output definition of banks as well as
among three varying time periods (Pre Basel (1997-2003), Basel Period – I (2004-2010) and Basel Period -II
(2011-2017)) in case of India's banking sector.Data Envelopment Analysis (DEA) has been applied in the
present study. The study concludes that the Indian Banking sector in spite of becoming more efficient over the
last few years has been losing its sheen in scale, overall technical efficiency scores due to the growing Nonperforming assets(NPAs).
Key words: Indian banking sector, DEA, efficiency, OTE, NPAs
INTRODUCTION
The efficiency of a bank is the capacity to alter inputs into outputs. The quality of a bank can be
estimated by its efficiency to lucratively utilize resources while producing financial products and
services (Koetter and Wedow, 2010). According to the extensive literature available, it is seen that
the efficiency of the banking sector is linked with the performance of the entire economy since only
an efficient banking sector ensures the smooth working of an economy’s payment system through
the mobilization of financial savings, putting them to productive use, transforming various risks as
well as the efficient execution of the monetary policy. Higher banking efficiency also indicates
improved intermediation services among banks, which infers a better match between investors and
depositors along with all the constructive effects on economic indicators (Drechsel, 2007).
Furthermore, the efficient banking sector also has direct insinuations for the social welfare of an
economy. As soon as a nation’s banking sector turn out to be more efficient, providing more services
at a lower cost, the social sector also gets benefitted leading to social welfare (Valverde et al., 2003).
Due to the above-mentioned socio-economic benefits of banking sector efficiency, the exploration of
the level of efficiency of banks achieved a huge recognition in the last few years amongst the
researchers, policymakers, bank managers and investors. In this context, computing and analyzing
the efficiency level of the Indian banking sector have become a significant area of inquiry.
Due to the intangible nature of banking sector products and services, estimating the efficiency of the
banking sector has never been a simple task. The present studyseeks to calculate the efficiency
1
Contemporary Issues in Banking, Insurance and Financial Services
scores of the banking sector of India by applying ‘Data Envelopment Analysis’, widely known as
DEA. The complications innate in the traditional ratio analysis, as emphasized previously, can be
overcome with the usage of DEA.
One of the chief complications in the bank-level efficiency studies is related to the selection of
suitable input and output variables. There exists an age-old discord among researchers over what
banks produce. The most glaring problem concerning the definition of inputs and outputs is the part
played by deposits, i.e. are demand deposits an input or output. There is no agreement regarding the
deposits to be incorporated in the input or output vector. While estimating the impact of deregulation
on bank efficiency, Mohan and Ray (2004b) considered deposits as an input variable and stated that,
using deposits and loans as outputs would have been suitable in the nationalized period when
maximizing these was indeed the objective of a bank but they are, possibly, less suitable during
reforms period when banks are not just maximizing deposits and loans; they are in the business of
maximizing their profits. Furthermore, identifying the increasing importance of the fee-generating
non-traditional activities like leasing, stockbroking, merchant banking, venture capital, backup lines
of credit and financial derivatives have received substantial consideration from bankers, regulators
and academic researchers in the post-reform years, due to decline in the comparative portion of
interest income stemming from conventional actions performed by banking sector. Researchers have
assimilated the non-interest income as a proxy for such actions in the output vector. The incentive
for banks to incorporate non-traditional activities is to generate profits, to establish the existence in
diversified financial market services, to have principal market positions in all financial services
market and to access a broad customer base (Ajit, 1997).
There are a number of aspects which make the Indian banking sector to be an appealing case study
and information attained through a banking efficiency analysis can be utilized further, either (i) to
improvise managerial performance by classifying ‘best practices’ and ‘worst practices’ as linked to
higher and lower levels of calculated efficiency, correspondingly, and promoting the prior practices
while demoting the subsequent ones; or (ii) to enlighten government policymakers to assess the
differences in the efficiency on the basis of ownership, so as the take relevant steps to be taken
accordingly by the regulators; or (iii) to attend to research issues by unfolding the level of efficiency
in an industry, ranking its firms or inspecting how calculated efficiency scores may be associated to
the different time periods and policies adopted ; or (iv) to assist the regulators in evaluating the
increasing involvement of the banking sector in off-balance-sheet (OBS) activities these days with
the inclusion of the non -traditional activities in its output vector in estimating efficiency levels.
The present studypresents the empirical estimation results of mean scores of technical and scale
efficiency levels among as many as 71 scheduled commercial banks of India during the period 19972017 and further segregating the time period in three sub-periods 1997-2003, 2004-2010 and 20112017. In the end, the findings of the study have been recapitulated.
DATA SPECIFICATION
In order to estimate the levels of efficiency in the Indian banking sector, the disaggregated annual
bank-level balance sheet and income statement data have been used for the period 1997-2017 for 71
2
Contemporary Issues in Banking, Insurance and Financial Services
scheduled Indian commercial banks :26 Public,18 Private and 27 foreign banks The study has
included three sub-periods: the pre-Basel (1997-2003), Basel period I (2004-2010) and Basel period
II (2011-2017).The disaggregated annual bank-level data set covering 21-year period spanning from
the financial year 1997 to 2017 has been acquired from (i) An annual publication of RBI: Statistical
Tables Relating to Banks in India and (ii) Performance Highlights of Public Sector Banks,
Performance Highlights of Private Sector Banks and Performance Highlights of Foreign Sector
Banks (iii) Annual Publications of Indian Banks Association.
METHODOLOGY- DATA ENVELOPMENT ANALYSIS (DEA)
There are a range of techniques that can be employed to evaluate the efficiency scores of commercial
banks. The estimates of efficiency scores happen to be sensitive to the choice of technique been
employed. The estimates in the numerous studies of commercial bank efficiency often reach
conflicting findings. The differences in the manner in which a banking institution is modeled could
be attributed to such contradictory results. The Data envelopment analysis (DEA) has been utilized
to estimate the efficiency scores of the Indian Banking sector during 1997-2017 in the present study.
A large number of DEA studies have been stated in the application areas namely agriculture,
education, financial institutions, health care, public sector firms, etc. DEA’s real-world relevance,
diffusion and global acceptance are apparent from prior literature studies.
DEA standardizes the level of technical efficiency on the foundation of computed discrete piecewise
frontier (also known as efficient frontier or best practice or envelopment surface) constructed with a
set of Pareto-efficient banks. When these Pareto-efficient banks situated on the efficient frontier are
brought in comparison to another set of banks, they curtail the usage of productive resources given
the outputs (input-oriented measure), or maximize the outputs given the inputs (output-oriented
measure) and are known as the best-practice performers or peer units or reference units within the
sample of banks. The benchmark efficiency score is 1 that no individual bank score can go beyond.
Thus, this efficient frontier acts as a standard measure against which the relative efficiency of all
other banks which are not positioned on the frontier could be computed. Further, the banks which do
not recline upon efficient frontier are considered to be comparatively inefficient (i.e. Pareto nonoptimal firms/ banks and be given a score between 0 and 1. The efficiency score of a particular bank
can be construed as the radial distance from the efficient frontier. To be precise, DEA forms a nonparametric surface frontier also known as piece-wise-linear convex isoquant) over the data points in
order to estimate the efficiency of each Pareto efficient bank relative to this frontier.
The Technical Efficiency (TE) of the bank or a firm refers to its capacity to alter various resources
into diverse financial services (Bhattacharyya et al., 1997b). A bank or a firm is considered to be
technically inefficient if it functions below the frontier. A measure of TE assists in settling on
inefficiency due to the input/output relationship as well as the size of processes. The three probable
orientations in DEA so as to compute Efficiency scores as introduced by (Charnes et al., 1994) are
described as follows:
3
Contemporary Issues in Banking, Insurance and Financial Services
(i) input-oriented models are those models in which banks are supposed to generate a given quantity of
outputs with the minimum probable quantity of inputs (inputs are controllable). Input minimization
leads to the determination of the extent to which a bank can decrease inputs while keeping the
current level of outputs;
(ii) output-oriented models are those models in which banks are supposed to generate a given quantity of
inputs the maximum probable quantity of outputs (outputs are controllable). Output maximization
might be applied when the inputs are controlled, and the emphasis is on growing the outputs, and
(iii) base-oriented models (or additive or non-oriented models) are those models in which the banks are
supposed to generate the optimal mix of inputs and outputs (both inputs and outputs are
controllable). Here, the inefficient banks are anticipated to be on the efficient frontier by
concurrently decreasing their inputs and raising their outputs in order to reach an optimum level.
Figure 1: Orientations in Data Envelopment Analysis
Source: Charnes et al. 1994
Figure 4.1 depicts the diverse orientations employed in the DEA framework with the simple case of
a single-input and single-output production scheme. WW' signifies an efficient frontier, and Bank G
is an inefficient unit. The point T represents the yardstick for inefficient Bank G in the input-oriented
model. The relative efficiency of Bank G is specified by the ratio of distances G IT/GIG. Point O is
the projection of G in the output-oriented model. The relative efficiency of Bank G is then GGo/
GoO. Lastly, point B is the base-projection of Bank G in the base-oriented model. In the empirical
literature, both the input as well as output-oriented models have extensively been used by the
researchers.
4
Contemporary Issues in Banking, Insurance and Financial Services
RESULTS REGARDING TRENDS IN SCALE, PURE TECHNICAL EFFICIENCY AND
OVERALL TECHNICAL EFFICIENCY SCORES
The results given in Table 1indicate the deviations in year wise overall technical (OTE) levels thus
showing a mixed trend in the efficiencies of the Indian banking sector. While comparing the results
of scale efficiency (SE) and pure technical efficiency (PTE), the table shows that the year wise mean
SE scores are less than PTE scores in the initial years of study viz. 1997-2003 along with 2014-2017
PTE happens to be little more than SE. On the other hand, the year-wise mean SE scores were
noticed to be constantly greater than that of PTE scores for the time period 2004-2013. Besides, the
figures of the grand mean of SE and PTE present the average score of pure technical inefficiency
(input-oriented) to be 38.11% which was found to be only a bit lesser than the scale inefficiency
scores of 38.16%. Hence, it can be concluded that the chief source of the overall technical
inefficiency (which is product of PTE and SE) for Indian banking sector, which has been fluctuating
throughout the time period, is not only pure technical inefficiency (input related) but the scale
inefficiency (output related) also plays equal role.
Thus, the technical inefficiency primarily originates from the lack of managerial control over the
squandering of inputs used in the production process along with the failure to function at optimal
scale size. The results show that there are more chances of the OTE gains through the mix of
improved usage of available resources by the proper managerial skills and also gaining advantage
from scale economies.
Table 1 also shows that the overall technical efficiency(OTE) fell till 1999 where it reached its
lowest level (29.09%) over the time period considered representing 70.91% of inefficiency level,
which could be attributed to the initial introduction of Basel 1 reforms (1999) that led to the several
structural changes in Indian banking sector during this phase. Thereafter, the results demonstrate that
the Indian Banking sector observed a mixed trend of rising and fall in the efficiency levels. It was
highest in the year 2011 at 50.84% with 49.22% level of inefficiency and after that it started
deteriorating continuously from 2013 till 2016.
Furthermore, in an effort to review, whether the level of the efficiency of the Indian banking sector
has become better with the acceleration in the reforms of 1997-1998 as well as Basel reforms, the
comparative analysis of mean efficiency scores among varied sub-periods has also been conducted
and relevant results are reported in Table- 2.The whole time period has been segregated into three
sub-periods such as sub-period I- Pre-Basel period (1997-2003), Sub Period II- Basel I period (20042010) and Sub Period III- Basel II period (2011-2017).
The estimated results of these sub-periods demonstrate that the scale efficiency (SE) and overall technical
efficiency (OTE) both initially rises towards the second period (2004-2010) from SE- 58.12% (first subperiod) to 66.64% (second sub-period). OTE rises from 36.77% in first sub-period or Pre Basel period 19972003 to 40.42% in the second sub-period or Basel I period (2004-2010). But later in the third sub-period or
Basel II period (2011-2017) they both declined i.e., SE at 60.78 % and OTE at 38.04%.
5
Contemporary Issues in Banking, Insurance and Financial Services
Table 1: Trends in Mean scale, pure technical, overall technical efficiency scores of the Indian
banking sector (1997- 2017)
YEAR
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
GrandMean(Entire
Period)
SE
0.659
0.544
0.490
0.633
0.569
0.619
0.555
0.681
0.743
0.670
0.614
0.677
0.595
0.685
0.787
0.652
0.714
0.611
0.506
0.471
0.514
PTE
0.719
0.652
0.616
0.667
0.635
0.631
0.632
0.623
0.625
0.569
0.600
0.574
0.571
0.624
0.633
0.554
0.599
0.623
0.594
0.627
0.630
OTE
0.486
0.360
0.290
0.395
0.340
0.377
0.326
0.418
0.461
0.379
0.380
0.402
0.350
0.440
0.508
0.364
0.443
0.402
0.311
0.304
0.331
0.618
0.619
0.384
Source: Author's Calculation
Table 2: Mean Efficiency scores of the Indian banking sector (sub-period wise)
YEAR
SE
PTE
OTE
1997-2003(First Period)
0.581
0.650
0.368
2004-2010(Second Period)
0.666
0.598
0.404
2011-2017(Third Period)
0.608
0.608
0.380
Source: Author’s Calculation.
On the other hand, pure technical efficiency (PTE) initially showed a declining trend from 65.01% in
the Pre-Basel period (1997-2003) to 59.80% in Basel I period (2004-2010) but in the Basel II period
(2010- 2017) it rises a little 60.84% level. Analyzing the results of regarding the varied efficiencies
scores during these sub-periods shows that the scale and overall technical efficiency of the banking
6
Contemporary Issues in Banking, Insurance and Financial Services
sector has declined since the Basel II reform period. Thus, confirming the downfall of overall
technical and scale efficiencies of the Indian banking sector in the third sub-period under the present
study. The overall technical efficiency has fallen in the third sub-period. The results are similar to
the study by Bodla and Verma (2010) whose paper analyzes the efficiency of 29 private sector banks
from the period 1998-99 to 2005-06. The results of the study indicate that there is a lot of scope for
the private sector banks to improve their efficiency level, as, at the most, only 31.25% private sector
banks were found efficient during the entire study period.
CONCLUSION
Since the onset of banking sector reforms, the banking sector responses to the shifting nature of the
working environment have led to the transformations in the structure of the financial accounts which
further primarily revealed the role of non-traditional activities (off-balance sheet activities).
Therefore, applying non-parametric approach - Data Envelopment Analysis (DEA), the present
study not only endeavors to explore the varied efficiency levels - overall technical, pure technical,
scale efficiency scores (year wise as well as over the time period during 1997-2017) with the
inclusion of a proxy for off-balance-sheet activities in the output definition of banks as well as
among three varying time periods (Pre Basel (1997-2003), Basel Period – I (2004-2010) and Basel
Period -II (2011-2017)) of banking industry in India. The empirical results enable us to draw the
following conclusions:
The year-wise empirical results revealed that the key source of the overall technical inefficiency
(which is a product of PTE and SE) for the Indian banking sector is not only the pure technical
inefficiency (input related) but the scale inefficiency (output related) also plays an equal role. Thus,
the technical inefficiency primarily originates from both the lack of managerial control over the
squandering of inputs used in the production process along with the failure to function at optimal
scale size. Further, the year-wise trend in OTE scores also show that throughout the time period from
the year 1997 onwards the Indian banking sector almost every year has presented technical
inefficiency plays a crucial role. The results of overall efficiency scores demonstrate that the Indian
Banking sector (comprising of 71 scheduled commercial banks across three sectors) in spite of
becoming more efficient over the last few years has been losing its sheen in scale, overall technical
efficiency scores. The reason for this could be attributed to thedownward trend of efficiency levels
of public sector banks thus signifying the failure of the public sector in the efficient usage of
resources due to their age-old inefficient managerial and technical skills along with the rising load of
NPAs.
The results relating (overall banking sector) to the trends of scale, overall technical efficiencies
specify that the financial deregulation process has had an encouraging impact on these efficiencies of
Indian banking sector till second sub-period i.e. Basel period I (2004-2010) and it exclusively owes
the improvement in the technical efficiency of this sector but thereafter scale and overall technical
displayed a downward trend in the third sub-period i.e. Basel period II (2011-2017). On the other
hand, pure technical efficiency has seen a little upward trend in the third sub-period after falling in
7
Contemporary Issues in Banking, Insurance and Financial Services
the second sub-period. It can be concluded that the scale and overall technical efficiency has fallen
in the last phase of the study but pure technical efficiency has shown an opposite scenario of a rising
trend in the third sub-period.
REFERENCES









Ajit, D. (1997). Para banking in India: some issues. Economic Political Weekly,32(42), 2677-2686.
Bhattacharyya, A., Lovell, C.A.K., & Sahay, P. (1997b). "The impact of liberalization on the productive
efficiency of Indian commercial banks". European Journal of Operational Research, 98, 333-346.
Bodla, B. S. and Richa Verma Bajaj, (2010). An Analysis of the Efficiency of Private Sector Banks in
India. The IUP Journal of Bank Management, IX, (1 & 2), 60-82.
Charnes, A., Cooper, W.W., Lewin, A.Y., & Seiford, L.M. (1994). Data envelopment analysis: theory,
methodology and applications(ed.). Kluwer Academic, Boston.
Drechsel, D. (2007). The long run intermediation efficiency of Swiss Banks, 1906–2005. IEW–Economic
History Section, University of Zurich. Retrieved from http://www.ekh.lu.se/ehes/paper/Dirk
Drechsel_Intermediation Efficiency Swiss Banks.pdf.
Koetter, M., & Wedow, M. (2010). Finance and growth in a bank-based economy: is it quantity or quality that
matters? Journal of International Money Finance, 29(8), 1529–1545.
Kumar, S., & Gulati, R. (2007). “Evaluation of technical efficiency and ranking of public sector banks in
India”. International Journal of Productivity and Performance Management, 57,(7).
Mohan, T.T. Ram & Ray, S.C. (2004b). Comparing performance of public and private sector banks: a
revenue maximization efficiency approach. Economic Political Weekly, 39(12), 1271–1275.
Valverde, S.C., Humphrey, D.B., & Fernández, F.R. (2003). Bank deregulation is better than mergers. J Int
Financ Mark Inst Money, 13(5), 429–449.
8
Contemporary Issues in Banking, Insurance and Financial Services
Corporate Social Responsibility Initiatives in Indian Banks: A Case
Study of HDFC Bank
Nidhi Garg & Shakti Singh
Research Scholars, Maharshi Dayanand University, Rohtak, Haryana, India
E-Mail: Nidhigarg944@gmail.com
Abstract
With the LPG reforms in 1991, the importance of CSR increased a lot. Now, CSR has changed its meaning
from just philanthropic activities to the more responsibility towards society. As a result, most banks have
implemented several programs that benefit themselves as well as society. In current time period, CSR has
become a trending topic for research. This paper aims to identify the different CSR activities undertaken by
the HDFC Bank. As the word responsibility emphasize on the obligation of business towards the society, the
study focuses on the activities undertaken by bank for the societal development. This paper is aimed to
identify the total CSR expenditure by HDFC bank over the five years i.e. 2014-15 to 2018-19 and different
activities on which amount has been spent. The study is purely based on secondary data which was collected
from various sources such as annual reports, CMIE Prowess. The major activities for spending were
education, livelihood generation, rural development and environmental sustainability. The results reveal that
the bank has focused more on education as well as rural entrepreneurship.
Keywords: CSR, Social Responsibility, Environmental Responsibility, Bank.
INTRODUCTION
CSR is a concept that connects the organizations to the society. Social responsibility refers to the obligation of
the business towards society. The word responsibility emphasizes that the business has some obligations
towards the society. CSR is also known as sustainable business responsibility. With the LPG reforms,
industrialization and commercialization of service sector becomes most common due to the growth of
economy. But the industrialization also brought some adverse effects on environment in the form of climate
change, green house effect and rising level of pollution that increases the harmful effects on future generation.
The growing concerns have given rise to concept of CSR.
The concept of CSR was given by William J Bowen in his book titled “social responsibility of businessmen”.
Bowen (1953) defines CSR as “it refers to the obligations of businessmen to pursue those policies, to make
those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of
our society” (Bowen,1953,p 6).
With the passage of time, the need of CSR increased and it changed its shape from philanthropic to social
activities. now CSR is treated as an act where companies contribute for betterment of society and cleaner
environment.
Caroll’s CSR Pyramid
As per Caroll’s (1979), “Corporate Social Responsibility encompasses the economic, legal, ethical and
discretionary (philanthropic) expectations that society has of organizations at a given point in time”. The four
type of responsibilities in the pyramid are as follows:



Economic responsibilities
Legal Responsibilities
Ethical Responsibilities
9
Contemporary Issues in Banking, Insurance and Financial Services

Legal responsibilities
Source: Carroll, A. (1979). A Three-Dimensional Conceptual Model of Corporate Performance. The
Academy of Management Review,4(4), 497-505. Retrieved from http://www.jstor.org/stable/257850
The banking sector is playing important role in Indian economy. It is growing and becoming more powerful
than the earlier time. Several organizations put pressure on banks to act in responsible way and give back to
society. The paper has based on the HDFC Bank which is the largest private sector bank in terms of market
capitalization. The study tries to make an attempt to identify the involvement of HDFC bank in CSR activities
after the mandatory implication of CSR spending by companies act,2013. Section 135 of companies act, 2013
depicts every organization having net worth of 500 crore or turnover of 1000 crore or net profit of 5 crore in
any financial year need to spend 2% of the average profit of previous three years. The study also tries to
analyse the different activities in which the bank has spent the amount under CSR.
LITERATURE REVIEW
Several researches have been undertaken on the issue of Corporate Social Responsibility since 1950. Some
these researches are reviewed in this section.
Hooda, R., & Chhikara, K.S. (2019) analysed the total CSR expenditure and percentage amount spent on
CSR activities of Maharatna Companies of India. They also analysed the percentage of CSR expenditure on
different activities along with the relationship of CSR on Financial performance. The study revealed that the
companies belonging to energy, oil and gas industry showed highest growth in CSR expenditure during the
four-year period while the electrical equipment industry showed negative growth. The major spending of the
companies was education/ livelihood generation and health activities.
Dutt, R., & Grewal, H. (2018) tried to analyse the CSR in banking sector of India through the study of State
bank of India. The author tried to analyse the CSR activities of the bank for the four-year period from 201415. The data was collected through questionnaire as well as secondary sources like annual reports. The
questionnaire was designed to know the perception of employees towards CSR. The study revealed that the
major focus of SBI bank was on skill development and livelihood creation. Also, the bank was doing
activities in the field of education, healthcare and sanitation etc. The employees of the company thinks that
the bank is serious about sustainable development.
Kaur, S. (2016) in the article titled “A Study on Corporate Social Responsibility (CSR) in Indian Banking
Sector” tried to analyse the different CSR activities by banks. It was found that the banks are engaged in the
area of Rural Development, Education, Community Welfare, Women and Children.
10
Contemporary Issues in Banking, Insurance and Financial Services
Sharma, E., & Mani, M. (2013) in the article title, ''Corporate Social Responsibility: An Analysis of Indian
Commercial Banks'', analysed the corporate social responsibility (CSR) activities carried out by banks for the
year 2009-10 to 2011-12. The main variables used in the study were rural branch expansion, priority sector
lending, environment protection, community welfare, women welfare, new initiative related to CSR, financial
literacy, education and farmers’ welfare. The analysis showed that the banks were making efforts in CSR
areas but public sector banks were more involved in CSR activities as compared to private sector banks.
Narwal, M. (2007) in the research paper titled CSR Initiatives of Indian Banking Industry tried to analyse the
CSR initiatives taken by banking industry which enhance their overall performance. For this purpose, survey
questionnaire has been analysed with the help of descriptive statistics and factor analysis. It was found that
the banks were mainly concentrated on education, balanced growth, health, environmental marketing and
customer satisfaction as their core CSR activities.
OBJECTIVES OF THE STUDY
Banks play a major role in the economic development of the country. This paper tries to find out the general
practices adopted by HDFC bank (the largest private sector bank) to give back to the society. More
specifically, it was conducted to achieve the following two objectives:


To show the total budgeted/prescribed expenditure and actual amount spent on CSR, in the recent five years,
by the HDFC Bank; and
To identify the major spending area of the CSR expenditure by exploring year-wise data of bank.
RESEARCH METHODOLOGY
Data Collection: The present study is descriptive cum exploratory in nature. The data used in the study is
secondary type. It was collected through different sources such as annual reports of the bank and CMIE
Prowess database. The time period of the study was five years from 2014-15 to 2018-19.
Data Analysis Method: Case study method has been used in this paper. Yin(1989) defines case study as
empirical enquiry investigating a contemporary phenomena within real time context. Content analysis has
been done to identify the CSR activities of the bank. The data has been analysed by suitable statistical tools
such as percentage and growth. Ms excel has been used for creating tables and charts.
ANALYSIS AND INTERPRETATION
The data collected for the study has been presented through tables and charts. The table 1 and Figure 1 depicts
the CSR expenditure of the HDFC bank for five years i.e. 2014-15 to 2018-19.Total amount prescribed for
spending in CSR activities was 197.13 crore in 2014-15 whereas bank has spent 118.55crore constituting
60.14 percent of the prescribed amount. During the year 2015-16, the bank has spent 194.81 crore (the
prescribed amount being 248 crore). The bank has spent 78.55 percent of prescribed amount in this year. In
the year 2016-17, the bank spent 100.47 percent of the prescribed amount. The bank has spent 305.42 crore in
this year (prescribed amount was 304 crore).
In the year 2017-18, the bank has spent 374 crore while the prescribed amount was 365 crore (percentage
amount spent was 102.47). In the year 2018-19, the bank has spent 101.05 percent amount of CSR figuring
443.8 crore. The average amount spent by the bank in the five years after mandatory spending was 287.32
crore per year comprising 92.48 percent of the prescribed amount. The table shows that the bank is actively
engaged in the CSR activities. The graphical representation of Table 1 is shown in Figure 1.
11
Contemporary Issues in Banking, Insurance and Financial Services
Table 1: CSR Expenditure of HDFC Bank in last five years
Year
Amount
Prescribed (In
Crore)
2014-15
2015-16
2016-17
2017-18
2018-19
197.13
248
304
365
439.2
118.55
194.81
305.42
374
443.8
60.14
78.55
100.47
102.47
101.05
AVERAGE
310.67
287.32
92.48
Amount Actual
Spent (In Crore)
Percentage Spent of
Prescribed Amount
Growth Rate (In
percentage)
64.33
56.78
22.45
18.66
Source: Compiled from annual reports of the HDFC Bank and CMIE Prowess
Figure-1
Total CSR Expenditure of HDFC Bank
500
400
300
200
100
0
2014-15
2015-16
2016-17
Amount Prescribed(In Crore)
2017-18
2018-19
AVERAGE
Amount Actual Spent(In Crore)
Figure-2
Growth Rate
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
64.33%
56.78%
22.45%
0.00%
2014-15
2015-16
2016-17
2017-18
18.66%
2018-19
The trend analysis in Figure 2 represents the growth rate of CSR activities of HDFC Bank which was showing
a declining trend. The growth rate in 2015-16 was 64.33% in comparison to 2014-15. This shows that in the
year 2015-16, the investment in CSR activities was more than the investment in 2014-15. Similarly, in 2016-
12
Contemporary Issues in Banking, Insurance and Financial Services
17, 2017-18, 2018-19 the growth rate was 56.78%, 22.45%,18.66% in comparison to 2015-16, 2016-17,
2017-18 respectively.
Sector Wise CSR Spending by HDFC Bank
The key areas for the focus of the bank are as follows:
1.
2.
3.
4.
5.
6.
7.
Financial Literacy and Empowerment
Promoting Education
Skill training and Livelihood Enhancement
Healthcare
Environmental Sustainability
Eradicating Poverty
Rural Development.
Table 2 and Figure 3 depict the spending of HDFC bank on various CSR activities.
Table 2: Amount Spent on Different Activities
Year/
Activity
Financial
Skill
Promotin
Literacy and
Training/
g
Empowerme
Livelihood
Education
nt
Enhancement
Healthcar
e
Environmen
tal
Sustainabilit
y
Eradica
-ting
Poverty
Rural
Developmen
t
2014-15
2015-16
2016-17
2017-18
2018-19
7.67
1
0
0
0
8.56
24.59
25.48
41.29
48.52
12.53
17.99
30.41
17.31
24.45
7.28
8.26
23.56
15.19
17.34
0.95
0.72
1.01
0.73
0.71
1
1.36
4.46
4.18
13.17
80.56
140.89
220.5
295.85
339.59
Average
1.73
29.69
20.54
14.33
0.82
4.83
215.48
Source: Annual Reports of HDFC Bank
Figure-3
CSR Expenditure on Different Activities
400
200
0
2014-15
2015-16
2016-17
financial literacy and empowerment
2017-18
2018-19
promoting education
skill training and livelihood enh
healthcare
environmental sustainability
eradicating poverty
rural develoment
13
AVERAGE
Contemporary Issues in Banking, Insurance and Financial Services
Table 2 depicts that the average spending of bank on financial literacy and empowerment was 1.73 crore in
five years because the bank has spent the amount on this activity in the year 2014-15 and 2015-16 only. The
average spending on promotion of education was 29.69 crore in the five years. The data depicts that every
year spending on education has increased by the bank. The bank spent 8.56 crore on education in 2014-15
followed by 24.59 crore in the next year. In the year 2016-17, the bank spent 25.48 crore on this activity. The
bank contributed 41.29 and 48.52 crore in 2017-18 and 2018-19 respectively.
The average spending in skill development and livelihood enhancement was 20.54 crore in the five
years ranging from 17.31 crore to 30.41 crore. the spending in the healthcare was 14.33 core on average. The
bank has spent around 0.82 crore every year on environmental sustainability activities. The amount spent on
eradicating poverty ranged from 1 crore to 13.17 crore in five years. The average spending was 4.83 crore in
this bank. The average amount spent by the bank in 2018-19 was 215.48 crore. The spending on this project
has shown an increasing pattern as the spending has increased in every year.
The Figure 3 depicts the total spending by HDFC in different years on different activities. The figure clearly
indicates that the bank has focused on rural development project followed by promotion of education, skill
training and livelihood generation, healthcare, poverty eradication, financial literacy and environmental
sustainability. The table shows that the bank has spent very little amount on environmental sustainability.
CONCLUSION
The tables and figures shown in this paper depict the CSR activities by the HDFC bank during the year 201415 to 2018-19. It is clear from the analysis that the bank has failed to spend the money in certain areas such as
environmental sustainability. When we see the CSR budget, we can say that the CSR budget as well as
spending on CSR has increased every year. This also depicts that the profits of the bank has increased every
year. The CSR budget was 197.13 crore in 2014-15 which increased to 439.2 crore in 2018-19. Considering
the sector-wise performance, around 75% spending is on rural development activities followed by education
and skill development which constituting 10-10 percent. The poor spending of bank towards environmental
sustainability is a matter of concern. We can say that bank has only focused on rural development activities
along with a little bit of educational and skill development activities.
On the whole, it can be concluded that the bank is doing a good job to create relation with the society. The
major focus areas of the bank are rural development, education promotion and skill training and livelihood
enhancement. The bank is making efforts to generate more employment opportunities. The bank has recorded
its name in Guinness book of world record for collecting highest unit of blood in a single day. To focus on
environment, the bank has reduced paper usage through internet and mobile banking and initiated solar ATMs
at several places.
REFERENCES




Sharma, E., & Mani, D. (2013). Corporate Social Responsibility: An Analysis of Indian Commercial
Banks. Aima Journal Of Management And Research, 7(1/4).
Kaur, S. (2016). A Study on Corporate Social Responsibility (CSR) in Indian Banking Sector. International
Journal Of Current Research, 8(11), 42604-42606.
Dutt, R., & Grewal, H. (2018). Corporate Social Responsibility (CSR) in Indian Banking Sector: An
Empirical Study on State Bank of India Limited. Amity Journal Of Corporate Governance, 3(1), 35-45.
Narwal, M. (2007). CSR Initiatives of Indian Banking Industry. Social Responsibility Journal, 3(4), 49-60.
doi: 10.1108/17471110710840233
14
Contemporary Issues in Banking, Insurance and Financial Services









Dhingra, D., & Mittal, R. (2014). CSR Practices in Indian Banking Sector. Global Journal Of Finance And
Management., 6(9), 853-862.
Impact of Corporate Social Responsibility Initiatives of Indian Banking Sector. (2014). International
Research Journal of Business and Management, 7(12).
Corporate Social Responsibility In Indian Banking Industry: Study On Attempts Of Hdfc Bank.
(2016). International
Journal
Of
Research-Granthaalayah, 4(8),
62-74.
Doi:
Https://Doi.Org/10.29121/Granthaalayah.V4.I8.2016.2564
Hooda, R., & Chhikara, K. (2019). Corporate Social Responsibility In Maharatna Companies. International
Journal of Research And Analytical Reviews, 6(1), 561x-568x
Bowen, H., Bowen, P., & Gond, J. (2013). Social Responsibilities of the Businessman (pp. 1-245). United
States of America: University of Iowa Press.
CSR Amendments 2019 - Companies Act 2013 - IndiaFilings. (2019). Retrieved 12 September 2019, from
https://www.indiafilings.com/learn/csr-amendments-2019/
Mitra, N., & Schmidpeter, R. (2017). Corporate Social Responsibility in India (p. 238). Cham: Springer
International Publishing. Doi:10.1007/978-3-319-41787-3
What is CSR? | UNIDO. (2019). Retrieved 12 September 2019, retrieved from https://www.unido.org/ourfocus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporateresponsibility/corporate-social-responsibility-market-integration/what-csr
Collier, E.,(2018). Corporate Social Responsibility for Your Business. Retrieved 12 September2019, retrieved
from https://www.highspeedtraining.co.uk/hub/importance-of-corporate-social-responsibility/
15
Contemporary Issues in Banking, Insurance and Financial Services
Impact of Working Capital Management on Profitability and
Liquidity of Public Sector Banks in India
Nirmala Devi, Assistant Professor,
Department of Commerce,
S.U.S.Govt. College, Matak Majri, Indri, Karnal
Abstract
Working capital management is an important aspect in firm’s financial management decision. An optimal
working capital management is expected to contribute positively to the creation of the firm value. To reach
optimal working capital management firm manager should control the trade-off between profitability and
liquidity judiciously. Main purpose of this study is to measure the liquidity position of the major public sector
banks and relationship between profitability and liquidity to know managerial efficiency of working capital.
For analyzing the data, ratio analysis and various statistical tools and techniques were used. The data for
analysis covering the period (2016-2020) is collected from the financial statements published in the annual
reports. It was found that the position of working capital management of the company is sound. It is also
found that there is significant positive relationship between profitability and liquidity of SBI and negative
relationship between the two is negative.
Keywords–Banking sector in India, working capital management, return on assets, cash deposit ratio,
liquidity and profitability of banks
INTRODUCTION
Banking sector perform an essential role in business sector and economy of any country. Bank is a financial
institution which deposits the saving of public and gives loan to people, other institutions, organization and
Govt. etc. and also make investment to get the return. Thus, to get maximum benefit there is need to effective
use of resources. To achieve maximum benefit, the bank should find out the highest level of funds to fulfil the
short term obligations and then make the investment of further funds and also have some funds to get gain
form investment opportunity. The Indian banking system consists of 12 public sector banks, 22 private sector
banks, 45 foreign banks, 43 regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative
banks as of 1st April,2020. Public sector banks’ assets stood at Rs 72.59 lakh crore (US$ 1,038.76 billion) in
FY19. During FY16-FY20, lending increased at a CAGR of 13.93 per cent total deposits increased at a
CAGR of 6.81 per cent. Banking service contributes to economic growth by producing the financial means to
facilitate production in other industries (Rajan & Zingales, 1998; Levine, 1998). However, the banking firms
sometimes find it difficult to finance its operation. This financing problem also affects the management of
working capital of the individual banks which intend affect their level of profitability (Goddard et al., 2004).
Banks throughout the world have mandatory liquidity position to maintain in addition to ensuring that they
have enough liquid funds to meet customer withdrawals.
Working capital management is related to short-term financial planning of cash level or liquidity, which tends
to underscore smooth running and operational performance of firms. Working Capital Management is a
measure of ability to meet short term financial obligations (Gitman, 2005). It entails management of current
assets and current liabilities and has direct impact on the profitability of the firm (Dash and Ravipati, 2009).
Working Capital of a Bank simply represents the operating liquidity available to run the bank. Thus, efficient
working capital management is known to have many favourable effects: it speeds payment of short-term
16
Contemporary Issues in Banking, Insurance and Financial Services
commitments on firms (Peel et. al, 2000); it facilitates owner financing; it reduces working capital as a cause
of failure among smallbusinesses (Berryman, 1983); it ensures a sound liquidity for assurance of long-term
economicgrowth and attainment of profit generating process (Wignaraja and O’Neil,1999); and it
ensuresacceptable relationship between the components of firms working capital for efficient mix
whichguarantee capital adequacy, (Osisioma, 1997).
Profitability may be defined according to Weston and Brigham (1977) as the net surplus of a large number of
policies and decisions. Where a firm expends a large chunk of capital into current assets, it impacts funding of
other areas which ultimately affects profitability. Likewise, when current liability is withdrawn either in form
of delay in payment of creditors, this also affects the image of the firm culminating in a decline in its overall
profit. It is argued that efficient working capital impacts profitability positively while excessive investment in
current assets reduces profitability (Vishnani, 2007).
The crucial part in managing working capital is required maintaining its liquidity in day to day operation to
ensure its smooth running and meats its obligation (Eljelly, 2004). Bank Liquidity simply means the ability of
the bank to maintain sufficient funds to pay for its maturing obligations. It is the bank’s ability to immediately
meet cash, cheques, other withdrawals obligations and legitimate new loan demand while abiding by existing
reserve requirements without distorting the profit making ability and operations of the bank (Olarewaju and
Adeyemi, 2015).
Thus in banking sector, the liquidity management is significant element that will be considered to determine
the bank’s profitability. Liquidity management is essential for banks effectiveness and profitability.
REVIEW OF LITERATURE
Several studies were available in analyzing working capital management and profitability, but in
India it was comparatively low. Some of the studies both in India and foreign are presented here:
The study by Reddy and Patkar (2004) revealed a negative association between liquidity and profitability. The
study suggested for making investment in current assets judicially and also to maintain good credit
management in both companies. Similarly, Eljelly,A. (2004) revealed a significant and negative relation
between profitability and liquidity measures. R. Devaraj (2014) showed that poor working capital
management of both the banks. The overall performance and working capital management of ICICI Bank is
better than the HDFC Bank. Benjamin Yeboah and Michael Yeboah (2014) find that cash conversion cycle is
inversely related to bank’s profitability and leverage of the banks exhibit statistically significantly a positive
impact on banks’ profitability.
Chitra, M.M. et al (2017) indicate a better balancing of capital structure and working capital management by
the Canara Bank during the last six years. Wang, et. al (2020) found that overall WCM is negatively
associated with firm performance. They suggested that firms required customized WCM policies and WCS to
attain sustainable financial performance at each stage of firm life cycle.
OBJECTIVES AND RESEARCH METHODOLOGY
This study analyzed the major aspects of working capital, current assets and current liabilities of public sector
banks in India. This study was aimed to achieve the following objectives: (1) To know the liquidity position
of selected public sector banks in India.; and (2) to find out the effect of different components of working
capital management on profitability.
17
Contemporary Issues in Banking, Insurance and Financial Services
There are two binary concepts relating to working capital: 'gross' and 'net' used in measuring profitability and
liquidity respectively. In the present study net concept of working capital is used to study the working capital
aspect of the company. The study is confined to a period of 5 financial years ranging from (2016-2020). The
present study is based on secondary data. For the secondary data, published annual reports of the selected
companies for the relevant periods have been used extensively. The annual reports contain the results of past
performances and are considered the most reliable sources of financial data of business enterprise. The basic
data for the study has also been collected from different newspapers like Business Standard, Economic Times
and Business sources such as www.indiainfoline.com, www. bseindia.com.
Tools of Analysis
In the course of analysis, the study has used the following ratios:
Accounting Ratios used
Profitability Ratios: For this research various profitability ratios are used for analysing the performance of
selected private banks and public banks. This are as follow:
Return on Asset: Net profit to total asset shows the proficiency of the banks in using their assets in producing
profits. A higher ratio demonstrates the better pay producing limit of the assets and better productivity of
administration in future.
𝑵𝑬𝑻 𝑷𝑹𝑶𝑭𝑰𝑻
Return on Asset Ratio= 𝑻𝑶𝑻𝑨𝑳 𝑨𝑺𝑺𝑬𝑻𝑺
Liquidity Ratios: For the analyzing of liquidity of selected public banks and private banks following ratios
will be computed
Credit to Deposit Ratio: This ratio indicates how much of the advances lent by banks are done through
deposits. It is the proportion of loan-assets created by banks from the deposits. Deposits would be in the from
term deposits. The outcome of this ratio reflects the ability of the bank to make optimal
use of the resources.
𝑻𝑶𝑻𝑨𝑳 𝑨𝑫𝑽𝑨𝑵𝑪𝑬
𝑻𝑶𝑻𝑨𝑳 𝑫𝑬𝑷𝑶𝑺𝑰𝑻
Credit-Deposit Ratio=
Cash Deposit Ratio: This ratio indicates how much of the cash lent by banks is done through deposits. It is the
proportion of cash transaction. Deposits would be in the form term cash. The outcome of this ratio reflects the
ability of the bank to make optimal use of the resources.
𝑪𝑨𝑺𝑯 𝑨𝑵𝑫 𝑩𝑨𝑵𝑲 𝑩𝑨𝑳𝑨𝑵𝑪𝑬
𝑻𝑶𝑻𝑨𝑳 𝑫𝑬𝑷𝑶𝑺𝑰𝑻
Cash/Deposit Ratio =
Statistical tools
Average (Arithmetic Mean): - Average or arithmetic mean gives a single value to describe the whole data.
Simple arithmetic mean of each data series of different tables have been obtained by adding the values of all
observation and dividing it by the number of observations, symbolically:
n

X
Where
X
X
j 1
N
j
i

X 1  X 2  X 3  ....  X n
N
is used to denote the sum of all the X j 's from j  1
observations.
18
to j  n , and N is the number of
Contemporary Issues in Banking, Insurance and Financial Services
Standard Deviation: - Standard Deviation is the most satisfactory scientific method of dispersion used in
statistical analysis. The standard deviation measures the absolute variability. The greater the amount of
variability the greater will be the standard deviation. A small standard deviation means a high degree of
uniformity of the observation as well as homogeneity of a series.

x
2
N
S.D. or

or
 X  X 
2
N
Here  = Standard deviation, ∑ 𝑥 2 =sum total of the square of
deviation, X = mean value,
X  X 
=
deviations from mean value N =
number of items
Correlation: - The correlation analysis refers to the techniques used in measuring the closeness of the
relationship between the variables. For example, there exists some relationship between bank credit and net
working capital of HCL Info systems.
r
N  XY    X   Y 
N  X 2    X   N Y 2   Y 
2
2
't' test: - The t-test is used when sample size is 30 or less. To test the hypothesis that the correlation coefficient
of the population is zero i.e. the variables in the population are uncorrelated we have to apply the following
formula: -
t
r
1 r2
 n2
Here t is based on ( n  2 ) degree of freedom. If the calculated value of t exceeds t0.05 for ( n  2 ), df, we
say that the value of r is significant at 5% level.
19
Contemporary Issues in Banking, Insurance and Financial Services
ANALYSIS AND PRESENTATION OF DATA
The study under consideration judges the working capital management of SBI and PNB for achieving the
above said objectives of the study, the published data has been employed. Data collected from various
secondary sources have been presented in the form of one or more tables.
Table-1 Profitability Position of State Bank of India (₹ in crore)
Year (ended on 31st
Net Profit
Total Assets
March)
2016
9950
2357618
2017
10484
2705967
2018
-6547
3454752
2019
862
3680914
2020
14488
3951394
Average
5847.4
3230129
S.D.
8536.17
672663.9
Source: Compiled from published annual reports
Return on Asset Ratio
(In%)
0.42
0.38
-0.19
0.02
0.37
0.2
0.27
Table-2. Profitability Position of Punjab National Bank of India (Return on Assets Ratio)
(₹ in crore)
Year (ended on 31st
March)
Return on Asset Ratio
(In%)
Net Profit
Total Assets
2016
-3974
703846
-0.60
2017
1325
720330
0.18
2018
-12283
765830
-1.60
2019
-9975
774950
-1.28
2020
336
830666
0.04
Average
-4914.2
751833.2
-0.65
S.D.
6068.0949
61375.9172
0.78531522
Source: Compiled from published annual reports.
20
Contemporary Issues in Banking, Insurance and Financial Services
Table-3. Liquidity Position of State Bank of India (Cash to Deposit Ratio) (₹ in crore)
Cash and Bank
Cash Deposit Ratio
Year (31st March)
Total Deposit
Balance
(In%)
2016
167468
1730722
9.67
2017
171971
2044751
8.41
2018
191898
2706343
7.09
2019
222490
2911386
7.64
2020
251096
3241620
7.74
Average
200984.6
2526964.4
8.11
S.D.
35430.7508
623943.306
0.990177
Source: Compiled from published annual reports.
21
Contemporary Issues in Banking, Insurance and Financial Services
Table-4. Liquidity Position of Punjab National Bank of India (Cash to Deposit Ratio) (₹ in crore)
Year (ended on 31st
Cash Deposit Ratio
Cash and Bank Balance
Total Deposit
March)
(In%)
2016
73641
553051
13.31
2017
88131
621704
14.17
2018
95462
642226
14.86
2019
75288
676030
11.14
2020
75993
703846
10.79
Average
81703
639371.4
12.85
57602.7869
1.813954
S.D.
9609.64924
Source: Compiled from published annual reports.
Table 5: Correlation Between Liquidity and Profitability in case of SBI and PNB
State Bank of India
Punjab National Bank
Year
CD
ROA
Year
CD
ROA
2016
9.67
0.42
2016
13.31
-0.60
2017
8.41
0.38
2017
14.17
0.18
2018
7.09
-0.19
2018
14.86
-1.60
2019
7.64
0.02
2019
11.14
-1.28
2020
7.74
0.37
2020
10.79
0.04
.760
-0.199
CONCLUSION
By analyzing the five years data of SBI and PNB, it is clear that Profitability performance (ROA)
and Liquidity positions(Cash Deposit Ratio -CD) are fluctuating and there is positive high degree
correlation between profitability and liquidity of SBI but negative correlation found negative in case
of of PNB during the study. Referring the objectives of the study the overall working capital
performance is found to be satisfactory for the study period. The firm has shown significant
improvement in the performance in terms of liquidity and profitability aspects. However, there is
need for improvement in some ratios related to profitability and liquidity in order to enhance the
short term position to the greater level.
22
Contemporary Issues in Banking, Insurance and Financial Services
REFERENCES






Reddy.Y.V. and Patkar, S.B (2004) “Working capital and liquidity management in factoring A comparative
study of SBI and Canbank factors” The Management Accountant. 39; 373-378.
Eljelly,A. (2004), “Liquidity-Profitability Trade off: An Empirical Investigation in an Emerging Market.”
International Journal of Commerce & Management. 14 ( 2), 48-61.
Benjamin Yeboah and Michael Yeboah(2014) “The Effect of Working Capital Management of Ghana Banks
on Profitability: Panel Approach” International Journal of Business and Social Science, 5(10).
R. Devaraj (2014), “A Comparative Study On Performance and working Capital Management Of ICICI And
HDFC Banks” Shanlax International Journal of Commerce, 2( 3).
M.M.Chitra, M.Thilagam , R.Jaishree (2017) “A Study on Working Capital Management of Canara Bank”
Scope International Journal of Science, Humanities, Management and Technology,3 (4), 162 - 168.
Z. Wang, M. Akbar and A. Akbar(2020), “The Interplay between Working Capital Management and a Firm’s
Financial Performance across the Corporate Life Cycle” Sustainability, 12, 1661.
23
Contemporary Issues in Banking, Insurance and Financial Services
Comparative Analysis of Capital Adequacy Ratios of BRICS Nations
Arvinder Kaur
Assistant Professor, Chandigarh University
arvinderkaurcs@gmail.com
Abstract
Capital adequacy ratio (CAR) which is among the indicators to guarantee that banks' financial stability
withstands a fair loss rate. BRICS term is used as an economic union of Brazil, Russia, India, China& South
Africa. In 2001, Jim O'Neill of Goldman Sachs initially predicted the BRIC countries to be the quickest
business economies. Economists expect that by 2050 these four countries will become dominant producers of
consumer goods, services and raw materials due to low labour and manufacturing rates. This research focuses
on the comparative analysis of the capital adequacy of the BRICS nation. A bank with a high capital adequacy
ratio is found to exceed the minimum criteria for solvency. The higher the CAR of a bank, the more likely it
would be to survive a financial crisis or other unintended losses.
Key Words: Capital adequacy ratio, BRICS, performance indicator.
INTRODUCTION
Capital adequacy standards existed for a long time, but the International Settlements' Basel Committee laid
out the standard for computing capital adequacy ratios. The Basel norms suggest the minimum CAR which
banks should maintain. The use of minimum ratios of capital adequacy promotes the financial system's
integrity and effectiveness by reducing the risk of bank insolvency. Following the financial crisis, regulatory
agencies have made attempts to strengthen banks. Governments in the developing world are pressing for more
resources by growing their balance sheets, and if they are unable to collect more funds, they are asked to
reduce the number of risk assets (loans) in their books.In 2010 a global regulatory structure was released by
the global central Bankers, jointly embodied by the Bank of International Settlements (BIS), which lifts the
minimum capital threshold, among other things, from 4% to at least 7% of risk-weighted assets, of a bank
(Hanke, 2013). The study's primary objective is to assess India's position in terms of capital adequacy among
BRICS nations. Depending on its results, recommendations would be made to strengthen some aspects of
banking institutions' financial stability and the economy.
OBJECTIVESAND RESEARCH METHODOLOGY


To determine India's position on BRICS countries' capital adequacy. nation.
To suggest the measure to improve certain aspects of banking institutions & the economy's financial stability.
In sync to above objectives, the study made an attempt to test the following hypothesis:
Ho : There is no significant difference between the capital adequacy ratio of the BRICS nations.
The main aim of the study is to evaluate the capital adequacy ratio of Indian banks vis a vis other BRICS
nation. The secondary data is used in this research paper which is collected from website of RBI. The data of
all BRICS nation, i.e., Brazil, Russia, India, China & South Africa, is taken for eight years ranging from 2011
to 2018. The ANOVA technique is applied to compare all nations' & finding out India's position.
24
Contemporary Issues in Banking, Insurance and Financial Services
LITERATURE REVIEW:
The principal objective of bank capital adequacy conditions is to create a buffer towards any risk (Fonseca
and Gonzalez 2010). Over the last two decades, capital requirements have substituted reserve requirements as
the main limitation upon banks to prevent some systematic emergency and for investors to examine banks.
Capital adequacy as a definition existed in the banking sector until the age of regulated capital and several
kinds of literature remain concerning both the capital adequacy ratio (CAR) and its determinants. It emerged
in the mid-1970s as banks' lending operation grew, without a corresponding capital raise, as the capital ratio
determined by gross capital divided by total assets (Al-Sabbagh, 2004). The global debt crisis developed, and
one of the largest banks in the Americas, the Franklin National Bank, failed (Koehn & Santomero, 1980).
These incidents prompted regulators to emphasis additional monitoring protocols and improve new standards
and strategies for avoiding bank insolvency (Al-Sabbagh, 2004). The adequacy of capital usually concerns
both institutions. However, it is most commonly used to discuss companies' status in the finance sector and
whether companies have adequate resources to offset their challenges (Abba, 2013). A critical topic that
gained substantial financial literacy coverage is the capital adequacy ratio for banking organizations.
Bodla and Verma, Richa (2009) analyed the capital adequacy ratios of Indian Banks as worked out on the
lines of CAMEL Model (recommended by Padmanabhan Working Group in 1995). The reference period for
the study ranges from 1991-92 to 2007-08 i.e., of 17 years, which is further divided into three sub-periods:
1992-97, 1998-2003 and 2004-2008. It is found from the analysis that majority of scheduled commercial
banks in India are maintaining Capital Adequacy ratio above 9 percent irrespective of their ownership pattern.
While in terms of CAR Foreign Banks (FBs) have the edge, the Public Sector Banks (PSBs) enjoy the same in
terms of ratio of Government Securities to Total Investments. However, the Debt/Equity Ratio is found the
lowest in the case of Private sector banks (PBs). Advance to Asset Ratio has increased significantly in case of
domestic banks during the last five years. Based on the results of this study, interestingly, it is obvious that
most of the banks in India are capable of absorbing additional requirement of capital under Basel regime.
Capital adequacy defined as an indicator of bank risk exposure, according to Al-Sabbagh (2004). Banks' risks
re-categorized as different risks, including credit risk, market risk, interest rate risk, and exchange rate risk
included in the CAR estimation. Regulatory bodies thus used the capital adequacy ratio as an effect
adequately and security" measure for banks and libraries since they regard capital as a guardian or cushion to
take away losses (Abdel-Karim, 1964). The goal of capital adequacy is to promote financial stability, and
therefore the position of an individual entity in and around the world is financial stability since the system
improves the amount of risk involved in bank operations. One of the most critical discussions currently
ongoing in financial sectors is the highly growing relationship between banking operations domestically and
other financial division parts. The likelihood that non-bank activities could threaten financial stability assesses
banks' risk level businesses. Yu Min-Teh (1996) examined the extent of bank capital adequacy as the level at
which the deposit insurance fund would breach individual banks' deposit guarantees with a premium paid by
the bank. He used data from Taiwan depository institutions for calculating equal capital adequacy during
1985–1992. The capital specified as the contrast between assets and deposits by Sharpe (1977), so the more
significant the ratio of capital to assets (or the capital-to-deposit ratio), the more secure the deposits are. Since
capital was available, deposits were "secure enough." His theory was that if, in future, the value of the assets
of an organisation decreases, the deposits would usually be better because the more significant the present
value of the assets compared to the value of the deposits. In his research, Dowd (1999) found that financial
25
Contemporary Issues in Banking, Insurance and Financial Services
institutions' minimum capital requirements improve deposit security and banking system robustness. Harold
(1999) also found that Dowd had the same outcome as various regulators and depositors worried about the
stability of the deposit insurance system. In his analysis, existing bank risk capital criteria were added to
current credit union data to determine the credit union's risk-based capital strength. Many scholars have been
focusing on the adequacy of money. A variety of scholars have provided insights into the adequacy of
finance, both theoretically and empirically. This paper provides a short overview of studies focusing on
developing and global capital markets. Modigliani and Miller (1958) show the proficiency of financial
markets and the composition of wealth. Santomero and Watson (1977) suggest that too strict a management
of capital means that banks will slash their credit bid, leading to a decline in profitable investment (Barrios &
Blanco, 2003).
DATA ANALYSIS:
Table 1 Capital Adequacy Ratio of Banks of BRICS Nations
2011
2012
2013
2014
2015
2016 2017
2018
Brazil
16.3
16.4
16.1
16.7
16.4
17.2
18.1
18
China
12.7
13.3
12.2
13.2
13.5
13.3
13.6
14.2
India
14.2
14.2
13.9
13
13
13.3
13.7
13.8
Russian
14.7
13.7
13.5
12.5
12.7
13.1
12.1
12.2
South Africa
15.1
15.9
15.6
14.8
14.2
15.9
16.3
16.1
Figure 1 and table 1 represent India’s position among BRICS nations in terms of Capital Adequacy Ratio. We
can see that India’s banks have lower CAR as compared to Brazil and South Africa but higher than Russia
and China in majority of the years under study. Whereas Brazil is leading all nations in terms of capital
adequacy which demonstrates less leverage is used by the banks against reserves to lower the chances of
insolvency. Indian banks should not more rely on leverage to meet their customer demand & should have to
increase their capital base.
CAR
20
15
10
5
0
2011
2012
Brazil
2013
China
2014
2015
India
Figure-1 Indicating CAR of Banks in BRICS nations
26
Russian
2016
2017
South Africa
2018
Contemporary Issues in Banking, Insurance and Financial Services
South Africa follow Brazil which also maintaining sufficient capital adequacy ratio throughout all eight years.
Russia performed well from 2011 to 2014, but after 2014 its performance started deteriorating & reaches at
lowest position till 2018. But, China had very less capital adequacy as compared to other group nations till
2013, but it started recovering from 2013 & reaches at third position in year 2018 by maintaining Basel norms
for capital adequacy.
Table 1 A: Descriptive and ANOVA based on table 1
Brazil
China
Russian
India
South Africa
Total
Result
Details
N
∑X
Mean
∑X2
Std.Dev.
8
135.2
16.9
2289.2
0.782
8
106
13.25
1407
0.597
8
109.1
13.637
1489.5
0.487
8
104.5
13.062
1370.4
0.878
8
123.9
15.487
1922.5
0.724
40
578.7
14.468
8478.7
1.652
Source
Between-nations
Within-nations
Total
Sum of Square
88.8215
17.5062
106.3278
df
Means of square
4
22.2054
35
0.5002
39
F = 44.3949
The above results show that the f-ratio value is 44.3949 & the p-value is < .00001. It means the F-ratio is
significant at p < .05, so the null hypothesis is rejected. Hence, there is significant variance in the CAR ratio
of various constituents of BRICs. That shows distressing situation in terms of Indian banks' performance in
CAR, as India among BRICS nations manifests the poorest average and highest standard deviation.
CONCLUSION AND SUGGESTION
The main objective of the present paper is to investigate BRICS nation’s performance in terms of capital
adequacy ratio and comparison with India’s position of CAR. A core principle of banking regulation is to
provide regulators with standards or guidance to prohibit financial institutions from incurring risk-weighted
assets (lending) over and above their respective risk control capabilities and capital adequacy. Simply put, the
ratio of capital adequacy ('CAR') as the equity ratio of a bank to its credit exposures is represented. The
research shows a distressing situation in terms of Indian banks' performance in CAR, as India among BRICS
27
Contemporary Issues in Banking, Insurance and Financial Services
nations manifests the poorest average and highest standard deviation. Hence, it becomes crucial for the RBI to
operate upon thriving policy implementation for enhancing CAR.
Banking institutions in the world today face an implicit insolvency threat. Although the banks are so heavily
leveraged, it might happen at any time if the market finds its assets to be insufficient. From the standard point
of view of banks' solvencies and their defence from unfair incidents arising from liquidity risk and the credit
risk that banks are exposed in the usual course of their business, the capital adequacy ratio is significant. The
banks' solvency cannot be left to the financial sector alone since banks have savings on their deposits for the
whole economy. Therefore, if the banking system collapsed, the whole economy would crash in no time. If
the ordinary people's assets are destroyed, the government must then step in to fund the deposit premiums. As
the government is directly concerned, the regulatory authorities are also involved in developing and executing
capital ratios. Besides, the capital levels of foreign financial institutions are also affected.
REFERENCES













Ali Shingjergji (2014). The influence of macroeconomic and banking variables on the nonperforming loans in
the Albanian banking system. Doctoral Thesis, University of Tirana. Faculty of Economy, October 2014.
Ahmad R, Ariff, A, and Michael, J.S (2008). The Determinants of Bank capital ratios in a developing
economy. CARF Working paper, Asia - Pacific Financial Markets, vol, 15, No, (3-4), pp. 255-272.
Abdel Karim, R. A. (1996). The Impact of the Basel Capital Adequacy Ratio Regulation on the Financial and
Marketing Strategies of Islamic Banks. International Journal of Bank Marketing, 32–44.
http://dx.doi.org/10.1108/02652329610151368.
Al-Sabbagh, N. (2004). Determinants of capital adequacy ratio in Jordanian banks. Master thesis, Yarmouk
University. Irbid, Jordan. 30 March.
Boudriga, Taktak, Defi (2009). Banking supervision and nonperforming loans: a cross country analysis.
Journal of Financial Economic Policy ; Vol. 1 No. 4, 2009, pp. 286-318.
Bensaid, B., Pages, H., & Rochet, J. C. (1995). Efficient regulation of bank’s solvency. Institut d'economie
industrielle, Université des Sciences sociales de Toulouse.
Berger, A. N. (1995). The relationship between capital and earnings in banking. Journal of Money, Credit and
Banking, 27, 432–456. http://dx.doi.org/10.2307/2077877
Chen, J. (2003). Capital adequacy of Chinese banks: evaluation and enhancement. J. Bank. Reg., 4(4), 320–
327. http://dx.doi.org/10.1057/palgrave.jbr.2340149
Douglas J. Elliott (2010, January 28) The importance of capital, Brookings, Retrieved
fromhttp://www.brookings.edu/research/papers/2010/01/29-capital-elliott.
Ghoshi, S., Nachane, D. M., & Sahoo, S. (2003). Capital requirements and bank behavior: an empirical
analysis of Indian public sector banks. J. Int. Dev., 15, 145–156. http://dx.doi.org/10.1002/jid.947
Harley Tega Williams (2011). Determinants of capital adequacy in the Banking Sub-Sector of the Nigeria
Economy: Efficacy of Camels. (A Model Specification with Co-Integration Analysis), International Journal of
Academic Research in Business and Social Sciences October 2011, Vol. 1, No. 3 ISSN: 2222-6990.
Leila Bateni, Hamidreza Vakilifard & Farshid Asghari (2014). The Influential Factors on Capital Adequacy
Ratio in Iranian Banks. International Journal of Economics and Finance; Vol. 6, No. 11.
Mathuva, D. M. (2009). Capital adequacy, cost income ratio and the performance of commercial banks: the
Kenyan scenario. Int. J. Appl.Econ. Finan., 3(2), 35–47.
28
Contemporary Issues in Banking, Insurance and Financial Services
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
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Morgan, G. E. (1984). On the adequacy of bank capital regulation. J. Finan. Quant. Anal., 19(2), 141–162.
http://dx.doi.org/10.2307/2330895
Rime, B. (2001). Capital requirements and bank behavior: empirical evidence for Switzerland. J. Bank.
Finan., 25, 789–805. http://dx.doi.org/10.1016/S0378-4266(00)00105-9
Richa Verma and Bodla, B S (2009).Capital Adequacy Regime in Scheduled Banks: A Case of India.Asian
Economic Review, Journal of Indian Institute of Economics, Vol. 51. No.2, August 2009, pp. 353-372.
Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.
Journal of Finance, 19(3), 325–342. Retrieved from http://www.jstor.org/stable/2977928
Tanaka, M. (2002). How do bank capital and capital adequacy regulation affect the monetary transmission
mechanism? Cesifo Working Paper. 799. Retrieved from http://ssrn.com/abstract_id=348461.
Toby, A. J. (2008). Monetary policy, capital adequacy regulation and banking system soundness in Nigeria:
empirical research findings. J. Fin. Manag. Analy., 21(1). Retrieved from http://ssrn.com/abstract=1268587
29
Contemporary Issues in Banking, Insurance and Financial Services
Customer Satisfaction towards Internet Banking: Empirical Evidence
Dr. Sunita Bishnoi
Associate Professor, DAV Institute of Management, NIT-3 Faridabad
bishnoi.sunita@rediffmail.com, Mo. No-9818212000
Dr. Deepak Kumar
Asst. Professor, DAV Institute of Management, NIT-3 Faridabad
25sharmadeepak@gmail.com, Mo. No- 9891903884
Abstract
Internet Banking is gaining increasing acceptance amongst various sections of the society. The objective of
this paper is to study the customer’s satisfaction after using Internet Banking services provided by various
banks operating in four administrative division of Haryana (Gurgaon, Rohtak, Hisar & Ambala) and Delhi. To
achieve the objective of the study primary data was collected through a structured questionnaire from the
respondents using Internet Banking Services (public, private and foreign banks). In total 750 respondents
were studied with the help of a convenience sampling method. To analyze the collected data SPSS version 19
was used. The various statistical techniques used for analysis and achieve the objectives of the study are
frequency distribution along with percentages, mean, and standard deviation. To test the null hypothesis
parametric test such as t-test and ANOVA were used. The major findings of the study reflected that internet
banking users are highly satisfied by services namely “Speed of login of your account”, “Information
provided by website is accurate”, “Functioning of internet banking” and “Confirmation of transaction”.
Further study concluded that demographic variables “Occupation”, “annual income”, “sector of bank” and
“place of residence” have significant and differentiated impact on satisfaction level of customers. The study
provides various factors and meaningful direction to bank management and decision maker to overcome their
weaknesses and make some strategies for higher customer satisfaction.
Key Words: Technology, Problems, Electronic Fund Transfer and Internet Banking.
INTRODUCTION
Technological development in banking sector has dramatically changed the banking scenario in terms
of services offered to customers. Now it has become easier and faster for settlement of baking
transaction. Automated banking has gained worldwide acceptance as a new delivery channel for
performing various banking transactions (Ayrga and Doomun, 2010). The total automation of
banking transactions ensures 24x7 days services to the customers without interruption and shatter
(Selvi D. V., 2012). Internet technology is breaking geographically and regulatory barriers, creating
new product & services, market opportunities and developing more information and system-oriented
business and management process (Daneshvar P and Ramesh H.N, 2010). Online financial
services offer consumers a set of information related benefits that favours adoption, including the
opportunities for the user to control bank account at any time and place, and access to personalised
information content for making investment and financing decisions (Manzano J.A., Navaree L. C.,
and Blas S.S. and Mafe R.C., 2009).
30
Contemporary Issues in Banking, Insurance and Financial Services
Internet banking, a service delivery method introduced in 1997 (Furst, K., Lang, W.W. and Noelle,
D.E., 2002). Banks offering their financial services over the internet are keen to accelerate the
adoption process, knowing that the cost of delivering a service over the internet is much less than
delivering the same service over-the-counter (Polatoglu V. N. and Ekin S., 2001). “Internet
banking” is to mean a bank offering its customers, the ability to transact business with the bank over
the internet. It is a web-based service that allows the banks authorized customers to access their
account information. In this system, customers are allowed to log on the banks website with the help
of identification issued by the bank and personal identification number (PIN). Banks replies the user
and enables customers to access the desired services (Uppal R. K, 2011).
E-banking reaps benefits for both banks and its customers. From the banks perspective, e-banking
has enabled banks to lower operational cost through the reduction of physical facilities and staffing
resources required, reduced waiting time in branches resulting in potential increased in sales
performance and a larger global reach (Sarel D. and Mamorstein H., 2003). From the customer’s
perspective, e-banking allows customers to perform a wide range of banking transactions
electronically via the bank’s website anytime and anywhere (Grabner-Kraeuter and Faullant,
2008). In addition, customers no longer are confined to the opening hours of banks, travel and
waiting times are no longer necessary, and access of information regarding banking services are now
easily available (Hamlet, 2000).
REVIEW OF LITERATURE
Some of the studies related to Internet Banking are reviewed as follows:
Sathyabama K. and Samundeswari R. (2019) attempted to study ‘Customer Satisfaction towards
Internet Banking Services at Thoothukudi City’. Total 120 respondent’s responses were collected by
questionnaire method. The results of this research showed that web design, convenience and security
are closely linked to customer satisfaction toward Internet banking. Further study found the
requirement of Internet banking awareness among customers, integration of banking services with ecommerce service and the entry of global players in the banking sector.
Vigneshwari S. and Rajagopalan S. (2018) investigated ‘Customer Satisfaction towards Online
Banking Services’.The study was analyzed with 350 users of online banking and analyzed by
percentage analysis and Chi-square methods of statistics. The study found that online banking
provides more convenience and flexibility to the customers. Further customers are using online
banking to carry out transactions, payments, electronic bill payment and instant access to account
statements and other bank dealings on the Internet using their bank’s secure web site. Customers’
showed their concerns of security.
Sakthivel Murugan M. (2017) conducted a study to find out the satisfaction level of customers
through Internet banking in Chennai. Study found that significantly reducing costs of delivery and
transaction access time were satisfying customers. Modern alternative delivery channels in the Internet
31
Contemporary Issues in Banking, Insurance and Financial Services
Banking are playing a key role in delivering products and services effectively and efficiently to customers at
their convenience. Further study found that delivering quality services to customers was must for gaining
highest satisfaction level. There was need for constant innovation in the banking sectors which helps to higher
customer satisfaction.
Vasan M. (2015) examined, purpose & reasons of using internet banking, satisfaction level of customers
towards internet banking and various problems faced by them while using internet banking. The primary data
of 120 customers of ICICI Bank was collected by questionnaire. The study investigated that the majority of
the internet banking users were highly satisfied by internet banking service. Further study concluded that
banks must have to work on awareness program, friendly usage of Internet banking, less charges, proper
security, and the best response to the services offered.
Bodla and Neeraj (2013) in their study on ''influence of E delivery channels on productivity of commercial
banks in India'' brought out that number of ATMs, use of Debit cards, Credit cards and extent of
computerization have increased in all bank groups during 2007 to 2012. The new private sector banks have
the largest share in off-site ATMs, while nationalised banks have the largest share in on-site ATMs. Over the
years, the percentage of off-site ATMs to total ATMs has come very near to that of on-site ATMs. The
foreign banks have an edge over domestic private sector as well as public sector banks in terms of the ratio of
their ATMs to their branches. There is a significant relationship between e-delivery channels and deposit per
branch of various bank groups except SBI group. The ratio of ‘credit per branch’ increases with the increase
in ‘percent of ATM’s to total branches’ and ‘number of debit cards’. Results also indicated that ‘percent of
ATMs to branches’ is an important variable influencing profit per branch in case of nationalized banks and
new private banks.
Singh S. (2010) investigated the use of internet banking in relation to customer relationship management. The
researcher surveyed the opinion of 400 customers of total two public and two private sector banks. Study
found that private sector banks were better as compared to public sector banks. The websites of private sector
banks were also found more attractive. Further study found that internet banking also considered an important
tool by the banks and used as a business strategy to create, retain and maintain long-term profitable customer
relationship by satisfying customers’ needs.
Poolad D. and Ramesh H. N. (2010) examined the concept of service quality and demonstrated the model of
service quality gap. Further seek to measure the gap between customer satisfaction of services and their
preference of the interpretive service in internet banking in commercial banks in India. The primary data was
collected from 102 respondents. The study found that significant differences between overall expectations and
satisfaction of customers. Customers were more concern with the ‘sufficient menu for transaction’, ‘variety of
services readily accessible’, ‘availability for business’, and ‘user-friendly system’ as important factors for the
internet banking.
Shajahan S. (2005) conducted a study on the level of customers’ satisfaction on various modes of banking
services such as internet, phone, branch and ATM in India. A total of 100 respondents across ten branches of
ICICI bank in Chennai participated in the survey. The study observed that Internet literacy in a country is the
major issue in online banking penetration in India.
32
Contemporary Issues in Banking, Insurance and Financial Services
RATIONALE OF THE STUDY
The present research will be unique study and is likely to bring fruitful results in terms of information
connected with Internet Banking services. Internet Banking services have made the banking services available
to their irrespective of the location where he/she is. The biggest issue is that how the customer is responding
to these automated services.
The study is both Exploratory and Descriptive. The objective of exploratory research is to gather preliminary
information that will help define problems and suggest hypothesis. The objective of descriptive research is to
describe things, such as the market potential for automated banking or the demographic and attitudes of
consumers who are using Internet Banking services. At the same time, it also attempts to examine the
customer’s satisfaction level while banking through Internet Banking services.
OBJECTIVES OF THE STUDY
In the review of literature, the researchers made an attempt to identify the various research gaps prevailing in
the scope of study and some areas where strategies are required. An analysis of the research gaps puts forth
research questions. These questions, however, are important to take the discussion to further level and may
also help in identifying the research objectives of the present research study; following are the objectives of
the study:
1. To study the satisfaction level of the users while using Internet Banking services provided by banks operated
in four administrative division of Haryana (Gurgaon, Rohtak, Hisar & Ambala) and Delhi.
2. To explore the relationship between demographic variables and customers’ satisfaction level by using Internet
Banking services provided by various banks.
3. To suggest suitable strategies to the banks for improvement in customer satisfaction.
Hypotheses
To achieve the aforesaid objectives, the proposed study intends to test the following null
hypotheses:
Customers’ Satisfaction towards Internet Banking services does not differ significantly on the basis of
“Gender”, “Marital Status”, “Occupation”, “Annual Income”, “Level of Education”, “Sector of the Bank ”,
“Age Group and Place of Residence’’respectively of the respondents.
RESEARCH DESIGN
Data Collection: To achieve the above mentioned objectives primary data was required and the questionnaire
method of primary data collection was used. To prepare a structured questionnaire various banks website
related to Internet Banking options were surfed. Apart from it various research papers have been studied,
which have included the dimensions of Internet Banking services. The respondents were asked to indicate
their response regarding various aspects of the Internet Banking services on a five point Likert scale.
Developing Research Questionnaire: To develop the research questionnaire various related research paper
were studied and various bank websites were surfed. A pilot survey was conducted in Gurgaon and Delhi. As
an outcome of the pilot study some of the questions and statements were amended and improved and few
questions were added while few options were modified, so that perceptual difference could be avoided as
much as possible.
33
Contemporary Issues in Banking, Insurance and Financial Services
Sampling Design and Sample Size: The population of study comprised of the users of Internet Banking
services residing in Haryana and Delhi. To achieve the objectives of the study, Delhi and four administrative
divisions of Haryana were selected to conduct survey for sampling. Four administrative divisions of Haryana
are (i) Hisar division, (ii) Rohtak division, (iii) Ambala division and (iv) Gurgaon division. To collect
information from sample selected, a stratified convenience sampling method was adopted. Study considered
total 750 respondents; out of which 600 were surveyed from four administrative divisions of Haryana (150
from each administrative division) and 150 respondents were from Delhi. Further the study also considered
sector wise representation i.e. public, private and foreign sector banks.
The determination of sample size is based on (Smith, M. F. 1983). As our population is infinite and in infinite
population total 600 respondents are considered sufficient to generalize the results. Hence here in total 750
respondents were considered to achieve the objectives of the study.
Data Analyses/Statistical tools & Techniques: The collected data further have been analyzed by using
descriptive statistics such as frequency distribution, percentages, mean scores and standard deviation. To find
out the variation of opinion among various categories t test and F test have been applied by using statistical
software SPSS version 19 for windows.
RESULTS AND DISCUSSION
The results related to banking transaction by using Internet Banking is presented with the help of
frequency distribution, overall mean (lesser the mean higher the rank) and standard deviation with
their respective ranks in table 1. The responses were obtained on the basis of 8 statements on a fivepoint scale (ranging between 1 to 5, where 1 stands for ‘very often’, 2 for ‘often’, 3 for ‘sometimes’,
4 for ‘rarely’ and 5 for ‘never’). It is clearly reflected from the table that more than 44.3 percent of
respondents very often / often use internet banking for transaction ‘Transfer funds between your
accounts’ (T 1), on the other hand as high as 44 percent of the respondents very often / often use
internet banking services for ‘shop online’(T 4). It is very much clear from the table that in total 37.7
percent of users often use internet banking for ‘transfer funds to a third party’ (T 2)’. Further 36.8
percent of the respondents either very often / often ‘pay utility bills’ (T 3) through internet banking.
Further table depicts that transaction ‘online demand draft/pay order’ (T 6) is also least used
transaction through internet banking as 75.2 percent of the respondents denied to use this transaction.
The present paragraph is an attempt to provide the details of overall mean values and accordingly their
respective ranks. The respondents admitted that transactions namely ‘transfer funds between your accounts’
(xˉ =2.81), ‘shop online’ (xˉ =2.90) and ‘transfer funds to a third party’ (xˉ =2.97) are major internet banking
transaction services used sometimes by respondents (first, second and third position respectively). On the
other hand the internet banking transactions, which are on the last position on the basis of their overall mean
values are ‘create/renew fixed/ recurring deposits online’ (xˉ =3.55) and ‘online demand draft and pay order’
(xˉ =3.89) as they are rarely used by customers.
Here it is very interesting to see that the value of the standard deviation is more than one in all the listed
transactions by internet banking, hence it can be evaluated that respondents have different point of opinions
regarding selection of various internet banking transactions.
34
Contemporary Issues in Banking, Insurance and Financial Services
Table 1: Frequency Distribution of Banking Transactions by Using Internet Banking
Sr.
Banking Transactions
1
2
3
4
5
2
3
4
5
6
7
8
Rank
(S. D.)
No.
1
Mean
Transfer funds between your
accounts (T 1)
129
203
166
182
70
2.81
(17.2)
(27.1)
(22.1)
(24.3)
(9.3)
(1.24)
Transfer funds to a third party (T 106
2)
(14.1)
177
191
179
97
2.97
(23.6)
(25.5)
(23.9)
(12.9)
(1.24)
Pay utility bills (T 3)
112
164
196
174
104
2.99
(14.9)
(21.9)
(26.1)
(23.2)
(13.9)
(1.26)
127
203
151
150
119
2.90
(16.9)
(27.1)
(20.1)
(20.0)
(15.9)
(1.33)
60
104
124
284
178
3.55
(8.0)
(13.9)
(16.5)
(37.9)
(23.7)
(1.21)
35
74
77
311
253
3.89
(4.7)
(9.9)
(10.3)
(41.5)
(33.7)
(1.11)
73
166
120
221
170
3.33
(9.7)
(22.1)
(16.0)
(29.5)
(22.7)
(1.30)
83
96
127
222
222
3.53
(11.1)
(12.8)
(16.9)
(29.6)
(29.6)
(1.32)
Shop online (T 4)
Create/renew fixed/ recurring
deposits online (T 5)
Online demand draft /pay order
(T 6)
Pay credit card dues (T 7)
Prepaid mobile recharge (T8)
1
3
4
2
7
8
5
6
Figures in Parentheses are the row-wise percentages
t-test and F-test (ANOVA)
Here it is very important to analyze the significant variation between various transactions by internet banking
and demographic variables of the respondents. For it t-test and F-test has been applied showed in table 2. In
this consideration the variation in the opinion of the respondents about first transaction ‘transfer funds
between your accounts’ (T 1) show significant variation with various categories of ‘gender’, ‘occupation’,
‘annual income’, ‘sector of bank’ and ‘place of residence’ at 1 percent level of significance, and with different
‘level of education’ at 5 percent level of significance.
35
Contemporary Issues in Banking, Insurance and Financial Services
Table 2: Results of t-test and One-way Analysis of Variance Regarding Banking Transactions by Using
Internet Banking
Demographic Profiles of Respondents
Transacti t-test Values and
ons
significance
T1
T2
T3
T4
T5
T6
T7
T8
Gender
Marital
Status
-3.986
.029
One way ANOVA (F-test) Values and significance
Occupa- Annual
tion
Income
Level of Sector of Age
EducaBank
Group
tion
Place of
Residence
22.060
20.653
3.327
22.895
1.825
17.630
(.000)** (.977)
(.000)**
(.000)**
(.036)*
(.000)**
(.122)
(.000)**
-2.808
20.226
18.887
2.888
13.941
2.658
15.224
(.005)** (.078)
(.000)**
(.000)**
(.056)
(.000)**
(.032)*
(.000)**
-2.568
-3.566
36.633
29.844
1.860
23.456
3.355
29.191
(.011)*
(.000)** (.000)**
(.000)**
(.156)
(.000)**
(.010)*
(.000)**
-2.219
-1.716
29.590
33.741
8.547
14.113
4.938
24.870
(.027)*
(.087)
(.000)**
(.000)**
(.000)**
(.000)**
(.001)**
(.000)**
-2.757
-1.545
11.326
10.920
3.389
17.974
2.525
19.606
(.006)** (.123)
(.000)**
(.000)**
(.034)*
(.000)**
(.040)*
(.000)**
-1.108
-1.416
6.139
9.466
3.350
7.141
1.490
6.402
(.269)
(.157)
(.000)**
(.000)**
(.036)*
(.001)**
(.203)
(.000)**
-3.262
-.847
18.969
17.775
5.932
38.549
2.352
43.214
(.001)** (.398)
(.000)**
(.000)**
(.003)**
(.000)**
(.053)
(.000)**
-2.093
.793
12.952
8.442
5.960
13.405
.703
33.841
(.037)*
(.429)
(.000)**
(.000)**
(.003)**
(.000)**
(.590)
(.000)**
-1.769
**significant at 1percent level & * Significant at 5 percent level (Null Hypothesis rejected)
36
Contemporary Issues in Banking, Insurance and Financial Services
The results about second internet banking transaction namely ‘transfer funds to a third party’ (T 2)
showed the wide variation of usage among respondents related to different groups of ‘gender’,
‘occupation’, ‘annual income’, ‘sector of bank’, ‘place of residence’ at 1 percent and with ‘age
group’ at 5 percent level of significance.The third transaction through internet banking namely ‘pay
utility bills’ (T 3) differ significantly with ‘marital status’, ‘occupation’, ‘annual income’, ‘sector of
bank’ and ‘place of residence’ at 1 percent level of significance while respondents belonging to
‘gender’ and ‘age group’ differ significantly at 5 percent level of significance. The significant
difference in opinion of the respondents regarding seventh transaction namely ‘pay credit card dues’
(T 7) can be observed with ‘gender’, ‘occupation’, ‘annual income’, ‘level of education’, ‘sector of
bank’ and ‘place of residence’ at 99 percent confidence level. It is very much clear from the table
that eighth transaction through internet banking namely ‘prepaid mobile recharge’ (T 8) differ
significantly with various demographic variables as ‘occupation’, ‘annual income’, ‘level of
education’, ‘sector of bank’ and ‘place of residence’ at 99 percent level of confidence, while male
and female respondents have registered significant difference of opinion at 95 percent level of
confidence.
Level of Satisfaction by Using Internet Banking
Table 3 depicts the frequency distribution, overall mean with their respective ranks (lesser the mean
higher the rank) and standard deviation about overall satisfaction level as internet banking users. The
responses were obtained on the basis of 10 statements related to the satisfaction level of customers
by using internet banking services on a five point scale (ranging between 1 to 5, where 1 stands for
‘highly satisfied’, 2 for ‘satisfied’, 3 for ‘average’, 4 for ‘dissatisfied’ and 5 for ‘highly dissatisfied).
It is obvious from the table that in total 79.7 percent internet banking users are satisfied and highly
satisfied by ‘speed of login of your account’ (S 1), while 64 percent of the users are satisfied by
‘information provided on website is accurate’ (S 2). Consequently 72.4 percent users of internet
banking admitted that they are highly satisfied / satisfied with ‘functioning of internet banking’ (S
10). On the other hand 56.6 percent of the respondents with ‘updation, policy and notice statement’
(S 3) and 56 percent of the respondents with ‘language and information’ (S 6) showed similarity in
their level of satisfaction as their respective overall mean values are same (xˉ =2.63). Here as high as
33.7 percent of the respondents have admitted that they are dissatisfied by ‘information and
intimation on transaction’ (S 7).
After discussing the frequency distribution, the present paragraph is an attempt to provide the detail
of overall mean values and accordingly their respective ranks. The respondents agreed that they are
highly satisfied by internet banking automated service ‘speed of login of your account’ (xˉ =2.18)
attained top position among all the statements of satisfaction. On the other hand view points of the
respondents, they are equally satisfied by ‘updation policy and notice statement’ and ‘language and
information’ attaining seventh rank as overall mean values are equal (xˉ =2.63). As reflected by
overall mean value of ‘information and intimation on transaction’ (xˉ =2.81), it is comparatively
giving least satisfaction and positioned on ninth place. Maximum percentage share of respondents
have fallen in satisfied or average categories as proved by their overall mean values are between (xˉ
=2.18 to xˉ =2.81). Here it is very interesting to analyze the value of standard deviation which is
37
Contemporary Issues in Banking, Insurance and Financial Services
more than one in all statements of level of satisfaction through internet banking. Hence, it can be
evaluated that respondents have variation in their level of satisfaction by internet banking.
Table 3: Frequency Distribution of Overall Satisfaction Level by Using Internet Banking
Statements
1
2
Speed of login of your
174
424
account (S 1)
(23.2)
(56.5)
Information provided by
158
322
website is accurate (S 2)
(21.1)
(42.9)
Updation, policy and notice 145
280
statement (S 3)
(19.3)
(37.3)
Speed of transactions
139
304
completion (S 4)
(18.5)
(40.5)
Bank web pages functions
89
299
(S 5)
(11.9)
(39.9)
Language and information 122
298
(S 6)
(16.3)
(39.7)
Information and intimation 83
312
on transaction (S 7)
(11.1)
(41.6)
Confirmation of transaction 135
311
(S 8)
(18.0)
(41.5)
Safety, security and
155
280
accuracy of internet
(20.7)
(37.3)
banking (S 9)
Functioning of internet
177
269
banking (S 10)
(23.6)
(35.9)
Figures in Parentheses are the row-wise percentages
3
4
5
28
(3.7)
63
(8.4)
84
(11.2)
84
(11.2)
111
(14.8)
110
(14.7)
102
(13.6)
97
(12.9)
90
(12.0)
145
(19.3)
186
(24.8)
150
(20.0)
187
(24.9)
169
(22.5)
171
(22.8)
140
(18.7)
34
(4.5)
62
(8.3)
55
(7.3)
73
(9.7)
64
(8.5)
51
(6.8)
82
(10.9)
67
(8.9)
Mean
(S. D.)
2.18
(1.06)
2.50
(1.24)
2.63
(1.24)
2.61
(1.26)
2.78
(1.19)
2.63
(1.19)
2.81
(1.22)
2.59
(1.23)
Rank
85
(11.3)
164
(21.9)
66
(8.8)
2.60
(1.27)
5
81
(10.8)
152
(20.3)
71
(9.5)
2.56
(1.30)
3
1
2
7
6
8
7
9
4
T-test and F-test (ANOVA)
Bankers provide wide variety of services through internet banking to their customer in order to
satisfy them, so it is very important to analyze whether the relationship exist or not between different
statement of customers’ satisfaction and various categories of demographic variables. For this
consideration, t-test and F-test has been performed (table 4). The first statement of customers’
satisfaction by internet banking namely ‘speed of login of your account’ (S 1) showed the significant
variation in respect to ‘occupation’, ‘annual income’, ‘sector of bank’, ‘age group’ and ‘place of
residence’ at 1 percent level of significant, while the study shows that respondents belonging to
‘level of education’ is significantly associated at 5 percent level of significance.
38
Contemporary Issues in Banking, Insurance and Financial Services
Table 4: Results of t-test and One-way Analysis of Variance Regarding Overall Satisfaction
Level by Using Internet Banking
Demographic Profiles of Respondents
Statements t-test Values and One way ANOVA (F-test) Values and significance
significance
Gende Marita Occupatio Annual Level of
r
l Status
n
Income Education
Sector
of
Bank
S1
S2
S3
S4
S5
S6
S7
S8
S9
S 10
-.319
3.994
6.191
(.448)
(.750)
(.008)**
(.000)** (.019)*
(.008)** (.002)** (.000)**
-.124
-1.623
2.996
6.568
4.851
(.902)
(.105)
(.030)*
(.000)** (.002)**
(.008)** (.002)** (.000)**
.542
-.624
5.406
17.778
12.841
(.588)
(.533)
(.001)**
(.000)** (.000)**
(.000)** (.053)
(.000)**
-.679
-1.858
.560
1.454
5.032
2.282
4.407
9.544
(.498)
(.064)
(.641)
(.226)
(.007)**
(.103)
(.002)** (.000)**
-.290
.340
.332
1.200
.281
2.803
3.272
9.659
(.772)
(.734)
(.802)
(.309)
(.755)
(.061)
(.011)*
(.000)**
2.224
-3.165
3.678
2.620
1.813
3.817
3.833
6.024
(.027)*
(.002)** (.012)*
(.050)*
(.164)
(.022)*
(.004)** (.000)**
-.478
-2.115
3.025
2.118
9.125
4.398
1.501
11.481
(.633)
(.035)*
(.029)*
(.097)
(.000)**
(.013)*
(.200)
(.000)**
-.471
-1.871
3.100
5.537
10.719
6.726
2.294
3.406
(.638)
(.062)
(.026)*
(.001)** (.000)**
(.001)** (.058)
(.009)**
-2.032
-2.904
4.881
11.278
7.504
4.956
(.303)
(.004)** (.002)**
(.000)** (.000)**
(.001)** (.000)** (.001)**
-1.007
-3.007
6.558
(.315)
(.003)** (.000)**
22.515
3.334
(.000)**
(.036)*
6.291
20.549
13.476
4.884
Place of
Residence
Group
-.760
12.951
3.971
Age
4.345
4.410
2.353
8.447
8.620
6.563
12.185
2.293
(.002)** (.000)** (.058)
**significant at 1percent level & * Significant at 5 percent level (Null Hypothesis rejected)
39
11.630
Contemporary Issues in Banking, Insurance and Financial Services
The second statement of satisfaction namely ‘information provided by website is accurate’ (S 2) showed
significant difference in level of satisfaction with various categories of ‘annual income’, ‘level of education’,
‘sector of bank’, ‘age group’ and ‘place of residence’ at 1 percent, whereas difference with ‘occupation’ of the
respondents is at 5 percent level of significance.
It is also apparent from table 4 that the third statement of satisfaction ‘updation, policy and notice statement’ (S
3) differ significantly with various characteristics of ‘occupation’, ‘annual income’, ‘level of education’,
‘sector of bank’ and ‘place of residence’ as F value is significant at 1 percent level of significance.
It is evident from the results about eighth statement of satisfaction by internet banking ‘confirmation of
transaction’ (S 8) express the significant relationship among the respondents belong to various categories of
‘annual income’, ‘level of education’, ‘sector of bank’ and ‘place of residence’ at 1 percent level of
significance, while respondents belonging to different ‘occupation’ have shown significant difference at 5
percent level of significance.
The satisfaction level of customers about the tenth statement namely ‘functioning of internet banking’ (S 10)
investigated the significant association with different demographic variables as ‘marital status’, ‘occupation’,
‘annual income’, ‘sector of bank’ and ‘age group’ at 1 percent level of significance, whereas variation of
respondents belonging to ‘level of education’ is found significant at 5 percent level of significance.
MAJOR FINDINGS AND CONCLUSION
 The study analysed that internet banking users most frequently used internet banking for “Transfer funds
between your accounts”, “Shop online”, “Transfer funds to a third party” and “Pay utility bills”. The study
revealed that internet banking users are not using internet banking for transactions namely “Create/renew
fixed/ recurring deposits online” and “Online demand draft /pay order”.
 Further study found that internet banking users belongs to demographic variables namely “Occupation”,
“Annual Income”, “sector of bank” and “place of residence” have significant differences in their opinion with
all the transaction could be done with internet banking.
 Study explored that internet banking users are highly satisfied by the services namely “Speed of login of your
account”, “Information provided by website is accurate”, “Functioning of internet banking” and
“Confirmation of transaction”. On the other side internet banking users are dissatisfied because of “Bank web
pages functions” and “Information and intimation on transaction”.
 Further study concluded that consumers belongs to demographic variable namely “Occupation” and “sector of
bank” have significant differences in their level of satisfaction with all the factors of satisfaction except
“Speed of transactions completion” and “Bank web pages functions”.
 It has also been concluded from the study that different “gender” and “marital status” of the consumers don’t
have differences in satisfaction levels. Consumers showed more or less similar level of satisfaction either they
belong to different “gender” or “marital status”.
40
Contemporary Issues in Banking, Insurance and Financial Services
MANAGERIAL IMPLICATION
The automated/internet banking service environment is changing fast and very dynamic. What was relevant
yesterday may not work today. In such dynamic environment, the study offers the contemporary existing and
thinking pattern of customer about the services of banks. These contemporary factors will help banks to
rethink obsolete parameters and enhance currently desired input. The study is helpful to plug out weak areas,
which need improvement with special reference to Internet banking services provided by various banks. The
study provides meaningful direction to bank management and decision maker to improve their service quality
for higher customer satisfaction.
FUTURE RESEARCH DIRECTIONS
A number of various aspects related to Internet banking services remained unsolved in this study will form the
interesting topics for future research. The study is based on the survey of only 750 users of Internet banking
services, the future research can be conducted with a large sample size. The future research can be sector
specific, company specific or product specific.
REFERENCES
 Ayrga A. and Doomun R. (2010), “Internet Banking: A Customer-Centric Perspective for Mauritius”,
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International Research Symposium in Service Management, 2010, August, ISSN 1694-0938, pp. 1-19.
Bodla, B.S. and Neeraj (2014). Influence of E-delivery Channels on Productivity of Commercial Banks in
India. DIAS Technology Review- The International Journal for Business and IT, 11(1), pp.17-26.
Daneshvar Poolad and Ramesh H.N., (2010), “Quality of Internet Banking Service: A Study of Selected Banks
in India”, ‘NICE Journal of Business’, Vol. 5, No. 2, July-December, 2010.
Furst, K., Lang, W.W. and Noelle, D.E., (2002), “Internet banking”, ‘Journal of Financial Services Research’,
Vol. 22, No. 1/2, pp. 95-117.
Grabner-Kraeuter S. and Faullant R., (2008), “Consumer Acceptance of Internet Banking: The Influence of
Internet Trust”, ‘International Journal of Bank Marketing’, Vol. 26, No. 7, pp. 483-504, 2008.
Hamlet, C. (2000), “Community Bank Go Online”, ‘American Bankers Association, ABA Journal’, Vol. 92,
No. 3, 2000.
Manzano J.A., Navaree L. C., and Blas S.S. and Mafe R.C., (2009), “Key Drivers of Internet Banking Services
Use”, ‘Emerald Article’, Vol. 33, No. 4, pp. 672-695.
Polatoglu, V.N. and Ekin, S. (2001), “An Empirical Investigation of the Turkish Consumers’ Acceptance of
Internet Banking Services”, ‘International Journal of Bank marketing’, Vol. 4, No. 2, pp. 236-248.
Sakthivel Murugan M. (2017), “A Study On customer Satisfaction Towards Internet Banking In Chennai”,
‘International Journal of Current Advanced Research’, Vol. 6, No. 10, pp. 2341-2344.
Sarel D. and Mamorstein H. (2003), “Marketing Online Banking Services: The Voice of Customers”, ‘Journal
of Financial Services and Marketing’, Vol. 8, No. 2, pp. 106-118, 2003.
Sathyabama K. and Samundeswari R. (2019), “Customer satisfaction towards internet banking services in
Thoothukudi, India”, ‘https: //www.researchgate.net/publication/337210813’, pp. 225-230.
Selvi Darling V. (2012), “IT Enabled Banking Services in the Globalised Era”, ‘Zenith International Journal
of Multidisciplinary Research’, May 2012, Vol. 2, No. 5, pp. 232-242.
41
Contemporary Issues in Banking, Insurance and Financial Services
 Seranmadevi R. and Saravanaraj M. G., (2012), “Technology @ Indian Banking Sector”, ‘European Journal of
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Social Sciences’, Vol. 29 No. 4, pp. 472-488, November, 2012.
Seth N., Deshmukh S.G. and Vrat P., (2004), “Service Quality Models: A Review”, ‘International Journal of
Quality and Reliability Management’, Vol. 27, No. 2, pp. 336-351, 2004.
Smith, M. F. (1983), “Sampling Considerations in Evaluating Cooperative Extension Programs”,‘Florida
Cooperative Extension Service Bulletin’, PE-1. Institute of Food and Agricultural Sciences. University of
Florida.
Smith, M. F. (1983), “Sampling Considerations in Evaluating Cooperative Extension Programs”,‘Florida
Cooperative Extension Service Bulletin’, PE-1. Institute of Food and Agricultural Sciences. University of
Florida.
Uppal R.K. (2011), “E-Age Technology-New Face of Indian Banking Industry: Emerging Challenges and New
Potentials”, Journal of Science and Development Sciences, Vol. 1, No. 3, pp. 115-129, April 2011.
Vasan M. (2015), “Customers’ Satisfaction Towards Internet Banking of Icici Bank Limited - A Study In
Erode City”, ‘https://www.researchgate.net/publication/322129672’, pp. 13-26.
Vigneshwari S. and Rajagopalan S. (2018), “Customer Satisfaction towards Online Banking Services”,
‘International Journal of Pure and Applied Mathematics’, Vol. 119 No. 18, pp. 2909-2917.
42
Contemporary Issues in Banking, Insurance and Financial Services
Performance of State Bank of India: A Descriptive Study
Amita
Assistant Professor, GMN College, Ambala Cantt
Pawan Kumar
Associate Professor, University school of Business, (Chandigarh University Mohali)
.
Abstract:
State Bank of India is the largest public sector bank in India having market share of 22.5% (2019). This paper
is aimed to examine the performance of State Bank of India using various parameters. All the stake holders
expect that all commercial banks should perform excellently. In order to measure the performance of SBI,
ratioanalysis of financial statements of various years was applied in this study. Analysis of financial statement
over a period of time enables the management to identify the responsible factors affecting the changes in
deposits, advances, profit, and NPAs. Hence, this study attempts to analyze the trends in the profitability,
efficiency and asset quality of the banks for period of 2001 to 2019.
Key words: NPAs, SBI, Spread, Public Sector Banks
INTRODUCTION
Banking sector has the vital role in the development of economy and it is fastest growing sector in
India. Basically, Indian banking sector can be categorized into two time period, the era of pre
financial sector reforms and post financial sector reforms. Before 1991 government of India
nationalized 14 banks in July 1965 and 6 banks were nationalized in April 1980. In the 1993 the govt
merged the New Bank of India in to Punjab National Bank after the number of nationalized banks
reduces from 20 to 19. After economic reforms Government introduced the policy of liberalization,
Privatization and Globalization into banking as this industry ensure the growth. The banking sector
recorded better signs of improvement even during crisis of 2008-09.
The evolution of SBI goes back to the first decade of the 19th century with the establishment of the
bank of Calcutta in June 1806. After three years in January 1809 bank received its charter and
redesigned as the Bank of Bengal. A unique institution as a first joint stock Bank of British India
sponsored by the Government of Bengal. The bank of Bombay (April 1840) and Bank of Madras
(July 1843 followed the Bank of Bengal. These three banks remained apex of modern banking in
India till their amalgamation as the imperial Bank of India on January 1921. The three banks were
regulated by royal charters, which were revised from time to time. Each charter provided a share
capital, four fifth of which were privately subscribed and the rest owned by the provincial
government. The members of the board of director, which managed the affairs of each bank, were
mostly proprietary directors representing the large European managing agency houses in India. The
rest were government nominees, invariably civil servants, one of whom was elected as the president
of the board. In 1951, when the first five year plan launched, the development was of rural India
given the highest priority. The commercial banks of the country including the Imperial Bank of India
had till then confined their operations to the urban sector and were not equipped to respond to the
43
Contemporary Issues in Banking, Insurance and Financial Services
emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the
economy in general and the rural sector in particular, the All-India Rural Credit Survey Committee
recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial
Bank of India, and integrating with it, the former state owned or state associate banks. An act was
accordingly passed in parliament in May 1955 and the state bank of India was constituted on July
1955. Later the state bank of India (subsidiary banks) act was passed in 1959, enabling the state bank
of India to take over eight former state-associated banks as its subsidiaries (later named associates).
Thus state bank of India was born with a new sense of social purpose aided by the 480 offices
comprising branches, sub offices and three Local Head Offices inherited from the Imperial bank.
The SBI was destined to act as the pacesetter in this respect and lead the Indian banking
system into exciting filed of national development. Present status of SBI: Now SBI has
acquired the all-associate bank as well as Bhartiya Mahila Bank as on 1st April 2017.
Exhibit-1
Banking order (Largest to
Smallest)
State Bank of India
PNB+OBC+United Bank
HDFC Bank
Bank of Baroda
Canara + Syndicate Bank
Union+Andhta+Corporation
Bank
ICICI Bank
Axis Bank
Bank of India
Indian + Allahabad Bank
Business in Lakhs of crore
Rupees
52.1
17.9
17.5
16.1
15.2
Market Share
22.5
7.7
7.6
7
6.6
14.6
6.3
12.7
10.6
9.0
8.1
5.5
4.6
3.9
3.5
As indicated by the above exhibit SBI is the largest bank in India; therefore this bank has been selected as a
sample for study.
The major objectives of the study are as follows:
• To study the comprehensive of growth and structure of SBI.
• To examine Assets and Liabilities Portfolio of SBI.
• To analyze the financial performance of the SBI.
• To offer suitable suggestions to strengthen the position of SBI banks.
REVIEW OF LITERATURE:
Chandan and Rajput (2002) examined the strategies of public sector banks and discovered that the
performance of the public sector banks is far from foreign as well as private sector banks. Qamar
(2003) analysed the performance in terms of productivity and income parameters of public and
private banks. George (2004) used camel model to examine the execution of private sector banks
like Bank of Punjab, Centurion Bank, Development Credit Bank, HDFC Bank, IDBI bank, ICICI
44
Contemporary Issues in Banking, Insurance and Financial Services
bank IndusInd Bank Kotak Mahindra bank UTI Bank and Yes Bank of India. Shukla (2009), has
examined the current pattern of Indian banking system to know the impact on cost and benefits of 27
Public sector banks, 27 private sector banks and 29 foreign banks. Study conducted for the period of
1991-2006. Bansal (2006) examined the effect of economic reforms on efficiency of public sector
banks of India. The study analysed the capacity of banks to confront rivalry, and their mechanism for
up gradation and operational and administrative efficiency. Arora and Verma (2005) studied the
execution among the 27 public sector banks. They have assess the performance of PSB,s during
changes time frame. The information of 27 banks for the year 1992 has been taken. Arora and kaur
(2006) conducted survey for monetary execution of Indian banks after economic reforms. For this
study banks were categorized on basis of ownership and domicile. Their study included the
information for the time period of 1996-97 to 2004-05.
Rajkumar (2007), has analyzed the 28 public sector banks and collected the information relating to
salary, consumption and benefits. Prasad and Ravinder (2011) have studied financial performance
and productivity of four major banks two from public sector and two from private sector banks (SBI,
PNB, HDFC Bank and ICICI Bank). They have analysed the information for the period of 2005-06
to 2009-10). Guruswamy, (2012) assessed the performance of state bank group for the rime period
of 1996-97 to 2007-08. Author has used financial ratio to know about the trends in the productivity
and profitability f SBI and its associate banks.
Kinshuk, adhikari, Nitashree Barman and Kashyap (2014), examined the financial status of SBI for
the period of seven years, income and expenditure components has been analysed in this study.
Research concludes that there is significant difference between these components hence banks
administration should focus on diversification of income and minimize the expenditure.
Urmila Bharti and Surender Singh(2014) assessed the liquidity and profitability of commercial banks
in India. Both of parameters affecting each other’s so proper balance between two is required. This
study evaluated the performance of different categories banks like public sector, private sector and
foreign banks for the period of 2005-06 to 2011-12.
Abhay Jaiswal and Chanchala Jain (2016), examined the financial performance of SBI and ICICI.
Financial ratio analysis used to make comparison between performance of two leading banks and
they have found that SBI is performing well as compared to ICICI Bank.
Bodla (2015) conducted a descriptive study to present the magnitude and trends of non-performing
assets in India’s Scheduled Commercial Banks during 1995-96 and 2014-15. The paper highlights
the trends, status and recovery channels of NPAs in case of scheduled commercial banks. The study
brought out that the ratio of gross NPAs to gross advances went up from 2.3% in year 2008 to 4.3%,
in year 2015 in case of all SCBs. Further, in case of PSBs, the ratio of gross NPAs to gross advances
reached to the level of 5% in 2015 from 2% in 2009 and the ratio of net NPAs to net advances in
increased to 2.6% in 2014 from 0.9% in 2009.
45
Contemporary Issues in Banking, Insurance and Financial Services
RESEARCH GAP: the study is important as it is believed that almost public sector banks suffering
from NPA, s and assets management is also not in such a manner that bank can utilize its resources
effectively. At present time banks needs proper focus on productivity and utilization of resources.
SBI is the largest public sector bank which has also acquired business of 5 associate banks in April
2017. As merger of these banks its profitability and productivity affected at large. Hence this study is
an attempt to know the impact of merger of five banks on operation of SBI.
METHODOLOGY
In this study secondary from balance sheet and income statement have been collected for said period. Data
collected from RBI reports and various annual reports of SBI. Management accounting techniques like ratio
analysis has been used to find out results according to the objectives of the study.
DATA ANALYSIS AND INTERPRETATION
This section presents the description of results related to performance of SBI during last two decade.
Table 1 consists of data regarding the trend of deposits, advances, credit-deposit ratio, Investment
deposit ratio and capital adequacy ratio of SBI. The deposits and advances of the bank have
registered a CAGR of 14.8 % and 17.86 % respectively during the period 2001-19. The C/D ratio
increased from 46.8 % in 2000-01 to 86 % 2013-14. But the ratio stood at 75 % in 2018-19. In
contrast, the investment to deposit ratio has registered downtrend and it came to 36.10 % from 48.85
%. CAR has been hovering between 12 to 13.8 % in the period under study.
TABLE 1 : Deposits, Advances (Rs Crore) and CAR of SBI from 2001 to 2019
Year
Deposits
Advances
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
CAGR
242828
270560
296123
318619
367048
380046
435521
537404
742073
804116
933933
1043647
1202740
1394409
1576793
1730722
2044751
27,06,343
29,11,386
14.80%
113590
120806
137758
157934
202374
261801
337336
416768
542503
631914
756719
876579
1045617
1209829
1300026
1463700
1571078
19,34,880
21,85,877
17.86%
Credit
to
Deposit Ratio
46.78
44.65
46.52
49.56
55.13
68.84
77.45
77.55
73.11
78.58
81.02
83.12
86.93
86.76
82.44
84.57
76.83
71.49
75.08
46
Investment
deposit ratio
48.85
52.21
56.03
58.24
55.83
48.14
38.22
34.81
36.88
36.33
33.45
30.73
29.52
28.87
29.64
31.97
35.54
38.42
36.10
Capital adequacy
Ratio
12.79
13.35
13.50
13.53
12.45
11.88
12.34
13.47
14.25
13.39
11.98
13.86
12.92
12.96
12.00
13.12
13.11
12.60
12.77
Contemporary Issues in Banking, Insurance and Financial Services
Table 2 presents the position of SBI regarding Return on Assets, Return on equity and NPAs. Both
ROA and ROE of SBI have always been fluctuating. The former remained above 0.71 till 2013,
however, it got a downtrend this onward and turned negative in year 2017-18. Similar is the trend in
case of ROE which remained between 10 to 18 per cent till 2014-15, but came down to -3.37 per
cent in 2017-18. The Gross NPAs rose to Rs. 223427 crore on 31st March 2018 from Rs. 15,246
crores in 2001. However, in percentage terms Gross NPAs of SBI came down to 2.86 in 2009 from
12.93 in 2001. Unfortunately, the Gross NPA position has again become worrisome in recent years
as these are above 6.7 from the last four years. Almost similar is the trend regarding Net NPAs as
these stood at5.72 per cent on 31st March 2018 as compared to 1.63 per cent 31st March, 2011.
TABLE-2: ROA, ROE and NPAs of SBI during 2001 and 2019
Year
ROA
ROE
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
0.75
1.16
1.62
1.78
0.99
0.89
0.84
1.01
1.04
0.88
0.71
0.88
11.92
15.97
18.05
21.64
18.10
15.47
14.24
17.82
17.07
14.04
12.84
14.36
15.94
10.49
11.0
7.00
6.69
-3.37
0.39
0.97
0.65
0.62
0.42
0.38
-0.18
0.02
GROSS
NPA
Rs. Crore
15246
15875
15485
12667
12455
9628
9998
12837
15515
19535
25326
39676
51189
61605
56725
98172
112342
223427
172750
%G/NPA
NET NPA
Rs Crore
12.93
11.62
10.94
7.75
5.96
3.61
2.92
3.04
2.86
3.05
3.28
6856
6810
6183
5441
5349
4911
5257
7424
9677
10870
12174
15818
21956
31096
27590
55807
58277
4.52
4.89
5.09
4.36
6.70
7.15
11.54
7.90
110854
65894
%NET NPA
6.03
5.63
4.50
3.48
2.65
1.83
1.56
1.78
1.79
1.72
1.63
1.80
2.09
2.57
2.12
3.81
3.70
5.72
3.01
Table 3 provides the data related to important performance indicators- Spread, Net interest margin,
current and quick ratio. Interest spread reveals a constant uptrend from 2001 to 2012 but remained
range bound thereafter and found between 6 to 6.5 percent. Net interest margin, on the other hand,
indicates a declining trend as it came down to near 2 percent in recent years from 4 per cent in first
half of the first decade of the 21st century.
47
Contemporary Issues in Banking, Insurance and Financial Services
TABLE-3 Interest Income and Liquidity ratios of SBI
Year
Interest
Spread
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2.66
2.61
2.65
2.74
4.28
4.31
4.20
4.32
4.34
3.82
6.12
6.87
5.95
5.75
6.26
6.00
6.36
6.65
6.45
Net
Interest Current ratio
Margins
4.16
3.92
4.16
4.53
4.15
3.71
3.85
3.87
3.79
3.82
4.10
4.37
2.83
2.74
2.68
2.42
2.28
2.16
2.40
0.05
0.05
0.05
0.05
0.04
0.05
0.05
0.07
0.04
0.04
0.04
0.05
0.04
0.03
0.06
0.07
0.07
0.08
0.09
Quick ratio
3.04
2.97
3.17
3.51
4.79
5.50
6.52
6.15
5.74
9.07
8.50
12.05
12.15
13.81
11.02
10.89
11.94
13.83
18.06
Cash deposit
8.51
7.86
6.11
5.17
5.23
5.15
6.22
8.29
8.37
7.56
8.96
7.51
5.34
5.81
6.76
7.42
6.82
5.86
5.83
CONCLUSION
The study has revealed that SBI has continuously performed excellently in terms of various parameters. The
ROA has been above 0.8 percent for majority of time during the last two decades and it has offered above 10
percent ROE in the corresponding period except recent four years. Though, the absolute amount of NPAs
both gross and net have increased alarmingly in case of SBI, but in percent terms the situation remained under
control for many years. But in recent years there is very alarming signal in so far as non-performing assets are
concerned. The net interest margin of the bank has squeezed in recent years due to tendency of falling interest
rates in our country since last almost twenty years. Therefore, the bank needs to improve the quality of its
assets and economise the operations so as earn attractive profit and face the competition provided by private
sector banks like HDFC, ICICI and Axis Banks. The study opens future area of research regarding
comparative study of performance of top public and private sector banks.
48
Contemporary Issues in Banking, Insurance and Financial Services
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















Chandan, C.; and Rajput, P. K. (2002). Profitability Analysis of Banks in India – A Multiple Regression
Approach. Indian Management Studies Journal, June, pp. 119-129.
Qamar, F. (2003). Profitability and Resource Use Efficiency in Scheduled Commercial Banks in India: A
Comparative Analysis of Foreign, New Private Sector, Old Private Sector and Public Sector Banks. Synthesis,
Vol.1, No. 1, July-Dec. 2003, pp. 1-16.
George, R.; Charles, V. and Kumudha, A. (2004). A Camel Model Analysis of New Private Sector Banks in
India. Available at: www.google.co.in.
Arora, U. and Verma, R. (2005). Banking Sector Reforms and Performance Evaluation of Public Sector
Banks in India. Punjab Journal of Business Studies, Vol.I, No.1, April-Sep. pp. 11-25.
Arora, S.; and Kaur, S. (2008). Diversification in Banking Sector in India: Determinants of Financial
Performance. The Indian Journal of Commerce, Vol. 61, No. 3, July-September, pp. 13-21.
Rajkumar, P.K. (2007). The Earning Performance of Private Sector Banks During 2005-06. The Journal of
Accounting and Finance, Vol.21, No. 2, April September.
Goyal, R.; and Kaur, R. (2008). Performance of New Private Sector Banks in India. The Indian Journal of
Commerce, Vol. 61, No. 3, July-September, pp. 1-11.
Prasad, K.V.N. and Ravinder, G. (2011). Performance Evaluation of Banks: A Comparative Study on SBI,
PNB, ICICI and HDFC. Advances in Management, Vol. 4(2) September, pp. 43-53.
Dangi, N., & Kumar, P. (2013). Current situation of financial inclusion in India and its future visions.
International Journal of Management and Social Sciences Research, 2(8.).
Singh, C., Mittal, A., Garg, R., Goenka, A., Goud, R. P., Ram, K., et al. (2014). Financial inclusion in India:
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Chhabra, N. (2015). Financial inclusion in India Thesis. Rohtak: Maharshi Dayanand University. Retrieved
from http://shodhganga.inflibnet.ac.in/handle/10603/36960
Debasish, S. S.; and Mishra, B. (2005), Indian Banking System (Development Performance and Services),
Mahamaya Publishing House, New Delhi, pp. 101-108.
Shukla P. (2009). A Study of Recent Trends in Indian Banking System and its Impact on Cost and
Profitability of Commercial Banks, A Ph.D. thesis submitted to C.S. J. M. University, Kanpur. India. pp. 101110
Jyoti Saluja (2013). Operational and financial performance of public and private sector banks in India, A
Ph.D. Thesis submitted to Punjab University, India. pp. 171-180
https://www.mckinsey.com/global-themes/india/mastering-the-new-realities-of-indias-banking-sector
[accessed March 29 2018].
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of Management, 5(1&2), pp. 21-33.
49
Contemporary Issues in Banking, Insurance and Financial Services
FINANCIAL INCLUSION THROUGH SELF HELP GROUPS- AN
ANALYSIS
Dr. Dalbir Singh Kaushik,
AssociateProfessor, G.B.D. College, Rohtak
Mamta
Research Scholar, Department of Commerce, M.D. University, Rohtak
Email: mamtachinu1984@gmail.com
Abstract: Inclusive growth is much needed to include common people into the orbit of development. Social and
economic justice has to be provided for common people through inclusive growth. Several measures were
undertaking by the government of India and Reserve Bank of India for financial inclusion with a new to
develop all sections of the society. In order to achieve this subjective multi model approach was adopted.
Priority sector lending, Service areas approach differential rate of interest, Bank scheme issue of general
credit and Kisan Credit and so on to overcome financial hassle to get credit from financial institutions.
NABARD has started an innovative programme 1992 from a linking of the banks to Self Help Groups of rural
poor. SHG Bank linkage programme helps extensively to strengthen the poor specially women folk. SHGs
play a vital role to improve the socio-economic condition of women folk by developing thrift habit and
providing micro finance in times of need and also encouraging micro entrepreneurs. In this paper an attempt
is made to examine the performance of Self Help Groups, Bank linkage programme for financial inclusion. In
this study, secondary data has been collected. Secondary data has been collected from various sources i.e.
NABARD website, Journals and publication.
Key words: Financial Growth, Self help Groups, Bank linkage programme, Financial inclusion.
INTRODUCTION
“Gaon Bade to Desh” is the pedagogy given by national bank for agriculture for rural development
(NABARD). India is an agricultural country. In India, 70% population resides in 6,38,345 villages and
wherein over a quarter of population lives below poverty line. The world Bank report that India is still home
to some 260 to 290 million poor, numbers that upward push to 390 million if poverty is measured by the
international standard of those living on less then US$1 a day. It is envisioned that approximately 2.5 billion
people around the world live in poverty and India is a home to 1/3 of world’s poor. Families dwelling in
poverty battle to come up with the money for good enough meals, clean water or basic education. They go
without proper shelter, transport and even medicine when they are sick. Almost half of India’s poor
approximately 133 million are concentrated in 3 states namely Uttar Pradesh, Bihar and Madhya Pradesh.
Rural areas in India are home to ¾ of India’s poor that has strengthened by using the increasing urban/rural
disparities. Though many central and state Government poverty mitigation programmes are currently active in
India with an approach awareness on Infrastructure, Social Development (especially education and health)
and Rural Livelihoods but the poor reach to credit markets and formal banking system has been diagnosed as
a root cause of poverty amongst the rural poor and the most disadvantaged sections of the society. As
highlighted by the Nobel Peace Award Laureate and former Russian President Mr. Mikhail Gorbachev, the
50
Contemporary Issues in Banking, Insurance and Financial Services
imperatives for a better future are – “peace, fighting poverty, promoting global social justice and common
wealth and protecting environment”. These words indicate towards social banking. The credit needs of the
rural masses in general and rural poor in particular are meeting via rural financial markets consisting
commission agents, moneylenders and landlords etc. However, formal financial institutions have a low
penetration due to terrible infrastructure, low profitability and higher degree of risk. At this juncture,
Microfinance has been proposed as a likely solution for the maximum outreach and alleviation of poverty in
the rural poor specifically and other disadvantaged sections of the society namely women, small and marginal
farmers, and landless farmers etc. A long lasting Microfinance system with well equipped resources can assist
to stimulate the economic growth from very grass root level. Micro financing is regarded as a tool for SocioEconomic benefit in a developing country like India. Micro finance as a means of poverty alleviation can give
loans to poor individuals without sacrificing financial viability. Microfinance is one of the developmental
approaches which can contribute to achieve the National and International goal of improving the livelihoods
of poor people. Microfinance sector has grown rapidly over the past few decades. Nobel Laureate Mohammad
Yunus is created with laying the foundation of the modern Micro Finance Institutions with establishment of
“Grameen Bank”, in Bangladesh in 1976. Today, it has developed right into a massive enterprise exhibiting a
variety of business models. As credit plays a vital role in starting and expanding the business, microfinance
has been treated as an important tool for economic development. Achieving balanced and inclusive growth is
a key venture confronted by the policymaker the world over. The benefits of economic growth are accessible
to relatively advantaged sections of the society who find it easier to participate in the growth process and the
disadvantaged sections have to wait much longer to reap the benefits of economic growth. Engaging these
sections of the society in the economic mainstream is vital to attain balanced growth for which access to
formal financial services is a must.
Micro finance is a provision of monetary offerings to low-income clients or solidarity lending groups
including consumers and the self employed who lack access to banking and related services. Micro Finance is
not just about giving micro credit to the poor but it covers a wide range of basic financial and non-financial
services including micro loans, saving accounts, fund transfers, insurance, business training, counseling and
aid to assist people living in poverty who do not qualify for regular banking offerings for want of collateral
and formal identification. The borrower receives all these services at his/her doorstep and in most of the cases
with a repayment schedule of borrower’s convenience. But all this comes at a cost which is exorbitantly high
and vary widely from 10% to 30% per annum.
MEANING OF SELF HELP GROUPS
Self -help Groups can be defined as a supportive, educational, change oriented mutual aid group that
addresses life problems or commonly shared by all members who have no other resources other than their
hard labour. These SHGs enable the poor collectively to identify priorities and tackle the problems they face
in thir socio-economic environment (Priyadharishint, et.al, 2014)
The brainchild of SHGs is from the conceptual foundation of Garmeen Bank of Bangladesh, which had been
initiated by Professor Mohammed Yunus. SHGs were started and formed in 1975. The establishment of SHGs
can be traced back to the existence of one of the problematic areas around which the consciousness of rural
poor is built and the process of group formation initiated. SHGs are considered to be a new lease of life for
the women in villages for their social and economic empowerment. Since SHGs have been able to mobilize
savings from persons or groups who were not normally expected to have ‘saving’ and also to recycle
51
Contemporary Issues in Banking, Insurance and Financial Services
effectively the pooled resources amongst the members, their activities have attracted attention as a supportive
mechanism for meeting the credit needs of the poor (NABARD 2008).
The Self Help Group has been defined by NABARD as a group of about 20 people from a homogeneous class
who come together for addressing their common problems. The are encouraged to make voluntary thrift on a
regular basis. They use their pool resources to make small interest-bearing loans to their members. The
process helps them imbibe the prioritization of needs, setting terms and conditions and accounts keeping. This
gradually builds financial discipline in all of them. They also learn to handle resources of a size that is much
beyond individual capacities of any of them. The bank loans are given without any collateral and at market
interest rates. The groups continue to decide the terms of loans to their own members. Since the groups own
accumulated savings are part and parcel of the aggregate loans made by the groups of their members, peer
pressure ensures timely repayments *NABARD, 2001-02)
However, considering the Indian scenario in 1987, a study term led by NABARD (National Bank for
Agriculture and Rural Development) comprising other Indian members of APRACA (Asia Pacific Rural
Agricultural Credit Association) conducted a survey of about 40 to 50 organizations of varying sizes and
representing various activities and regions; one of them was MYRADA (Mysore Resettlement and
Development Agency) which had in place an alternative credit system owned and managed by SHGs of the
poor. An action research project on SHGs was started by MYRADA in 1987 with NABARD providing the
research and development grant. In the same year, the Ministry of Rural Development provided PRADAN
(Purchase Related Activities Data Access through Network) with support to establish self help groups in
Rajasthan. Subsequently, the pilot project of linking 500 SHGs to banks was started in 1992 with the
objective of linking and financing existing SHGs as grassroots intermediaries to banks across the country for
both savings mobilization and credit delivery. The Pilot phase was followed by setting up of a Working
Group of NGOs and SHGs by the Reserve Bank of India in 1994. The Reserve Bank of India accepted most
of the major recommendations and advised the banks to consider lending to the SHGs as part of their
mainstream rural credit operations. Hence, there was the emergence of SHGs in Indian Subcontinent.
NATURE OF SELF-HELP GROUP
Functions










Regular meeting
Compulsory savings
Credit Management
Book Keeping
Build up common fund
Community action
Programmes
Awareness and Training
Participation and
Decision making
process
Participation in local
SHG Models
self-Government
Participation micro level
Training at Gram Sabha
and Block level.
SHG is local level Institution with mission of
socio-economic and sustainable development
Characteristics


SELF HELP
GROUP
Composition





All the poor
10-20 members
At least 1 or 252
literates
Own bye-laws
Opening Group Account





Homogeneous
Voluntary in
nature
Rotation of
Leadership
Common Interest
Mutual Self-help
Non- Political
Participatory
Contemporary Issues in Banking, Insurance and Financial Services
SHG Model can be divided in three models depicted by the diagram given below :SHG
Model- II
Model – III
SHG- Bank Linkage Model
(MFI- Bank Linkage Model)
In this Model SHGs are financed
directly by commercial banks i.e.
public and private, regional rural
banks, co-operative banks and NGOs
and Government agencies like DRDA
etc.
Under this model MFIs
avail bulk loans from banks
for a lending to SHGs and
other small borrowers.
Model-1
Direct Bank Model
SHGs are formed or
promoted guided and
financed by Banks Directly.
Model- I :
Direct Bank Model :
SHPI
BANK
SHG
In this model Banks have provided financial support to Self Help Groups which had grown almost
spontaneously without any intervention of any Self help promotion Institution (or NGOs). The Self Help
Groups were initially on the basis of a common activity, problem and took up thrift and credit activities. The
cases of such linkages are of course not very common.
Model –II:
Self Help Group- Bank Linkage Model: SHPI
BANK
SHG
The most common linkage model in India is where the banks deal directly with individual SHGs. In case of
most of these Self-Help Groups, the SHPI had provided the initial training, guidance to rural poor in
organizing themselves into thrift and credit groups. In many cases, the Self Help Promoter Institutions had
also provided some initial support to these SHGs to segment their resources. The Self-help Promoter
Institutions (SHPI) also keeps a watch and ensures satisfactory functioning of the SHGs even after the
linkage. While linkage of banks is direct with the SHGs, the SHPI has an important role in pre- as well as
post-linkage stages. More than 70% of the SHGs are linked through this model.
53
Contemporary Issues in Banking, Insurance and Financial Services
Model –III
:
(MFI –Bank Linkage Model) :
SHPI
SHG
BANK
In this model, the SHPI have taken the role of a financial intermediary between the banks and a number of
SHGs. Again, the SHPIs take up such responsibilities only in respect of groups promoted by them and not for
other groups. The SHPI accepts the contractual responsibility for repayment of the loan to the bank. In this
respect it is indirect linkage support to the SHGs. This model is quite common.
CURRENT STATUS OF MICRO FINANCE IN INDIA
Micro Finance originated in India in 1969 with the nationalization of banks to see that 1% of the
profits of these banks goes to the poor towards their micro enterprise. The then Prime Minister Smt. Indira
Gandhi envisioned it to facilitate her 20 point programme to fight poverty among the poor and she called it
“Garibi Hatao”. She envisaged that credit to the poor should be an instrument of social change towards social
justice and empowerment both among the urban and rural poorer households. The Micro Finance initiative in
private sector in India can be traced to the initiative undertaken by Shri Mahila SEWA (Self-employed
women’s association) Sahakari Bank set up in 1974 by registering as an urban co-operative Bank at
Ahmedabad city of Gujrat State. The main aim of the SEWA Bank was to provide banking services to the
poor women employed in the unorganized sector encouraged by the result of field level experiments in groupbased approach for lending to the poor. It has been recognized as a decentralized, cost effective and fastest
growing micro finance intervention in the world enabling over 103 million poor household’s access to a
variety of sustainable financial services from the formal banking system by becoming members of nearly 8
million Self Help Groups. Steady progress of the project led to the mainstream of the SHG-Bank Linkage
Programme (SBLP) in 1996 as a normal banking activity of the banks with widespread acceptance.
SHG Bank Linkage programme is an effective intervention in economic upliftment and financial inclusion for
the bottom of the pyramid. A proven platform initially conceived for increasing the outreach of banking
services among the poor has since graduated to a programme for promotion of livelihoods and poverty
alleviation. All major parameters viz. the number of SHGs with savings bank accounts, amount of credit
disbursed during the year, the bank loans outstanding as well as the quantum of savings outstanding had
shown positive growth during the past Three years.SHG Bank Linkage programme is an effective
intervention in economic up-liftment and financial inclusion for those at the bottom of the pyramid. A proven
platform initially conceived for increasing the outreach of banking services among the poor has since graduate
to the programme for promotion of livelihoods and poverty alleviation. All major parameters viz. the number
of SHGs with savings bank accounts, amount of credit disbursed during the year, the bank loans outstanding
as well as the quantum of savings outstanding has shown positive growth during the past three years (table.1). The growth in number of SHGs availing bank loan and amount of institutional credit disbursed to SHGs
was 16.6 percent and 33.2 percent respectively during 2019-20.
54
Contemporary Issues in Banking, Insurance and Financial Services
Table 1: Overall Progress under SHG-Bank Linkage Programme (2014-15 to 2018-19)
(Number in Lakh/Amount in Rs. Crore)
Particulars
Total SHG Nos.
All women SHGs
SHG
Savings
with Banks
as on 31st
March
Loans
Disbursed
to SHGs
during the
year
Percentage of
Women
Of which
NRLM/SGSY
% of NRLM/SGSY
G
Of which
NULM/SJSRY
Groups
% of NULM/SJSRY
Groups
Total No. of SHGs
extended loans
All women SHGs
Percentage of
Women Groups
Of which
NRLM/SGSY
% of NRLM/SGSY
Groups
Of which
NULM/SJSRY
% of NULM/SJSRY
Groups
Total No. of SHGs
linked
Loans
No. of all Women
Outstanding SHGs linked
against
Percentage of
SHGs as on Women SHGs
31 March Of which
NRLM/SGSY
% of NRLM/SGSY
Groups to Total
Of which
NULM/SJSRY
% of NULM/SJSRY
Groups to Total
2016-17
No. of
SHGs
85.77
(8.53%)
73.22
(8.26%)
85.36
23324.48
(19.05%)
20473.55
(17.01%)
87.78
2019-20
No. of
SHGs
102.43
(2.29%)
88.32
(3.53%)
86.22
7552.70 41.84
10434.03 55.80
12867.18
(20.94%) (11.76%) (38.15%) (33.37%) (23.32%)
46.87
47.85
53.26
55.72
55.17
57.89
(3.75%)
56.52
14312.7
(11.23%)
54.73
5.45
1126.86 4.25
1350.80 4.39 (3.29%)
1614.42
(22.42%) (11.99%) (-22.10%) (19.87%)
(19.52%)
4.69
(6.83%)
1523.57
(-5.63%)
6.36
6.99
4.86
6.89
4.38%
6.92%
4.58
5.83
18.98
(3.60%)
17.16
(5.34%)
90.42
38781.16
(4.01%)
36103.13
(4.92%)
93.09
22.61
(19.13%)
20.75
(20.92%)
91.78
47185.88
(21.67%)
44558.74
(23.42%)
94.43
26.98
(19.33%)
23.65
(13.98%)
87.66
58317.63
(23.59%)
53254.04
(19.51%)
91.32
31.46
(16.60%)
28.84
(21.95%)
91.67
77659.35
(33.17%)
73297.56
(37.64%)
94.38
8.86 (8.58%)
17336.26 12.70
25055.18 16.49
33398.93
(3.28%) (43.41%) (44.52%) (29.84%) (33.30%)
46.69
44.70
56.20
53.10
61.12
57.27
20.49
(24.26%)
65.13
52183.73
(56.24%)
67.20
4.06
(-4.5%)
6.60
2685.77
(2.12%)
6.90
1.06 (0.17%)
2424.07 1.29
3419.58
(-9.41%) (21.70%) (41.07%)
4.71
5.14
4.78
5.86
1.59
(23.26%)
5.05
3406.22
(-0.39%)
4.39
48.48
(3.74%)
42.84
(6.14%)
88.36
61581.30
(7.81%)
56444.24
(9.75%)
91.66
50.20
(3.55%)
45.49
(6.20%)
90.62
87098.15
(15.21%)
79231.98
(12.54%)
90.97
56.77
(11.82%)
51.12
(14.59%)
90.05
108075.07
(24.08%)
10620.71
(27.00%)
93.10
24.91
29994.43 27.93
38225.29 32.85
54320.91
(13.69%) (12.72%) (12.13%) (27.44%) (17.62%) (42.11%)
51.37
48.71
55.63
50.56
64.70
62.37
36.89
(12.30%)
64.98
67717.07
(24066%)
62.66
3.18 (1.60%)
4133.29
(3.86%)
6.55
6.71
2.67
(18.67%)
4.70
5466.87
(32.99%)
5.06
37.44
(8.30%)
43.65
Amount
16114.23
(17.69%)
14283.42
(18.67%)
88.64
2017-18
No. of
SHGs
87.44
(1.95%)
73.90
(0.94%)
84.51
Amount
19592.12
(21.59%)
17497.86
(22.51%)
89.31
75598.45
(22.76%)
70401.73
(24.73%)
93.13
2018-19
No. of
SHGs
100.14
(14.52%)
85.31
(15.44%)
85.19
50.77
(1.14%)
44.61
(-1.93%)
87.87
Amount
2.90
5350.63 2.25
4110.73
(-8.58%) (29.45%) (-22.41%) (-23.17)
5.79
7.08
4.43
4.72
Note :- (Figures in parentheses indicate increase/decrease over the previous year)
Source :Compiled from NABARD status of microfinance of various years.
55
Amount
26152.05
(12.12%)
23320.55
(13.91%)
89.17
Contemporary Issues in Banking, Insurance and Financial Services
Table 2: Region-wise progress of Saving Linked SHGs with Banks (2017-18 to 2019-20)
Sr.
No.
A
B
C
D
E
F
Regions
2017-18
2018-19
2019-20
Northern Region
North Eastern
Region
Eastern Region
Central Region
Western Region
Southern Region
478883
485591
49293.91
32207.59
548624
523469
62452.82
40407.05
577122
556899
59549.73
48140.55
2130997
902222
1097448
3649296
441803.18
95385.11
124694.93
1215826.80
2654358
1062759
1388615
3836418
601154.88
133230.00
205275.15
1289928.25
2811130
1135083
1473853
3689236
664332.73
171217.00
201880.14
1470084.74
TOTAL
8744437
1959211.52
10014243
2332448.15
10243323
2615204.89
Source: Compiled from NABARD status of microfinance of various years.
The banks have reported an addition of 2.3 lakh savings linked SHGs at all India level registering a marginal
growth of 2.3 percent during the year 2019.20 compared to 14.5 in 2018-19. Among the different regions,
Central Region registered the highest growth of 6.8 percent followed by North Eastern Region (6.4 percent),
Western Region (6.1 percent), Eastern Region (5.9 percent) and North Region (5.2 percent), Southern Region
recorded a decline of 3.8 percent.
CONCLUSION
Self-help groups play today a major role in poverty alleviation in rural India. A growing number of poor
people (mostly women) in various parts of India are members of SHGs and actively engage in savings and
credit., as well as in other activities. The saving and credit focus in the Self Help Group is the most prominent
element and offers a chance to create some control over capital, albeit in very small amounts. The Self Help
Group system has proven to be very relevant and effective in offering women the possibility to break
gradually away for exploitation and isolation. Central and State Government poverty alleviation programmes
are currently active in India with a strategy focus on Infrastructure, Social Development (especially education
and health) and Rural Livelihoods but the poor access to credit markets and formal banking system has been
identified as a root cause of poverty amongst the rural poor and the most disadvantaged section of the society.
And the study is based on the premise that the socially excluded sections of the society i.e. rural poor in
general and women in particular can be brought to mainstream via financial inclusion.
REFERENCES




Kaathpalia, J., & Dahiya, S. (2015). Microfinance and Micro entrepreneurship: A paradigm shift for societal
development. Vista International Publishing House.
Batra, V., & Chakravarty, K. (2015). Microfinance and Micro entrepreneurship: A paradigm shift for societal
development. Vista International Publishimg House.
Batra, V. (March, 2012). Management of Governance of Self Help Groups in rural Areas: A study of
Microfinance Programmes in Haryana. IJMRS, Vol 01, Issue 01).
Chakravarty, K.C. (2012, November). Strengthening SME’s Capabilities for Global Competitiveness, RBI
Monthly Bulletim.
56
Contemporary Issues in Banking, Insurance and Financial Services






Feroze, S., & Chauhan, A.K. (2011). Microfinance in India : A performance Evaluation, New Delhi : New
Century Publications.
Tapan, N. (2010). Micro Credit, Self Help Groups and Women Empowerment, New Delhi : New Century
Publications.
Bansal, Deepty “Microfinance Self Help Group women Empowerment Income poverty Employment.”
Shodganga @ INFITBNET : Microfinance Self Help Group women Empowerment income poverty
Employment, Punjab University, 2010, Shodhgana.inflibnet.ac.in/handle/10603/3031.
Lazer, D. (2008), Micro Finance and Poverty Eradication : India and Global Experiences. New Delhi : New
Century Publications.
NABARD Annual Report 2016-17, 2017-18&2018-19
The Bharat Microfinance Report 2017
57
Contemporary Issues in Banking, Insurance and Financial Services
Implementing Social Customer Relationship Management in the
Banking Industry
Rupali Lamba
Research Scholar, University School of Management,
Kurukshetra University, Kurukshetra
E-mail: rupalilamba.kuk@gmail.com
Dr. Saloni Pawan Diwan
Assistant Professor, University School of Management,
Kurukshetra University, Kurukshetra
Abstract
Social customer relationship management is a current business trend that integrates traditional CRM with
social media technologies to provide mutual benefits to organizations and customers. The recent web
technology developments have transformed the static online society to an interactive society which has
enabled the organizations to adopt a more focused customer centric approach to serve the customers
profitably. Social CRM presents many opportunities to develop close relationship with the customers and
prospects and thus building a distinctive capability in this competitive era. Thus with the social media
revolution, the development of CRM systems to social CRM is important. Integrating SCRM into corporate
strategy is one of the ways to engage the customer. Customer engagement has been identified as the central
objective of SCRM. The engagement process leads to successful social CRM and to successful social
business. This paper outlines the concept of SCRM and with the help of secondary data it discusses how its
implementation helps the banking industry in engaging the customers.
Keywords: CRM 2.0, Customer engagement, Empowerment, Social CRM, social media
INTRODUCTION
Indian banking industry dates back to early 18th century, with the setting up of its first bank-General
Bank of India in 1786. State bank of India is the oldest public sector bank founded in 1806. After the
independence, Reserve bank of India (RBI), the regulatory bank of all banking institutions in the
country was nationalized in 1935. Indian banking industry is growing at a faster rate with a strong
base of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks,
1485 urban cooperative banks and 96,000 rural cooperative banks (IBEF Report, 2020).
Banks have played a significant role in the economic development of a country by mobilizing the
savings of the people and investing in productive channels. Banking sector is the lifeline of
businesses promoting trade, commerce and industrial growth by facilitating the movement of funds
from those who have surplus capital to those in needs. Banking is one of the biggest service sectors
in India, striving to provide better quality products and services according to the customer
requirements. With the technological advancements and changing customer preferences and the
competitive pressure from local as well as global players from within the industry and across the
58
Contemporary Issues in Banking, Insurance and Financial Services
industry, banks have shifted their focus from customer acquisition to customer retention. The
relationship between banks and the customer has changed radically, where banks in earlier times led
most of the conversations and customer just listened but with the social media revolution customer
role has changed from a passive listener to an active participant who constantly looks for
information and seek others opinions before taking a decision.
Trust is an important attribute in banking industry to build strong relationship with the customers.
But with global financial crisis and upheavals customers lost confidence in the banking operations.
To revive trust in the challenging times banks need to look out for avenues to engage the customers.
Social customer relationship management is one of the ways to reconnect with the customers. By
integrating SCRM into banking operations they can better assess their customer needs and enrich
their customer experience ultimately driving trust, confidence and loyalty. SCRM is no longer
optional for banks, it is crucial for its success.
SCRM is the use of social media services, techniques and technology to enable organization to
engage with their customers. It is customer focused approach wherein the main objective is customer
engagement through collaborative experiences and personalized conversations that customers value.
Social networking is not a brief or a momentary pattern; it is getting strong day by day. In the third
quarter of 2012, the number of Facebook users surpassed one billion, making it the first social
network site and is reaching 2.8 billion monthly active users as of the final quarter of 2020.
Facebook is the biggest social network around the world (Statista, 2020). In 2020, over 3.6 billion
people were using social media around the world, which is projected to increase to 4.41 billion by
2025. Social media is an integral part of daily internet usage. On an average internet user spends 144
minutes per day on social media and messaging apps, an expansion of half an hour since
2015(Statista 2020). This is due to the extensive use of mobile phones and low cost of internet
access. Through this social revolution in communication, organizations should re-evaluate their
methodology in terms of customer care and service. Harnessing social networks to build customer
relationships has become indispensable in today’s scenario to engage the empowered customers to
derive trust, confidence, brand building and long term profitably. This new version of managing
social customers is called social customer relationship management which is aimed at managing
customer relationship through social media platforms.
LITERATURE REVIEW
The study of existing researches show that since SCRM is relatively a new domain and numerous
studies are conducted along the lines of CRM and social media. This section briefly discusses the
studies undertaken on the subject to understand the concept further.
King and Burgers (2008) developed the conceptual model of CRM innovation and converted into
simulation model. They identified a list of critical success factors for CRM adoption in the
organizations. These are technological readiness, culture change, customer orientation and systems
integration capability.
Greenberg (2009) identified the power of real time communications in the social media environment
which enable the customers to develop relationships with the organizations. They concluded that
59
Contemporary Issues in Banking, Insurance and Financial Services
social CRM strategies in the organization need to be associated with people, processes, tools and
relevant systems to result in a mutual beneficial relationship between organizations and the
consumers. Awasthi and Sangle, (2012) focused on CRM in the multichannel environment based on
the papers published between 2006 and 2010. They categorized CRM into four themes based on the
channels of CRM implementation. These are CRM, multichannel CRM, e-CRM, and m-CRM.
Yawised et al., (2013) compared the scholarly and practioner’s perspective of social CRM. The
authors concluded that they shared some general similarities and differences. Consensus was reached
that social CRM is an extension of CRM and is aimed at customer engagement. Regarding
differences, scholarly literature focused on theoretical aspects of CRM, while practioner’s
perspective paid more attention to how the organizations need to cope up with the challenges of
social media and take advantage of the opportunities provided by such media.
OBJECTIVES OF THE STUDY
The specific objectives of this study are as follows:

To understand the conceptual framework of SCRM.

To study the mechanism of customer engagement in SCRM.

To understand the implementation of SCRM in banking industry.
RESEARCH METHODOLOGY
To achieve these objectives, data is collected from secondary sources like journal articles, research
papers, websites and online social media tools. Descriptive research design is used to carry out the
research and attempt is made to understand the conceptual framework of SCRM.
Drivers and evolution of SCRM
Social media technologies such as facebook, twitter, linkedin, you tube, google +, have become an
integral part of our daily lives. Due to ease of availability of internet access and use of smart phones,
one can click for any information, anytime and anywhere. Today’s generation is tech savvy and
enlightened; they demand personalized attention and expect quality products and services within
short time and even organizations are collaborating with them to provide them delightful
experiences while buying online. Social media has created new scope for CRM. The unique features
of social media technologies such as ease of participation, personal and real time conversations have
made the consumers perfectly suited to CRM, with better communications between organization and
consumer and among consumers themselves. Four significant factors of social media fuel the growth
of Social CRM (Trainor et al., 2014).




Conversations (applications facilitating exchanges among firms and customers and gathering
customer information);
Sharing (data tools enabling users to create, exchange, circulate and get content);
Groups (encouraging online user communities focussing on explicit topics, brands or products); and
Relationships (networks permitting users to coordinate with others).
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Contemporary Issues in Banking, Insurance and Financial Services
Transition from CRM to SCRM
Over the past few years, billions of dollars have been spent on incorporating CRM systems into the
organizations. Chang et al., (2010) discovered that only 30% of organizations that executed CRM
experienced improved performance. The primary reasons for the ineffective implementation are (1)
organizations manage CRM projects as technical 'projects' (Payne and Frow 2005), not as a business
strategy and (2) issues related to people's behaviour and culture (Greenberg 2004). Other factors
include lack of technological resources and skills required to efficiently manage CRM projects. To
tap the maximum potential of CRM with regard to social media, organizations need to embrace
holistic way to deal with organisational change and to change the attitude of its employees.
Moreover, firms should consider their customers and customer communities as value co-creators and
co-managers of relationship within the customer ecosystem (Malthouse et al., 2013; Choudhury and
Harrigan, 2014).
Traditional customer relationship management focused on three key areas i.e. marketing, sales and
services and supports and collaboration with customers, who never existed. It was one way push
process whose aim was to make transactions, without making personal connection with customers.
While social customer relationship management focused on facilitating collaborative experiences
and personal involvement and dialogue so that valuable relationships can be maintained with the
customers. With the social media revolution, the role of CRM has changed from commercial
transactional bonding to more interactive and customer focused approach. Thus SCRM is an
extension of CRM not a replacement since it incorporates the principles of relationship management
on social networks. Deloitte presents the transition from CRM to SCRM as under.
EVOLUTION OF CRM TO SCRM
CRM
SOCIAL CRM
Assigned Departments
Company defined process
Business hours
Transaction
Inside out
Everyone
WHO
Customer defined process
WHAT
WHERE
Company sets the hours
Interaction
WHY
Outside in
HOW
Figure1. Evolution of CRM to SCRM
(Source:CHESS MEDIA GROUP (2010)
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Contemporary Issues in Banking, Insurance and Financial Services
Concept and scope of social customer relationship management
As per Mohan et al., (2008), a social CRM framework consolidates "the features of Web 2.0 and
social networking with the current CRM System". They apply a systems view approach. Social
CRM isn't only a bunch of technological innovations, yet rather a firm specific business strategy for
engaging customers. Paul Greenberg (2009) defined SCRM as a philosophy and a business strategy
supported by technology, business rules, processes and social characteristics designed to engage the
customer in a collaborative conversation in order to provide mutual beneficial value in a trusted
business environment.
According to Chaffey (2011), social CRM is the process of managing customer to customer
interactions to engage the existing customers, prospects or other stakeholders with a brand to
enhance CRM. He defines the 5 M’s of social CRM viz (1) monitoring (2) mapping (3) management
(4) middleware and (5) measurement. This framework can be used to review or prioritize options of
using SCRM within an enterprise. Thus SCRM is a blend of online networking with social media
technologies to keep up long associations with customers and additionally involve them (Arora and
Sharma, 2018).
Thus, SCRM is a new paradigm that aims at creating valuable relationships with all stakeholders
including employees, partners, and suppliers. SCRM is also refereed to CRM 2.0 which relies on
empowerment and engagement of customers. SCRM is considered to be the “sequel” and the
“natural evolution” imposed by the social media in modern society. Hence SCRM offers
opportunities to organizations to listen to and engage with them and encourage them to become their
brand advocates. The congruence between brand and the customer is very important to maintain long
term relationships.
Objective and benefits of SCRM
According to researchers, SCRM can generate numerous benefits for the organizations by following
a four step approach (i) engaging prospects and customers. (ii) Winning new customers, (iii)
retaining customers and (iv) customer development. SCRM offers the organizations an organized
approach using the company’s software to connect to the customers and respond to them in real
time. SCRM gives 360 degree view of the customers, gaining insights of their needs and preferences
and helps improve customer satisfaction by providing continuous loops of interactions thus gaining
their trust and loyalty Moreover financial benefits also accrue to the company across entire customer
management strategy in acquisition, retention and value development. SCRM aims at managing the
entire customer lifecycle and aims at increasing brand awareness and visibility which leads to
increased sales and reduced costs. According to Simns (2003), attrition rate can be reduced by 25%,
if the firms align social relationships along the lines of CRM and the customers are less likely to
switch to competitors. Customers who engage with the company are more loyal and spend up to
40% more than other customers.
Developing a Social CRM strategy
The strategic objectives of the company are to provide multiple forms of value to the company
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Contemporary Issues in Banking, Insurance and Financial Services
including customer lifetime value, customer influencer value, customer referral value and customer
knowledge value. Profitable relationships are created by identifying value adding customers at each
customer touch points through various channels and focusing on them to increase their satisfaction
levels. SCRM revitalizes the relationship between the organization and its customers by bringing a
change in overall brand attitude through their actions. Customer engagement has been recognized as
a main objective of SCRM. High customer engagement is required to bring about the difference in
customer behavioural intentions. Behavioural intentions are related to a higher level of activity,
interaction and connection with others. The success and efficiency of customer engagement strategy
primarily results from the shift of the company’s strategy from customer relationship into partner
relationship. These changes affect the way in which people interact with business thus participating
in company’s success.
Customer engagement
Social media is likely to increase customer engagement. There has been a shift in marketing
thinking which views customers as active participants to value creation process (Hennig-Thurau et
al., 2010). Today’s social customers can write reviews on websites, for example, on Amazon and
TripAdvisor, co-create open source items for example, on open office or mozilla firefox. Other
examples of customer engagement include Dell’s ‘Idea Storm’ a website launched by Dell in 2007,
where users can add articles, promote them, and comment on them. In these storm sessions Dell
posts a specific topic and users can submit ideas through their computers, tablets and smartphone,
facilitating in creating and sharing of brand-related content every day (Brodie et al., 2013).
Panasonic ran a very creative marketing campaign in Australia welcoming individuals to upload
photos taken with their Lumix camera, which turned into a viral marketing. Engaging consumers
through social media is portrayed through a model as shown in Figure2.
Customer engagement model of Social CRM includes the following concepts: customer relationship
orientation, relational information processes and social CRM technology adoption. Customer
relationship orientation centres on the understanding of customer needs through the development of
close personal connections and social exchanges (Chen and Ching, 2007). When an organization
assembles the necessary data, relational information process begins. Four components of relational
information process have been identified by Harrigan and Choudhury (2012). These are gathering
information, integration, access and information use. Information gathering includes the assimilation
of data from ‘customer’s posts on various social media platforms like facebook, linkedin, twitter etc.
Information integration requires the coordination of customer data from all networks to advance into
a decision about each customer relationship. Information access means customer information is
utilized by employees and strategic decision makers (Chen and Ching, 2007). At last the CRM
technology adoption actually refers to the acceptance of the organizations for the collection,
integration, and analysis of customer information, and subsequent communication with customers.
Harrigan and Choudhury (2012) recommended that the results from social CRM usage alongside
customer engagement leads to increased trust, brand loyalty, co-operation and empowerment.
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Contemporary Issues in Banking, Insurance and Financial Services
CUSTOMER ENGAGEMENT IN SOCIAL CRM
Communication
with customers
Engaging in online
customer
communication
Managing online
customers
Mobile
Technology
usage
Trust
Customer
Relationship
Orientation
Perceived
ease of
use
Perceived
usefulness
Attitudes
towards
Use of
Social
CRM
Relational
information
processes
Social CRM
adoption
Brand
Loyalty
Cooperation
nn
Empower
ment
The following section discusses how each component of CRM might interact with social
media, under each l
Fig2: The Conceptual model of Customer engagement in Social CRM Source: Harrigan and Choudhury (2012)
Acquisition and Retention
If customers are more engaged with an organization, the organization doesn’t have control over the
messages to which its customers are exposed. They are empowered and active customers who
themselves acts as influencers and whose word of mouth influence other’s decisions in their social
networks. While customers with low degrees of engagement may basically “like” company
promotions on social media channels, while on the other hand those with high levels of engagement
might choose to write reviews or share on social media so that it is publicly visible to all.
One implication of this phenomenon is that among customers with high levels of engagement,
acquisition practices can't be separated from retention practices which pose a great challenge to the
organizations in the short run while in the long run it may improve customer loyalty, reliability and
trust of the organization. The inability to separate retention from acquisition presents the biggest
difference among traditional and social CRM.
Termination
A higher level of customer engagement makes termination of customer relationships more
challenging, particularly when it is initiated by the organization. Divested customers are especially
liable to respond adversely to this by spreading negative word of mouth (Haenlein and Kaplan
2010).Organizations should assess such (indirect) divestment costs while selecting the right
customers.
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Contemporary Issues in Banking, Insurance and Financial Services
Implementing SCRM in the banking sector
As every customer has different need, so is the level of interaction and engagement between the
bank and the customers; it is relatively important to understand the customer experience journey
entirely so as to know when to apply social media in the engagement process. The figure3 depicts
the breakdown of the customer experience journey into discovery, evaluation, buy, use and reengagement (Virgili et al., 2012).
Customer perspective
Discover
Re-engagement
Use
Evaluate
Buy
Figure 3: The customer experience journey (Virgili et al., 2012).
Usually, the customer comes to the bank for services like taking bank loans, opening bank accounts,
and much more. Social media plays a great role to discover and target prospective new customers.
As customers’ needs are numerous, so decisions making is complex. Therefore the customers require
expert and peer advice to evaluate the options available to them before taking a final decision. After
the customers are well convinced to interact and engage with the bank to patronage their online
services, customers feel reluctant to share their personal information or experience due to
confidential reasons. Banking regulations may also have some restrictions on information sharing
and interaction on social media platforms so as to avoid security and data breach. Having agreed to
patronize the bank, the customer uses the services of the bank which is either automated or manually
served, as long as these services are not deficient. After the relationship is established with the client,
the bank has the privilege to introduce other services that might be of essence to him or her. The
closer the relationship between bank and the customer, less likely he or she is to leave.
CONCLUSION
Technological advances and changes in consumer buying behaviour demand the organizations to
adopt customer relationship management systems through adding social dimensions. This
advancement of CRM is widely referred to as social CRM. If companies want to unlock the full
potential of social media to reinvent their customer relationships, they need to think about CRM in a
new perspective. Companies should align social media activities with customer care capacities to
help the customer effectively. Companies should build the centre of excellence to impart training to
employees for developing social media capabilities. For effective implementation of SCRM
companies should regularly practice capturing and analysing customer data to develop viable
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Contemporary Issues in Banking, Insurance and Financial Services
insights that help in reducing risks and improving customer relationships. Such research direction if
pursued rigorously would yield valuable results of SCRM strategy.
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Contemporary Issues in Banking, Insurance and Financial Services
Current HR Issues in Indian Banking Industry: A Review of
Literature
Kanchan Bagri
Research Scholar, IMSAR, MDU, Rohtak.
Dr. Priyanka Yadav
Assistant Professor, IMSAR, MDU, Rohtak.
Abstract
The Banking industry is backbone of India's economy. The entry of private and foreign banks has brought a
lot of challenges in general and human resource issues in particular in this industry. The HR issues in these
financial services have brought our focus towards this industry. Therefore, the of aim of this paper is to
present HR issues within the Indian Banking Setting by putting a theoretical framework and recommend
suggestions to handle them. The literature for this study was sourced from the frequently quoted research
papers available on various websites in libraries. The review of literature brought out that the major challenge
confronted by banks nowadays is to protect the falling edges due to the impact of competition by merger.
Another critical impact of banks nowadays is the utilization of innovation.
Keywords - Banks, HR issues, suggestions.
INTRODUCTION
Banks have been a solid support system of Indian economy. Banking is taken into account to be the
“Backbone of a Nation’s Economy”. Indian Banking, today, is split into commercial banks which are Private,
Public scheduled and non-scheduled banks, Regional and Rural, and Cooperative Banks. Banking Companies
Act of 1949 defined banking as receiving for the aim of advancing or investment of installment money from
the general public, repayable on demand or otherwise, and withdrawable by cheque draft or otherwise allow
us to learn more about the History of the banking industry in India. The Banking sector in India has seen tons
of variations and changes over the centuries. It is often broadly categorized into 3 sub-parts that are:
Banking during Pre-Independence (1770 to 1947)
There were quite few banks formed during that point. The banking industry in India began with the
establishment of the Bank of Hindustan in 1770 but it stopped operating by 1832. During this era , over 600
banks were formed. However, only a few were ready to make the grade. a number of the banks were – the
overall Bank of India (1786-1791), Bank of Bengal (1809), Bank of Bombay (1840), Oudh full service bank
(1881-1958), Bank of Madras (1843).
This phase also saw the association of the three major banks – Bank of Bengal, Bank of Madras, and Bank of
Bombay established by The Malay Archipelago Company. They together amalgamated and formed the
Imperial Bank. This was appropriated by the SBI (State Bank of India) in 1955. Other Banks that were
formed during that point were – Allahabad Bank (est. 1865), Punjab commercial bank (est. 1894), Bank of
India (est. 1906), Bank of Baroda (est. 1908), and financial institution of India (est. 1911). Indian account
holders had become fraud-prone, Lack of machines and technology, Human errors & time-consuming, Fewer
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Contemporary Issues in Banking, Insurance and Financial Services
facilities, Lack of proper management skills. Following the Pre-Independence period was the postindependence period which observed some major changes within the banking system scenario and has got to
date developed tons.
II phase of Indian Banking- (1947-1991) - The then Government – after Indian Independence, decided to
nationalize the Banks because all the main banks were led individually which was an explanation for trouble
as people within the rural areas still turned to local financiers for aid. Under the Banking Regulation Act,
1949, these banks were nationalized and therefore the Federal Reserve Bank of India was nationalized in
1949. These banks are: Allahabad Bank, Bank of India, Bank of Baroda, Central Bank of India, Bank of
Maharashtra, Canara Bank, Dena Bank, Indian Overseas Bank, Indian Bank, Punjab national bank, Syndicate
Bank, Union Bank of India, United Bank and UCO Bank. In 1980, 6 other banks were nationalized that are:
Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Comm., Punjab & Sind Bank and
Vijaya Bank.
III phase (1991-beyond)-To provide steadiness and advantage to the Nationalised Public sector Banks, the
govt decided to line up a committee under the leadership of Shri. M Narasimham to manage the varied
reforms within the Indian banking system. The biggest development was the introduction of personal sector
banks in India. RBI gave license to 10 Private sector banks to determine themselves within the country. These
banks included: Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd, Bank,
Centurion Bank, IDBI Bank, Times Bank, and Development Credit Bank. A majority of Indian citizens
shifted to online or net banking.Small Finance Banks in India include Capital Small Finance Bank, Equitas
Small Finance Bank, Utkarsh Small Finance Bank, Suryoday, Small Finance Bank, Ujjivan Small Finance
Bank, etc.
List of payment banks in India: Airtel Payment Bank Ltd, Paytm Payments Bank, Fino Payments Bank, Jio
Payments Bank, Aditya Birla Idea Payments Bank, India Post Payment Bank. The banks have transformed
over the years. The Banking sector is immensely important for a country’s economy. so as to stay the system
thriving, estimated period changes and moderations are to be made.
Current Scenario- After the bank merger there were many issues related to Human Resource and over the
year when the banking system was building in India then also Narasimham Committee where he
recommended that qualified professionals should be hired so that working and relations of the bank with the
market must be built so strong. There arise issues related to human resource when merger happen like
revitalize themselves by hiring the proper talent, investing in training and bringing a few vibrant
transformation in their DNA, in effect, doing what Sumantra Ghoshal, the management guru, and Founding
Dean of the Indian School of Business called changing the ‘Smell of the Workplace’. Successful
organizations, he felt, exude a vibrancy that uniquely defines the ‘Smell of the Workplace’. Ghoshal describes
the smell of the air within the forest of Fontainebleau, 40 miles south of Paris, the vibrancy which spurs the
casual walker to run, jog or do something, and is in essence revitalizing [1]. In India when the merger of 10
public sector banks in 2019 happened and then the next year Pandemic hit the economy which made
employee retention and continuation very difficult. In the Covid- 19 pandemic conditions employees were
more concerned about salary and compensation, benefits, bonuses, and commissions, also because the wellbeing to be fairer so as to enhance employees productivity. The variable had a greater impact on refining the
productivity of banking employees within the Covid-19 pandemic era than on work Incentive variables [2].
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Contemporary Issues in Banking, Insurance and Financial Services
According to the report of Business Today the chairman of SBI has” indicated that there is a need to transfer
bank facilities from face- to- face banking to digital banking systems. He also said they will provide work
from anywhere and through this they can save worth 1000 crores”[10]. Further this is the need of hour to have
a digital system and this change will make the bank system much stronger and productive [11]. Because of
these situations human resource issues have arisen which need to be understood well. Hence this article will
answer the number of issues faced by the bank industry.
OBJECTIVES OF THE STUDY AND MAJOR HR ISSUES
The aims of the study are to manifest the issues related to HR in the Banking industry in India and to present
suggestions to deal with these issues. The issues and suggestions are identified over review of literature are:
1) Health Problem- many bank employees face health issues like- eye strain, body aches, sleeping disorder,
and tension [3].
2) Distance from the family- the working life of bank employees make them so busy that they don’t even have
time to spare it with family except weekends [3].
3) Depression- there are really very limited opportunities for growth of employees and this is making them
depressed and they are now suffering from mental problems [3].
4) Merger of Banks can cause reduction in Jobs- bank merger means moving of one, two or probably more
than two subsidiary banks into one. These mergers cause damage to associates bank employees as they might
face job cutting. This job cutting is done to save the cost and associates bank offices also get wind-up to stop
overlapping and duplicacy issues[4].
5) Changes in conditions of employment- those employees who belong to associate banks and started working
in parent banks may feel uncomfortable with the conditions, attitude and environment of the bank [4].
6) Loss in the number of professional employees- these mergers can cause reduction in the number of
professional employees whom expertise really needed by the bank today or might in the future [4].
7) Increase in the number of employees- After the association of a bank into one big banks it will produce a
number of problems due to the increased number of employees with the bank. To maintain and retain them,
provide them proper training and inter service courses and pay would become a challenging task for HR
managers because they surely don’t want to lose their capable and worthy employees [4] & [5].
8) Performance Assessment- to analyse what employees have gained from training and development
programs a proper assessment system is needed along with capability assessment also. Big old banks should
also apply these assessment performance tests on their employees [6].
9) Raising competence- since last year after the merger and nationalisation of banks competition in the market
have been increased. To keep the bank and its working on an upper hand employees need to raise their
competence level and may not resist changes in fact accept them as an opportunity to learn new skills because
in future one will be paid on his/her skills only [6].
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Contemporary Issues in Banking, Insurance and Financial Services
10) Managing Talent & Man-power Planning- Managing the professionals was ignored earlier but now to
face the competition in the market is the need of the hour to recruit, train and manage talents in the bank with
the global standards. The requirement of the workforce must be viewed from time-to-time so that a shortfall
doesn’t happen [6].
11) Engaging the employees- Another challenge is engaging the employee in their work since the work is of
repetitive and monotonous nature, to keep them engaged and able to serve customers well so this area
required the attention of the HR manager.
SUGGESTIONS AND CONCLUSION
Focusing on advancement- Banks must focus on making continuous advancement so that they can gain a
competitive advantage over others like IDBI bank launch “ehuts” which is a single solution to the bank
related services. Also Axis Bank has launched a service through multi-social payment app where payment and
collection of money can take place without asking the bank detail of the customer that is #pingpaykaro links it
to social networking sites [7][8]. Make an authority committee of HRM at the top management level of Bank
to have a continuous eye on the working of employees. Through Fair compensation system each and every
employee remains satisfied and invests his efforts more and more to take his career to newer heights. A proper
HR work culture should be built so that employees feel a part of the bank.
HRM observing teams should be built to look up the working and results of the team must be made after
proper analysis and interpretation of the workforce. Suggestions from the employees should be taken and they
should be encouraged more and more to be vocal about how to improve their work practices. Employees must
be encouraged to present papers and presentations on what they have gained after training and development
courses. All the welfare schemes must be viewed from time to time and refreshing them along with these
schemes must be available to every employee in the bank so that they may not think left out [9]. Review the
performance monthly, quarterly and annually and there should be no partiality with employees. Also their
transfers and promotion must be viewed in the same way to raise their level of conviction [9].
In nutshell, banks are the center point of the economy. All the activities done by them are not only important
for circulation of income but it also serves as an ingredient to generate income by giving loans and advances.
The continuous need for skill enhancement of human resources in banks should be the vision and mission.
Penurious states will not work forever, Post Covid-19 there is a need to implant new zeal and freshness in the
working of an employee. In this article researchers tried to focus on the area HR issues there in Banks. The
new HR practices which will be helpful for banks are - best talent pool, proper training programs, incentives,
job rotation, promotions and on-time postings. Hence the issues presented here are prominent one and
suggestions can help them to deal with these issues. The government ought to give opportunities to the
organization for more disclosure of human resource reporting data; additionally, a few portions of human
resource-related data would be obligatory in the future. Future research can be done where quantitatively one
can look up the more issues about the employees in this industry.
REFERENCES
[1] RBI Monthly Bulletin March 2012. Indian Banking Sector: Towards The Next Orbit.
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Contemporary Issues in Banking, Insurance and Financial Services
[2] Sembiring J.M. Fatihudin D. Mochklas M. & Holisini I. 2020. Banking Employee Performance During
Pandemic Covid-19: Remuneration And Motivation. Journal of Xi'an University of Architecture &
Technology.Volume XII. Issue VII. ISSN No : 1006-7930.
[3] Goyal K.A. & Babel A.A.2015. Issues and Challenges of Work Life Balance in Banking Industry of
India.Pacific Business Review International.Volume : 8. Issue : 5.
[4] Leepa N.M.& Sankar B.P.B.2019.Bank Mergers: Opportunity or Obstruction? An Indian Case
Study.Singapore Management Journal.Vol. 8.No. 1.Pg- 63-81.
[5] Lal S.P. & Lala R.2015. Opportunities And Challenges For Emerging Private Sector Banks In India.
International Journal of Innovative Research and Creative Technology.Volume 1.Issue 2.Pg- 212-213.
[6] Jyothi P. & Jyothi V.S.HR ISSUES AND CHALLENGES IN INDIAN BANKING SECTOR.
[7]https://www.businessinsider.in/hereshow-top-5-indian-banks-use-technology/articleshow/480
03107.cms.
[8] Parate,D.P.2013. Hrd in Banking: Emerging Issues and Opportunities.Vidyabharati International
Interdisciplinary Research Journal 2(1).ISSN 2319-4979. Pp. 65-67.
[9] Setia M. & Singh D. (2014). EMPLOYEE RETENTION: A CHALLENGE FACED BY INDIAN
BANKING INDUSTRY- A STUDY. International Journal of Current Research.Vol. 6.Issue 11.pp.98569860.
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Contemporary Issues in Banking, Insurance and Financial Services
Emotional Intelligence in Banking Sector: A Literature Review
Vandana Sharma, Research Scholar
University School of Management, K.U. Kurukshetra
Email id: sharmavandana89@gmail.com
Pradeepika, Assistant Professor
University School of Management, K. U., Kurukshetra
Abstract:
Emotion is fundamental to service industry. Emotions influence professional relationships, impact service
delivery and affect bank employees at an intrapersonal level. As service sector, bank employees form and
maintain relationships within emotionally charged environments where emotion is central to the service
delivery. This review was guided by the following questions: What is the state of knowledge development
related to emotional intelligence and banking industry? What are the knowledge gaps that can be identified in
relation to emotional intelligence and banking industry? What does the literature reveal about the nature and
direction of inquiry related to emotional intelligence and banking industry? Following a brief background of
EI theories, this paper presents an integrative review of the literature related to Emotional Intelligence and
banking industry published in peer –reviewed journals between 2000 and 2020. Thorough screening to
determine current literature and empirical research evidence done on banking sector focussing specifically on
emotional intelligence and finally closes with careful consideration of criticisms related to EI in banking
sector.
Keywords: Emotional Intelligence, banking sector, literature review
INTRODUCTION
Generally, we believe that success at a work place depends on the level of intelligence or
Intelligence Quotient (IQ) which is being reflected as our exam marks, academic degrees,
achievements etc. In other words, it is our intellectual credentials in doing well in school, college,
obtaining high scores in IQ test are considered as intelligence in the academic fraternity. But how
bright are you in handling life’s difficult moments? Here you need a different level of intelligence,
which is termed as emotional intelligence (Singh, 2015)
Since the publication of the bestselling book Emotional Intelligence by Daniel Goleman (1995), the
topic of emotional intelligence has witnessed unparalleled interest. Many Elementary schools,
universities have implemented courses on developing one's emotional intelligence in numerous
settings. People are being judged by not just how smart they are but also by how well they handle
each other and themselves. The essential premise of EI is that our each and every action is
systematically controlled by emotions. In order to be successful, requires effective awareness,
control and management of one's own emotions and those of other people.
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Contemporary Issues in Banking, Insurance and Financial Services
Emotional intelligence plays a major role in the present day environment especially in regard to how
it affects today’s workforce. Businesses are essentially people oriented. So anything that impacts the
effectiveness of people’s minds also impacts the businesses they run or work for. Every business
organization comprises of people with different strengths, personalities and emotions, which can
greatly affect the way they work. In fact, many experts now believe that a person’s emotional
intelligence quotient (EQ) may be more important than their intelligence quotient (IQ) and is
certainly a better predictor of success, quality of relationships, and overall happiness.
A brief History of Emotional Intelligence:
Table: 1 History of Emotional Intelligence
Year
Theory
Author
1930’s
Edward
As the ability to get along with other people
Thorndike
1940’s
David
Wechsler
Abraham
Maslow
Suggested that “Affective components of intelligence may be essential
to get along with other people”
Describes how people can build emotional strength.
1975
Howard
Gardner
Published “The Shattered Mind” which introduced the concept of
multiple intelligences.
1985
Wayne Payne
Describes as “A study of emotion: developing emotional intelligence;
self –integration; relating to fear, pain and desire(theory, structure of
reality, problem solving, contraction/expansion, turning in/coming
out/letting go)”
1987
Keith Beasley
Developed one of the first measure using the term “emotional Quotient”
1990
Peter Salovey
and John
Mayor
Originally used the term Emotional in writing. Defined Emotional
Intelligence as “A form of intelligence that involves the ability to
monitor one’s own and others feelings and emotions to discriminate
among them and to use the information to guide one;s thinking and
actions(Mayer, 1997
1995
Daniel
Goleman
In his book titled “Emotional Intelligence” outlined four main
emotional constructs being self-awareness, self-management, social
awareness and relationship management
1997
Bar-on
He focused on an array of emotional and social abilities, including the
ability to be aware of, understand, and express oneself, the ability to be
aware of, understand, and relate to others, the ability to deal with strong
emotions, and the ability to adapt to change and solve problems of a
social or personal nature(Bar-on, 1997)
1950’s
(Source:(Virkus, 2019)
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Contemporary Issues in Banking, Insurance and Financial Services
What is Emotional Intelligence?
Goleman, Working with emotional intelligence, 1998) describes as the capacity/ability for
recognizing our own feelings and those of others, for motivating ourselves, and for managing
emotions well in ourselves and our relationship. His model consists of five dimensions of EI and
twenty-five emotional competencies and is presented in detail.
THEORIES/MODELS OF EMOTIONAL INTELLIGENCE:
Ability Model :The Ability model of emotional intelligence was designed by Mayer and Salovey
(1997), and defines emotional intelligence as ‘intelligence’ in the traditional sense, i.e. as a set of
mental abilities to do with emotions and the processing of emotion-related information that
contribute to logical thoughts and intelligence in general. These abilities are arranged hierarchically
from basic psychological process to psychologically more complex and integrated process: they are
considered as developing with age and experience, but also as being independent of traits, abilities,
and ideal ways of behaving (Gardner and Stough, 2001; Mayer and Salovey, 1997).
Table: 2 Components of Emotional Intelligence Source
Component
SelfAwareness
Definition
The ability to recognize and understand
your moods, emotions and drives, as well
as their effect on others

SelfRegulation
The ability to control or redirect disruptive
impulses and moods


A passion to work for reasons that go
beyond money or status


Hallmarks
self Confidence
realistic self-assessment
self-depreciating sense of
humor
trustworthiness and integrity
comfort with ambiguity
openness to change
strong drive to achieve
optimism, even in the face of failure
organizational commitment
Social Skills
Proficiency in managing relationships and
building networks :An ability to find
common ground and build rapport


Effectiveness in leading change
Persuasiveness
Expertise in building and
leading team
Empathy
The ability to understand the emotional
make up of other people Skill and treating
people according to their emotional
reaction

expertise in building and
retaining talent
cross-cultural sensitivity
service to clients and
customers
Motivation

Source: Goleman, what makes a leader? 1998
Mixed Model: The Mixed model was introduced by Daniel Goleman, and conceptualized EI as a
broad array of competencies and skills that steer leadership performance. Goleman’s (1998) model
outlined five EI constructs such as:
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Contemporary Issues in Banking, Insurance and Financial Services
1. Self-awareness – the ability to know one’s emotions, strengths, weaknesses, drives, values, and
goals and identify their impact on others while still using gut feelings to steer decisions.
2. Self-regulation - involves controlling or redirecting one's unruly emotions and desires and
adapting to varying situations.
3. Social skills – managing relationships to move people in the desired direction.
4. Empathy - taking into account other people's feelings, particularly when making decisions.
5. Motivation - being driven to achieve for the sake of attainment (Goleman, 1998).
Bar-On’s (1997) Non-Cognitive Model
This model defines emotional intelligence as “an array of non-cognitive capabilities, competencies,
and skills that influence one’s ability to succeed in coping with environmental demands and
pressures”. Although under the umbrella of emotional intelligence, Bar-On (1977) considered EI a
somewhat broader construct which he refers to generically as “... emotional and social intelligence”,
and conceptualized in 15 components related to five specific dimensions of emotional and social
intelligence. These are intrapersonal emotional intelligence - signifying abilities, capabilities,
proficiencies and skills related to the inner self; interpersonal emotional intelligence – demonstrating
interpersonal skills and functioning in relationship with others; adaptability emotional intelligence –
representing how successfully people are able to manage environments by efficiently sizing up and
dealing with challenging situations; stress management emotional intelligence – demonstrating how
they cope with and manage stress; and general mood emotional intelligence – related to their ability
to enjoy life and maintain a positive temperament (Bar-On, 1997; Gardner and Stough, 2001). BarOn (1997) proposed that the constituents of this model develop over time, change throughout life
and can be enhanced through training and development programs, and also argued that the model
relates to the potential for performance rather than solely to actual performance (Bar-On, 1997)
Competency Based Model
The Competency based model of emotional intelligence was designed by Goleman (2001)
particularly for workplace applications. It is described as an emotional intelligence-based theory of
performance that involves 20 competencies that differentiate individual differences in workplace
performance which, together, trigger four general abilities:
1. Self-awareness – the ability to understand the feelings and accurate self-assessment.
2. Self-management – the ability to handle internal states, impulses, and resources.
3. Social awareness – the ability to read people and groups.
4. Relationship management – the ability to encourage desirable responses in others (Goleman,
2001).
RESEARCH METHOD
Data Sources: Step-1 was search of the literature using internet databases and these search terms:
emotional intelligence in banking industry, emotional intelligence and research, emotional
intelligence and banking. The scope was limited to journal articles published in English and
available freely to view and download.
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Contemporary Issues in Banking, Insurance and Financial Services
Inclusion: Articles were screened with an overall goal of finding a group of articles that focussed
specifically on emotional intelligence in banking industry. Editorial, opinion, theoretical and
qualitative and quantitative studies were included in this review.
Exclusion: Articles were excluded if the articles did not focus on banking industry and emotional
intelligence, and articles focussing on other service industry, manufacturing sectors etc...
Data Analysis: Authors concur that there is no such gold standard for completing integrative review
data analysis (Whittemore R., 2005). The goal of this data analysis was to determine the state of
knowledge related to emotional intelligence in banking industry. To accomplish this goal, we sought
to determine patterns, directions, similarities and differences among the articles. As per the
framework developed by (Whittemore R, 2005) as reference retained articles were read three times
to determine the quality of the writing and to reduce and compare data within the articles.
LITERATURE REVIEW
According to Orme (2003), Emotional Intelligence plays an important role in understanding
emotions. He also defined EI as the ability of understanding and taking favourable actions
accordingly. Orme (2003) described three important points in his definition of EI: Understanding
emotions of one-self, understanding emotions of others and Taking favourable actions on the basis
of our understanding of these emotions.
Hummayoun, Naeem. (2008) in his study to explore emotional intelligence level and service quality
level in foreign and local banks revealed that EI skills is high in case of a foreign bank. EI is strongly
related to dimensions of service quality indicating that employees with high EI enhances service
quality. Moghadam, Jorfi & Jorfi (2010) stated that both public and private sector organizations need
to cope with the change in an effective way and Emotional Intelligence is the useful ornament in
helping the leaders of the organizations to deal effectively with the change that takes place in the
organizational environment.
Saddam Hussain Rahim. (2010) in his study on Emotional intelligence and organisational
performance among banking sector in Pakistan found that female employees are more emotionally
intelligent than their male counterpart. Also the study revealed that when the level of education
increases the emotional intelligent level increases as well. Mina Beigi, (2011) studied on effects of
emotional intelligence training program on service quality of bank branches through selection of
employees from public sector banks and make them undertake a tailored eight session EI training
program. The results were that EI dimension “Relationship Management “is found to be enhanced
by EI training and also the result shown that overall service quality is improved.
Anurag Pahuja., (2012) conducted a study to reveal the perception and factors affecting
emotionalintelligence among selected bank employees. The study revealed that employees are aware
of the EI concept. There is significant difference between male and female on various EI traits.
Females scored better on overall emotional intelligence than males. The employees are not
emotionally stablewhich really concerns as it affects their performance. The study highlighted that
employees consider self-management, self-awareness and empathy as the major emotional
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Contemporary Issues in Banking, Insurance and Financial Services
intelligence traits required by everyone. Thavaraj.M.M, (2012) studied the emotional intelligence
among managers of the commercial banks of Madurai city. The study revealed that five determinants
of emotional intelligence being self -awareness, self -regulation, self –motivation, social awareness
and social-skills, self –motivation plays a major role. And on the summative view on various factors
involved in measuring the level of EI, urban branches are higher than the rural branches.
Kappagoda, (2013) in his study to find the emotional intelligence of the mangers in the banking
sector in Srilanka found that the level of EI has changed according to the gender, age, educational
level and working experience of the respondents. Dimitrios Belias, (2013) investigated occupational
stress and emotional intelligence among bank employees in Greece. Study revealed that occupational
stress is likely be affected by emotional intelligence and by several demographic characteristics.
Gender seems to affect the employee’s emotional intelligence. Also occupational stress and stress
management are likely to be predicted by the employee’s levels of optimism and the ability to
manage and use emotions positively.
Spyros Papaathanasiou (2014) did a study on emotional intelligence and job satisfaction among
greek banking sector. Study concluded that there is a positive relationship between aspects of EI and
Job satisfaction they get from their work. The gender, age, marital status and job position in the bank
affect the levels of emotional intelligence of employees. In addition, EI seems to exert influence on
the everyday life of employees and modulate the levels of professional satisfaction. Vibhor Jain.,
(2014) on his attempt to find the impact of emotional intelligence on service quality in Indian private
banks found that people with high emotional intelligence perform well and are more satisfied at their
workplace. Emotionally balanced employees are adaptable, empathetic, self-aware, transparent, selfconfident, optimistic, and good at managing disagreements and stress. Also the study found that
Individual with High EI are good problem solvers and decision makers and can skilfully prioritize
their task and quickly realize their goals.
Siati, (2014) on her study on Emotional Intelligence and Job satisfaction in Greek Banking Sector
found that there is a positive relationship between aspects of emotional intelligence and employee
satisfaction. Emotional intelligence differs between the two genders. Also the job position held by
the employees in the bank sector seems to affect the levels of emotional intelligence. Okon Effiong
Ekpenyong (2015) on their study on emotional Intelligence and employee performance among
Nigerian bank industry concluded that there is significant relationship between emotional
intelligence and employees’ performance. Also the study revealed that emotional intelligence can be
developed and improved at any stage of life through a systematic and consistent approach.
Praveena, S. (2015) did a study to find the Emotional intelligence on Job performance of Bank
Managers in Sri Lanka. Study revealed that higher levels of emotional intelligence of bank managers
lead to higher levels of job performance as well as job satisfaction at the workplace. It also revealed
that emotional intelligence can be recognized as one of the most critical skills that managers should
possess in present day organizations. Mahal (2015) studied the influence of emotional intelligence
on employee satisfaction. Study revealed that there is a significant relationship between emotional
intelligence and employee satisfaction. The study also suggested that emotional intelligence enables
an employee to control desire and direct stressful moods well. Emotionally controlled and managed
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Contemporary Issues in Banking, Insurance and Financial Services
behaviour helps the employee to remain hopeful in times of setbacks and develops empathy and
social skills. Swarnalatha (2016) in her study on emotional intelligence among bank employees
found that EI plays a major role in bank employees life and all the employees are having high
emotional intelligence.
There is no difference between emotional intelligence and age of employee (N.N.Ugoani, 2017) did
a study on Emotional Intelligence and Successful change Management in the Nigerian Banking
Industry. Results show that emotional intelligence encompasses competencies required for
successful change management. Sr.Margaret Chepng 'eno., (2017) studied the relationship between
emotional intelligence and leadership styles in Banking Institutions in Kenya. Results show that
there is positive relationship between EI and Transactional leadership. The study provided evidence
that individuals with high levels of EI are more likely to adopt Transactional leadership style. Such
individuals are able to clearly specify performance standards to monitor performance and to reward
achievement of goals. Furthermore, leaders who abscond their responsibility, avoid making
decisions and who are passive in their leadership are associated with low levels of Emotional
Intelligence. An emotionally intelligent individuals are able to identify what they feel and
intentionally generate other mood states to help them achieve their goals. In other words, they know
how to motivate themselves (R. Singh 2018). And motivation is often the biggest difference between
success and failure, between being a winner and an also-ran (Pahuja and Sahi, 2019), was done in
Jalandhar, India. These employees proved to be aware of this new concept and also prove that there
is a big difference between male and female on different EI traits. The survey showed that
employees are not emotionally stable. This being a serious issue for bank authorities considering the
effects on work performance, the level of emotional intelligence and job satisfaction should increase
at the same time
RESEARCH GAPS AND LIMITATIONS
The study indicates many knowledge gaps related to emotional intelligence and banking industry.
Some important questions that need to be considered are: Which is the best method to measure
emotional intelligence for banking service employees? How should levels of emotional intelligence
in banking industry identified and determined? How does the emotional intelligence of individual
employee impact team and groups? How are bank employees taught to deal with emotion in
practice?
This integrative literature review provides an overview and critique of the field of knowledge in
banking industry related to emotional intelligence. This review is limited by the key phrases used for
searching, the databases accessed, the frame and method of searching literature, availability of
literature online and time constraints.
CONCLUSION
The purpose of this integrative literature review was to report on the state of knowledge in banking
industry related to emotional intelligence. The components of EI theory believes that understanding,
analysing and managing emotions in themselves and others, lies the key to an improved quality of
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Contemporary Issues in Banking, Insurance and Financial Services
life. However, materialising the theory is an important task which validates their claim. The first
challenge is to design an instrument which will evaluate and assess emotional skills of an employee.
Another challenge is that there are too many definitions and approaches which are important, many a
time it leads to confusion among researchers as to which definition or approach to be taken. To judge
or criticise emotional intelligence in banking industry definitely needs rethinking.
REFERENCES

















Anurag Pahuja., A. s. (2012). Emotional Intelligence (EI) among Bank Employees: An Emprical Study. Afro
Asian Journal of Social Sciences, Volume 3, No.3.2 Quarter II.
Arindham Chatterjee., A. K. (2015). An Emprical investigation of the relationship between Emotional
Intelligence, Transactional and Transformational leadership styles in banking sector. Procedia-Social and
Behavioural sciences, 291-300.
Atuma Okpara., A. M. (2014). Workplace Emotional Intelligence and return on investment in the Nigerian
Banking Industry. Journal of Management. Marketing and Logistics, 348-374.
Bar-on, R. (1997). Bar-On Emotional Quotient Inventory (EQ-I). Toronto: Multi Health Systems.
Chandra Mohan Patnaik., I. S. (2010). a study to Assess Emotional Inteligence and Performance of Manager's
in Co-operative and Gramya Banks in Orissa. Asian Journal of Management Research, 10-20.
Danquah, E. (2015). The effect of Emotional Intelligence on the Financial Performance of Commercial Banks
in Ghana:The Medical role of Relationship Marketing, Service Quality, Customer Satisfaction. British Journal
of Marketing Studies, 8-25.
Dimitrios Belias, A. K. (2013). Occupational Stress and Emotional Inteligence among Greek Bank
Employees. International Journal of Human Resource Studies, 79-101.
Radha. S. (2013). A study on customer orientation as mediator between Emotional Intelligence and service
performance in Banks. International Journal of Business and Management Invention, 60-66.
Goleman, D. (1998). What makes a leader? Harvard Business Review, 93-102, Product Number:3790.
Goleman.D. (1998). Working with emotional intelligence. New York: Bantam Books.
Hummayoun Naeem., I. S. (2008). Emotional Intelligence and its impact on service quality- Empherical
evidence from the Pakistani Banking Sector. International Business & Economics Research Journal, Vol.7,
Number 12, pp. 55-62.
Kamal Ghandari., S. M. (2012). The effect of Emotional Exhaustion in Banking Services: The role of Iranian
Emotional Inteligence. Research Journal of Applied Sciences, Engineering and Technology, 1794-1800.
Kappagoda, S. (2013). Emotional Inteligence of the Managers in the Banking Sector in Srilanka. International
Journal of Research in Commerce, IT and Management, 1-6.
Mahal, P. K. (2015). Influence of Emotional Intelligence on Employee Satisfaction: An Empirical Study of
Banking Industry. Apeejay Journal of Management and Technology, Vol.10, No. 2.
Mayer, P. S. (1997). Emotional Development and Emotional Intelligence: Educational Implications. New
York: Basic Books.
Mina Beigi, M. S. (2011). Effects of an emotional intelligence training program on service quality of bank
branches. Journal of Service theory and practice, 21(5).pp 552-567.
Ming-Ten Tsai., C.-L. T.-C. (2011). A study on the relationship between leadership style, Emotional
Intelligence, self-efficacy and Organisational commitment: A case study of the banking Industry in Taiwan.
African Journal of Business Management, 5319-5329.
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Contemporary Issues in Banking, Insurance and Financial Services

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







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N.N.Ugoani, J. (2017). Emotional Intelligence and Sucessful Change Management in the Nigerian Banking
Industry. Independent
Journal of Management and Production, 335-361.
Nair, D. (2012). Impact of Emotional Intelligence on Organizational Climate and Organizational Citizenship
Behaviour in Privatre Sector Banks (Dissertation). Mumbai: D.Y.Patil University, Ph.D Dissertation.
Okon Effiong Ekpenyong., A. P. (2015). Emotional Intelligence and Employee Performance: Evidence from
the Nigerian Banking Industry. International Journal of Management and Business Studies, 76-80.
Praveena.S. (2015). Emotional Intelligence and Job Performance of Bank Managers in Sri Lanka. OUSL
Journal, 41-49.
R.Veerappan, R. J. (2013). A studyEmotional Intelligence among Bank Employees in Vellore District on.
International Journal of Scientific research and Management, 296-302.
Saddam Hussain Rahim., M. I. (2010). Emotional Intelligence and Organisational Performance: A case study
of Banking Sector in Pakistan. International Journal of Business and Management, 191-197.
Siati, S. P. (2014). Emotional Intelligence and Job Satisfaction in Greek Banking Sector. Research in Applied
Economics, 225-239.
Singh, D. (2015). Emotional Intelligence at work: A professional Guide. Sage Publications, India.
Spyros Papaathanasiou, M. S. (2014). Emotional Intelligence and Job satisfaction in Greek Banking Sector.
Research in Applied Economics, Vol.6,No.1,pp 225-239.
Sr.Margaret Chepng'eno., D. N. (2017). Relationship between emotional intelligence and leadership styles: A
case study of leaders in selelcted banking institutions in Kenya. International journal of research in
Humanities and social studies, 1-12.
Tanvir Hussein., T. G. (2016). Impact of Emotional Intelligence in Indian Retail Banking Industry:
Challenges and Opportunities. Global Journal of Enterprise Informations System, 39-47.
Thavaraj.H, S. (2012). A study on identifying the level of Emotional Intelligence among bank managers in
Madurai District, South India. Researchers World - Journal of Arts, Science & Commerce, 58-67.
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Contemporary Issues in Banking, Insurance and Financial Services
Customer Satisfaction: A Study of Central Co-operative Bank,
Kurukshetra
Dr. Karnika Gupta, Assistant Professor, Department of Commerce
SNRL Jairam Girls College, Lohar Majra, Kurukshetra
E-Mail: karnikagupta7@gmail.com
Ishu Garg, Assistant Professor, Department of Economics
Kurukshetra University, Kurukshetra
E-Mail: ishugarg188@gmail.com
Abstract
In today’s contemporary era, customer satisfaction is a must in any industry, and banking industry is not an
exception. The significance of customer satisfaction becomes multi-fold when there is a talk about banks like
co-operative bank. With this backdrop, the present paper investigates the level of satisfaction amongst
customers of co-operative bank, Kurukshetra. For the purpose, data of one hundred respondents are collected
and analyzed. It is attained that maximum numbers of the respondents belong to the age group of above 45
years, are males, and are farmers. Majority have their accounts under the saving scheme, are graduates and
middling in income. It came out from the analysis that maximum numbers of customers are satisfied with the
interest rates provided by the bank; but, satisfaction was not found with regard to processing fees charged by
the bank.Majority of the respondents can be said as satisfied with the general operations of the bank.
However, customers do not get any appreciations from bank. The most prominent source of getting bank’s
information is personal visit. Further, large number of customers said that computerized banking is essential
for co-operative bank now-a-days. Also, customers perceive ‘attractive services’ as the strongest point of cooperative bank and the weakest is that co-operative bank has ‘no/limited online facilities’. Likewise,
implications and recommendations for the bank are offered.
Keywords: Co-operative Bank, Satisfaction, Customer
INTRODUCTION
Co-operative bank is a financial entity providing a wide range of banking and financialservices to its
customers. The main motive of co-operative bank is not to generate profit but to provide the best
possible products and services to its members and alsonon-members. Co-operative bank reduces
banking exclusion and foster economic growth. Co-operative banks are deeply rooted inside local
areas andcommunities. They are involved in local development and contribute to the sustainable
development of theircommunities. The exponential growth of co-operative banks in India is
attributed mainly to their much better local reach, personal interaction with customers, and their
ability to catch the nerve of the localclientele.
The Kurukshetra Central Co-operative Bank Ltd. came into existence in 1973 with the primary
objective of inculcating banking habits among the rural masses. The Bank has its jurisdiction
throughout the Kurukshetra District. At the time of registration, the bank had only four branches.
Keeping in view the persistence demand from the rural masses the bank has been opening new
branches for the facility of its customers. The bank has also functioned for accepting deposits and
advancing loans to the agricultural sector. Today with the changing scenario the bank has also
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Contemporary Issues in Banking, Insurance and Financial Services
diversified its functions and has also entered into the non-farm sector to complete with other
commercial banks. From the last approximate twelve years the bank has financing loans under
individual financing scheme for twenty two broad categories specified by RBI/NABARD. Despite
offering various schemes to its customers, in today’s era where competition in banking industry is
cut-throat, co-operative Bank also faces this competition and positive attitude and satisfaction of
Bank’s customers towards its services is a must. Accordingly, this paper analyzes the satisfaction of
customers towards Co-operative Bank, Kurukshetra. Now, in next section, literature reviews have
been presented.
LITERATURE REVIEW
Beevi.T.K.S. (2014) focussed on customer satisfaction provided by co-operative banks. 85
customers were randomly selected and their experiences were noticed. Results demonstrated that the
customers are highly satisfied with the services and attitude of employees, but they were dissatisfied
from technological aspects.
Joshi and Sankaranarayanan (2016) compared customers’ perceptions of service quality of state
cooperative banks and Multi-state cooperative banks. There is a need to identify the attributes of the
service quality perceived by the customers of banks. The service quality of the banks has been
measured using SERVQUAL (service quality) scale. Their findings showed that customer
satisfaction varies from person to person. From the survey it is evident that there exists gap between
what customer expects and what they perceive in various dimensions of service quality provided by
the bankers. It was too obtained that the multi-state cooperative banks are doing well because of
superior service quality than the state cooperative banks. The bank managers need to conduct more
research in order to evaluate customer satisfaction more thoroughly and try to reduce the gaps so that
customers are satisfied and the performance of the banks shall be improved. Kavitha and
Muthumeenakshi (2016) attempted to study the cooperative banks customer perception of service
quality in the Vellore service cooperative bank. Responses of 120 customers were randomly selected
for knowing their experience with the bank. The analysis showed that the customers were highly
satisfied with their services and attitude of the employees but they express their dissatisfaction
towards the less technological advancements.
Gupta and Manjrekar (2017) explored why co-operative banks lack in business growth despite being
established more than 100 years back. A set of questionnaires were prepared, customers were
selected randomly, and were asked to respond their felt experience about the banks’ services while
banking with the selected co-operative banks. The study established a robust relationship between
customer experience, their level of satisfaction and to find out as to why these banks’ failed to
acquire market share. Sharmi and Prabhakar (2017) proposed a systematically and qualitative
customer expectation measurement model based on service quality tool SERVQUAL, a five
dimensions namely Reliability, Responsiveness, Accuracy, Tangibility, and Empathy were used to
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Contemporary Issues in Banking, Insurance and Financial Services
measure the satisfaction level. The study explored the impact of customer satisfaction on the existing
system and how far the customers were satisfied with the performance of the bank. The results found
that according to the attributes, majority of customers are neutral. The feedback from the survey is a
testament to the customer expectation that some attributes are much more important for the
customers to judge a company. Also, the attributes given are of critical importance for the service
customers.
John and Thoomkuzhy (2018) concluded that the people under the low-income category are the main
service takers of the cooperative banks. Even though they are comfortable with the service rates,
they are dissatisfied with the bank in updating them with the information of new services. From the
opinion of one of the staffs it is clear that the legal constraints put forward by the Government have
restricted the growth of the co-operative banks.
Ganjawala and Joshi (2018) analyzed factors that influence customer satisfaction in cooperative
banks. The focus was on the cooperative banking sector in selected banks of south Gujarat. The
paper also sought to find out the level of customer satisfaction exists in different co-operative banks
of south Gujarat. The study found that main factors affecting customer satisfaction in the selected
banks of south Gujarat are environment of bank, interaction with customers, differentiation in
services, products and services, access of services and availability of services.
Radhakrishnan (2018) conducted a study on customer satisfaction level at Nationalised banks and
co-operative banks. Both Nationalised banks and co-operative banks have their distinctive roles in
catering the financial needs and other banking related services. Both these banks are widely accepted
in the state with identical services which can be clearly distinguished in the process of delivery.
Shriram and Suresh (2019) attempted to study customer perception and satisfaction of service
quality in the Pondicherry state cooperative banks. Responses of 90 customers were randomly
selected for knowing their experience with the bank. The analysis showed that the customers of the
bank were highly satisfied with banking services and attitude of the employees, but the findings
indicated that the dissatisfaction towards the less technological advancements.
Comprehending the literature, it can be said that there are numerous dimensions of satisfaction and
dissatisfaction, and majority of customers seem satisfied with co-operative bank. In the background
of the review of literature, this study effort to see the level of satisfaction of customers in
Kurukshetra district of the State of Haryana with regard to Central Co-operative Bank.
RESEARCH METHODOLOGY
The study is descriptive in nature and primary data are collected from a sample of 100 customers of
co-operative bank in Kurukshetra. A short questionnaire is prepared and certain questions were
asked which relates to customers’ satisfaction/dissatisfaction from bank’s services. Collected Data
have been analyzed simply with percentages.
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Profile of Respondents
The profile reveals that majority of respondents belong to age group 25 to 35 and least belongs to
less than 25 years of age group. Also, maximum number of bank’s customers are male (N=72).
Regarding education majority are graduates followed by post-graduate respondents. On the basis of
profile, it can be said that majority of bank’s customers are farmers. And majority of those people
who are this bank’s customers have annual income between 1 lakh to 3 lakh.
Table 1: Profile of Respondents
Demographic
Variables
Numbers of
Respondent
Percentages
Less than 25
11
11%
25 - 35
40
40%
35 - 45
20
20%
Above 45
29
29%
Male
72
72%
Female
28
28%
Graduate
35
35%
Post graduate
28
28%
Diploma
15
15%
Schooling
22
22%
Farmers
43
43%
Professionals
18
18%
Salaried
28
28%
Others
11
11%
Up to 1 lakh
33
33%
1lakh – 3 lakh
43
43%
3lakh – 5 lakh
20
20%
5 lakh or above
4
4%
Variables Categories
Age
Gender
Education
Occupation
Annual Income
ANALYSIS AND INTERPRETATION OF DATA
Before analyzing satisfaction of respondents, it is important to know which kind of bank accounts
respondents have with co-operative bank. So, firstly type of bank account has been asked for and
data presented in table 2.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 2: Type of Bank Account opened with Central Co-operative Bank, Kurukshetra
Bank Account
Numbers of Respondents
Percentages
Saving A/c
35
35%
Current A/c
25
25%
RD A/c
15
15%
TD A/c
10
10%
FD A/c
15
15%
Table 2 specifies that savings A/c is the type of account which majority of respondents are having with cooperative bank, Kurukshetra. Current A/c is opened by 25 per cent of respondents whereas 15 per cent
respondents each have RD A/c and FD A/c with bank. Least numbers of respondents are having TD A/c that
is 10 per cent.
Regarding the level of satisfaction with regard to Interest Rates, data is presented in table 3.
Table 3: Satisfaction with regard to Interest Rates
Particulars
Numbers of Respondents
Percentages
Highly Satisfied
35
35%
Satisfied
42
42%
Neutral
18
18%
Dissatisfied
5
5%
Highly Dissatisfied
0
0%
From the survey it was found that 35% respondents are highly satisfied, 42% are satisfied, 18% are neutral,
5% are dissatisfied and on one is highly dissatisfied with the interest rate of the bank. So, it can be said that
overall customers of bank are satisfied with the interest rate being offered by bank.
The response summary about the ‘Customer Satisfaction’ with regard to Processing Fees is available in table
4 which unveils that highly satisfied and dissatisfied customers are the same for the processing fees bank is
charging. However, majority of respondents are neutral on this question. It means the respondents are
somehow sceptical about the processing fees.Table 4 shows, ‘Satisfaction’ with regard to General Operations
of the Bank.
Table 4: Satisfaction with regard to Processing Fees
Level of Satisfaction
Numbers of Respondents
Percentages
Highly Satisfied
20
20%
Satisfied
18
18%
Neutral
30
30%
Dissatisfied
20
20%
Highly Dissatisfied
12
12%
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Contemporary Issues in Banking, Insurance and Financial Services
Table 5: Satisfaction with regard to General Operations
Particulars
Numbers of Respondents
Percentages
Excellent
32
32%
Very good
39
39%
Good
18
18%
Fair
11
11%
This table shows that 32 per cent of the respondents said standard of services provided by this bank is
excellent, 39 people said standard of services provided by this bank is very good, 18 people said that it is
good and 11 people. Hence, despite majority of respondents’ rate bank’s operations as excellent but still there
is a scope to improve the quality of operations.
Data given in table 6 shows that 51% of the respondents from the Cooperative Bank come to know about the
schemes and services of the bank by visiting personally. 24% by the words of mouth, 13% from the
advertisement and remaining 12% from the other source come to know about the schemes and services of the
bank.
Particulars
Personal visit
Table 6: Knowledge of Schemes of Bank
Numbers of Respondents
51
Percentages
51%
Advertisement
13
13%
Words of mouth
24
24%
Others
12
12%
Table 7 indicates, majority of the respondents from Cooperative Bank think that image or brand of the bank
has its influence on customers. 58% of respondents out of 100 are agreed that customer consider the brand of
the bank while going for the banking. It can be interpreted that it might influence the decision of customers
and prospects.
Table 7: Influence of Bank’s Image on Customers
Particulars
Numbers of Respondents
Percentages
Agree
58
58%
Disagree
42
42%
The response about the Satisfaction with regard to Computerized Banking system is shown in table 8. Major
part of the Cooperative bank’s customers’ are dissatisfied with the computerized system in the bank. Only 11
per cent of respondents can be said as satisfied with the present computerized system of the bank.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 8: Satisfaction about Computerized Banking
Particulars
Numbers of Respondents
Percentages
Highly Satisfied
02
2%
Satisfied
09
9%
Neutral
17
17%
Dissatisfied
29
29%
Highly Dissatisfied
43
43%
The table 9 shows that 28 per cent customers see efficient staff as the strongest point of this bank, 40 per cent
people said strongest point of this bank is attractive schemes, 20 per cent people said that strongest point is
excellent customer services, and 12 per cent are of the opinion that strongest point is branch ambience. Thus,
satisfaction of customers can differ from these points of views.
Table 9: Perception about Strongest point of the Bank
Particulars
Numbers of Respondents
Efficient Staff
28
Attractive Scheme
40
Customer Service
20
Branch Ambience
12
Percentages
28%
40%
20%
12%
Table 10 presents data regarding the perception about the weakest point of this bank. Amongst the 100
respondents, 54 per cent respondents say that the weak point of cooperative bank is limited online facilities,
19 per cent say that it does not provide ATM facility and remaining 27 per cent respondents say that it
provides low interest rates.
Table 10: Perception about Weakest Point of the Bank
Particulars
Numbers of Respondents
Percentages
Limited Online Facility
54
54%
No ATM Facility
19
19%
Low interest Rate
27
27%
CONCLUSION
Overall, the majority of respondents are male and they have their accounts under the saving scheme.
It came out that maximum number of customers is satisfied with the interest rates provided by the
bank; but, satisfaction was not found with regard to processing fees charged by the bank.Majority of
the respondents can be said as satisfied with the general operations of the bank. However, customers
do not get any appreciations from bank. The most prominent source of getting bank’s information is
personal visit. Further, large number of customers said that computerized banking is essential for cooperative bank now-a-days. The strongest point of co-operative bank is that it offers attractive
services and the weakest is that bank has no/limited online facilities.
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Contemporary Issues in Banking, Insurance and Financial Services
Though, majority of respondents are satisfied with bank interest rates; but, bank should try to
increase the interest rate it is offering presently. All the complaints of the customers should be dealt
in a proper manner because he/she is the customer who will give good or bad word of mouth about
the bank services.Bank should improve their services so that faster services will be provided to the
customers. Bankshouldtrytoimplementandadapttotechnologicalchangesandstart services like Internet
Banking, Mobile Banking etc.Also, customers should be rewarded as best customer of the month
and other schemes for their enhanced level of satisfaction. Cooperative bank in many of the
operations are still using the manual books for accounts instead of computerized banking. So, there
is a scope of improvement.
REFERENCES
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Beevi.TKS, F. A. (2014). Customer Satisfaction and perception towards the services of co-operative banks.
International Journal of Economics and Business Review , 62-66.
Ganjawala, M., & Joshi, P. (2018). Factors responsible for customer satisfaction in selected co-operative
banks of surat city. International Journal of Creative Research Thoughts (IJCRT) , 6 (1), 145-152.
Gupta, R. K., & Manjrekar, P. (2017). A study of customer experience about banking services in select cooperative banks in south central mumbai. International Journal of Management Studies , IV (Special), 90-99.
John, M. E., & Thoomkuzhy, J. J. (2018). Service quality dimensions and customer satisfaction of
pathanamthitta district co-operative bank. International Journal of Management, IT &Engineering , 8 (3), 307319.
Joshi, A. M., & Sankaranarayanan, K. G. (2016). Service quality and customer satisfaction among selected
state cooperative & multi-state cooperative banks in goa - a study. International Journal of Science and
Research (IJSR) , 5 (11), 738-743.
K., Shriram, & Suresh, J. A. (2019). Customers perception and satisfaction on the quality of services offered
by the pondicherry state of co-operative banks. International Journal of Research in Advent Technology
(IJRAT) (Special), 181-184.
Kamaraju, T., & Babu, C. M. (2018). A comparative study on quality of customer service in central
cooperative banks (with special reference to Srikakulam and Visakhapatnam districts of Andhra Pradesh
state). National Journal of Advanced Research , 4 (3), 1-9.
Kavitha, N. A., & Muthumeenakshi, M. (2016). A study of customer satisfaction and perception towards the
services of co-operative banks. International Journal of Engineering Technology, Management and Applied
Sciences , 4 (10).
Radhakrishnan, P. (2018). Customer satisfaction in co-operative banks in comparison with nationalized banks
with special reference to palakkad district. Paripex - Indian Journal Of Research , 7 (10), 61-65.
Sharmi, G. R., & Prabhakar, L. (2017). Customer satisfaction in Imphal urban co-operative bank Ltd,
Manipur. IOSR Journal of Business and Management (IOSR-JBM) , 19 (1), 73-78.
89
Contemporary Issues in Banking, Insurance and Financial Services
Environmental Sustainability Trough Green Banking: A Study with
reference to India
Ms. Namarta
Research scholar, University School of Management, K.U. Kurukshetra
Email- Namarta.usm@kuk.ac.in
Dr. Nirmala Chaudhary
Professor, University School of Management, K. U. Kurukshetra
Email- nchaudhary@kuk.ac.in
Abstract
Industrialization around the globe has triggered the pursuit of ever increasing needs and demands of the
population and it has become symbolic of prosperity and development of an economy. But on the other hand
it has resulted in the exploitation of the natural environment which in turn has disturbed the ecological
balance. This has raised an important issue of environmental protection among environmentalists, policy
makers from all over the world. Now a day, the environmental sustainability has become an important agenda
in the international community. This paper attempts to study the various ‘Green Banking’ approaches adopted
by private and public sector banks in India for environmental sustainability. Further this paper also
categorizes the phases of Green Marketing initiatives of the banks on the basis of their green banking
initiatives. The findings reveal that with time the Indian banking sector has understood the importance of
environmental protection and started taking various initiatives under its green banking approach. The finding
also shows that public sector banks have taken more green banking initiatives as compared to private sector
banks with an exception of one bank.
Keywords: Environmental Sustainability; Green Banking; Green Initiatives; Phases of Green Marketing.
INTRODUCTION
The problem related to environment, maintaining the ecological balance and environmental
sustainability has become issues fordebate around the globe. The organizations as well as
consumer have understood the importanceof the environment for the survival of human beings.The
green movement has got attention and expandingrapidly in developed countries butwith the time
there is increasing receptiveness among consumers about going green in Indian subcontinentalso [1].
Today, green or environmental marketing has becomea strategic marketing approach with recent
focus in business endeavors [2]. Now the profit driven firmshave also accepted the green marketing
strategies dueto political and social pressures and with the time they have exploited the ecological
issues as a source of competitive advantage [3].Toexplore this competitive advantage green and
clean technologiesare finding their way into functionalareas of day today business operations of
various organizations including the banking sector.
BANKING SECTOR IN INDIA & INDIAN ECONOMY
India’s financial system has undergone reforms in theyear 1990 as the part of the economic reform policy[4],
[5].The financial system plays an important role in the economic growth of a nation; and banking system
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Contemporary Issues in Banking, Insurance and Financial Services
plays a major role in representing Indian financial system [6]. In India the banking systems is divided into two
major forms: Scheduled Commercial Banks and Scheduled Co-operative Banks. Scheduled Commercial
Banks consist of Public sector banks, Private Banks, Foreign Banks and Regional Rural Banks.The banking
sector has contributed 7.7 percent of total GDP of the country in the financial year 2020-2021. Traditionally
the Indian financial system is being based and so far banking sector has played aseminal role in supporting the
economic growth of the nation. [7]. The concept of ‘Green Banking’ will be beneficial to the environment,
banking industries as well as economy & it will not ensure the greening of industries only but also facilitates
the improving in asset quality in the future [8].
CONCEPTS OF ENVIRONMENTALSUSTAINABILITY&GREENBANKING
Environmental Sustainability is ‘the ability to maintain the things that are valued in the physical environment
(natural and biological environments)'. Environmental sustainability could be defined as ‘ a condition of
balance, resilience, and inter connectedness that allows human society to satisfy its needs while neither
exceeding the capacityof its supporting eco systems to continue to regenerate the services necessary to meet
those needs nor by our actions diminishing biological diversity’[9].’
The concept of Green Banking is attached to Triodos bank (established in 1980) from Dutch origin which
started the environmental sustainability in the banking sector from the very first day.In the year 1990 the bank
launches ‘Greenfund’for funding environment friendly projects and allot her projects follow later [10]. Taking
example from this bank thebanksall overthe world starttaking green initiativesinthe banking sector. Institute
for Development and Research in Banking Technology [11] defines Green Banking as ‘Green Banking is
anumbrellaterm referring to practices and guidelines that make banks sustainable in economic, environmental,
and social dimensions. So it can be concluded that Green Banking approach involves using environmentally
friendly practicesate very level from adapting environment friendly practices with in the banking
organizations and also considering the environmental aspect of the projects while funding and investing in
commercial projects.
REVIEW OF LITERATURE
Alice Mani (2011) indicated that as Socially Responsible Corporate Citizens (SRCC), banks have a major role
and responsibility in supplementing governmental efforts towards substantial reduction in carbon emission.
Banks participation in sustainable development takes the form of Green Baking. The author examined and
compared the green lending policies of banks in India in the light of their compliance and commitment to
environment protection and environment friendly projects. It was opined that Banks in India can implement
green lending. T.Rajesh and A.S. Dileep (2014) concluded that Green Banking is an umbrella term referring
to practices and guidelines that make banks sustainable in economic, environment, and social dimensions.
Before making the decision to finance a project, banks must see its environmental risks and ensure the project
players have environmental safety measures in their plans, including recycling facilities or smoke and gas
arresting units. Wuni, Shen, and Osei-Kyei (2019) did a scientometric review on research trends in Green
Buildings from 1992 to 2018. The study revealed that 44% of the nations in the world are participating in
Green Building research and also identified future research areas in the field of Green Buildings.
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Contemporary Issues in Banking, Insurance and Financial Services
PHASES OF GREEN MARKETING
In an article Peattie[12] mentioned that GreenMarketing has evolved through three phases namely The First
Age:‘Ecological’ Green Marketing, The Second Age: ‘Environmental’ Green Marketing, and Towards the
Third Age:‘Sustainable’ Green Marketing
.
‘Ecological’ Green Marketing: The First Age
(a)This phase sought to identify the products, companies or industries which were having a direct negative
impact on the environment.
(b)Providing immediate solutions to specific ‘environment problems’ caused by these industries such as
impact of synthetic pesticides, oils pills, pollution, depletion of natural resources etc. ‘End of pipe
’improvements were used by the organizations.
(c)The first age resulted into increasing amount of environmental regulation within the legal environment.
‘Environmental’ Green Marketing: The Second Age
(a) The second stage witnessed a gradual shift from ‘end of pipe’ pollution clean up towards clean
technology. The focus was on innovation, either to design innovative products or innovative production
systems which eliminate waste and pollution at the designing stage. Quality standard ISO1400 series were
drafted that is related to qualities of companies in term of environmental management system.
(b) The phase evolved the concept of ‘Green Consumers’ and also resulted in recycled packaging, packaged
food goods with environmental claim, moving from litter to land fill.
(c)Marketer realized that good socio-environmental performance could be a basis of competitive
advantage.This becomes ‘Win-Win’situation for an organization where they can improve their environmental
performance and may be benefited from increased consumer demand of green products.
Towards the Third Age: Sustainable Green Marketing
(a) It started addressing green marketing not just in term of environmental damageand competitive advantage,
but in pursuit of sustainability. This phase created the need of including sustainability in the system along
with already established economic and social system.
(b) The third age i.e. sustainability is based on three main components that are futurity, equity and
emphasison needs respectively.
OBJECTIVE OF THE STUDY
Followingaretheobjectivesofthestudy:
(a)To study the environment friendly practices adopted under green banking approach by various banks in
India.
(b)To study the various initiatives taken by Indian banks by adopting Phases of Green Marketing given by
Peattie (2001).
RESEARCH METHODOLOGY
For conducting the study top performing banks (on the basis of net profit) in India from private and public
sector were taken for the study. The topper forming banks in both private and public sectors on the basis of
their net profit are mentioned in Table1. These condary method of data collection has been used in this study.
The information and data regarding the green practices adopted by the various banks have been accessed from
the sources such as company official website, annual reports, sustainability reports, article etc.
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Contemporary Issues in Banking, Insurance and Financial Services
Table1:Top Performing Banks on the basis of their net profit
Public Sector Banks
Banks
State Bank of India
Indian Bank
Bank of Baroda
Punjab National Bank
*Source:moneycontrol.com
Net Profit Rs(cr.)
14,488.11
753.36
546.19
336.19
Private Sector Banks
Banks
ICICI Bank
HDFC Bank
IndusInd Bank
Kotak Mahindra
Net Profit Rs(cr.)
7,930.81
26,257.32
4,417.91
5,947.18
GREEN BANKING INITIATIVES IN INDIAN BANKS-CASELETS
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Until recently, green banking just seemed like an initiative and such environmental concerns did not really
seem to be relevant to a bank’s operations. Although the banking and financial institutions are not directly
affected by the environmental degradation, there are indirect costs to banks. Credit, legal and reputation risks
have constantly been haunting these banks unless such initiatives are taken.
TheGreenBankingInitiativestakenbySBI
SBI is focused on offering products and services as well as implementing new initiatives in a responsible
manner to manage its environmental impact. The Bank is determined to make improvements in its
environmental impact on an ongoing basis. Several action points and initiatives have been put into effect
during the reporting period (FY 2019-20).
Instituting a Green Home Loan scheme to support environment-friendly residential projects that are rated by
the Indian Green Building Council (IGBC)
Continuing with significant investments in renewable energy As on 31st March 2020, the Bank has a portfolio
of 55 cars and 994 e-rickshaws financed under its Green Car Loan and e-rickshaw loan schemes respectively,
giving a boost to clean mobility in the country.
SBI has raised a Green Bond worth USD 100 million under this framework to finance its green projects. This
marks the third such issuance by the Bank, following the Green Bonds worth USD 650 million and USD 50
million issued in FY 2018-19. Use of Proceeds SBI has utilised all the proceeds from the Green Bond towards
projects in the renewable energy, solar power and SBI has set up a Green Bond Committee to monitor the
portfolio on a quarterly basis.
The Green banking initiatives taken by Bank of Baroda
The Bank implemented e-approvals and Board-Pack for paperless approval and paper less e-meeting
respectively which resulted in substantial reduction in usage of paper in the Bank. The Bank stopped issuance
of physical circulars for internal circulation. The Bank started sending statement of accounts through secured
emails to willing customers so as to reduce paper consumption.
A wet garbage (Bio-Gas) plant was set up at the Corporate Office to process wet garbage / waste from staff
canteen and convert into bio-gas and manure which was used for cooking and agricultural purposes.
Solar Panels / Tree were installed at Corporate Offices and at some of the Bank's staff quarters. The Bank is
committed to increase the usage of renewable (Solar) energy resources for its internal energy requirements.
Energy efficient LED light fixtures were installed in all branches/offices.
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Contemporary Issues in Banking, Insurance and Financial Services
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The Bank started rain water harvesting in its owned buildings. Sewerage Treatment Plant(STP) was set up at
Baroda Corporate Centre.
TheGreen Initiatives taken by Indian Banks
Provision of Internet banking, mobile banking, phone banking and electronic cards was added as alternate
delivery channel to reduce the use of paper in banking procedure.
Reduction in paper usage by e-transaction advices, to corporate customers and electronic statements for retail
customers.
Various green initiatives such as distribution of tree saplings and creating awareness among society have been
undertaken by the bank.
The bank has undertaken initiatives to popularize use of solar street lights and rain water harvesting in rural
areas.
The Green Banking Initiatives taken by Punjab National Bank:
Green initiatives taken by the bank includes promotion of rain water harvesting, reduction in usage of paper
by using e -mail for inter -office communications, reduced power consumption through various energy
conservation measures and conducting tree plantation drives.
The bank also promotes the green initiative in the following ways:
1. Conducting electricity audit of offices as an energy conservation initiative.
2. Emphasizing on green buildings
3. Adopting simple green practices such as energy efficient lights, printing on both sides of paper, purchasing
composite fax machines, immediate repair of water leakage etc.
4. Guideline for providing finance to units producing clean energy such as solar energy, wing energy and
hydro energy on merits of each case which helps in containing Green House Gases emission leading to clean
environment.
Green Banking Initiatives of ICICI Bank
The bank is working with Green Business Centre in collaboration with other business organization having
focus on promoting green building, energy efficiency, recycling etc.
The bank has aided varied activitiesthat helped in widespread of the ISO: 14000, which is associated in
providing Environment Management System Certification.
Bank has been consistently focused on reducing consumption of paper through a multipronged strategy as
part of our ‘Green Banking Initiatives’. In addition, bank procures environment friendly copier paper which is
manufactured from wheat straw which is an agricultural residue.
ICICI Bank ensures usage of renewable energy at its premises wherever feasible. In order to reduce our
carbon footprint, in fiscal 2020, 7% of our total electricity consumption was sourced from renewable sources.
Bank replaced old air-conditioning systems at 492 branches and 200 ATMs with inverter-based, 5-Star rated
systems, leading to more than 25% saving in energy.
Green Banking Initiatives of HDFC Bank
Reduction in paper usage by issuing e-transaction advices to corporate customers & encouraginge-statements
among retail customers.
Energyconservation by conventional light options by CFLs,and establishing green data centers. VRF/VRV
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Contemporary Issues in Banking, Insurance and Financial Services
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AC's are provided instead of conventional AC's in all new back offices and LED lights are being installed in
place of conventional CFL/Fluorescent fittings.
ATM and Server Rooms are being collocated to reduce number of individual air conditioning units The Bank
has two LEED(Leadership in Energy and Environmental Design) certified Buildings in Mumbai and
Bhubaneswar
The Bank supplements grid power with renewable energy by means of solar panels installed at some of our
large offices.
The Bank has incorporated energy efficiency at our data centres, by reducing server rack space and the Bank
is also using Lithium ion batteries in UPS devices and ozone friendly refrigerants for cooling.
Green Banking Initiatives of Induslnd Bank
Green infrastructure: The Bank finances real estate developers that directly provide products/services for
infrastructure projects with certifications such as LEED/ GRIHA/ IGBC or equivalent certification. It also
provides financing for retrofitting/replacement in existing buildings for becoming eligible for ecocertifications.
The bank is contributing to its ‘going green’ efforts.
The Bank has forayed into green and climate investing projects and energy efficient operational controls. It
also participates in global disclosure platforms such as the Carbon Disclosure Project (CDP) and Dow Jones
Sustainability Index (DJSI), thus driving the global sustainability agenda forward.
The Bank facilitates funding of specific sectors that contribute towards a positive environmental impact,
through one of the sustainable finance themes. The Bank is increasing its green and climate finance portfolio
through sectors such as renewable energy, energy efficiency, water and sanitation, alternate fuels and others.
Green Banking Initiatives of Kotak Mahindra Bank
‘Think Green’ initiatives taken by the banken courage theconsumer to signfore-statementand fo revery estatement signed Trees.complantsa tree on behalf of the bank.
Facilities such as netbanking, SMS based transaction detail for costumers are provided by the bank that help
in paper less banking and reduce the carbon footprint.
Government of India the bank encouraging the share holders for opting the electronic form of the annual
report.
CONCLUSION
In accordance with the first objective to study about the green banking initiatives in India, the study shows
that sustainability has become a major concern for the banking sector (both public as well as private sector) in
India and banks are adopting the environmentally friendly practices. It was analyzed that public sector banks
are emphasizing more on green initiatives as compared to the private sector banks except ICICI Bank. The
private sector banks except ICICI bank are mainly inclined toward green initiatives such as net banking,
mobile banking to compete in the environment.
In respect to the second objective to analyze the phases of green marketing initiatives it was found that most
of the green banking initiative staken by banks lies in the ‘Environmental’ Green Marketing: The Second
Age. Whereas initiatives taken by ICICI Bank such as Promoting EMS certification (ISO:14000) among
manufacturing industries, waiver on processing fee of car model using CNG & LPG and Helping and
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Contemporary Issues in Banking, Insurance and Financial Services
promoting the use of clean technology among smaller firms categorized it into Towards the Third Age:
Sustain able Green Marketing. As the bank initiatives for environment are showing their concern for
environmental sustainability with a focus on basic needs & futurity.
In a rapidly changing market economy where globalization of markets has intensified the competition, banks
should play an important role to take environmental and ecological aspects as part of their lending principle
which would force industries to go for mandated investment for environmental management. The banking and
financial sector should be made to work for sustainable development. Even though they have started adopting
green practices, but still a lot of channels are unutilized by the Indian banks for greening their activities.
Moreover they could adopt the green practices only in selected branches. They should expand the use of
environmental information in their business operations, credit extension and investment decisions. Not only
“Green Banking” will ensure the greening of the industries but it will also facilitate in improving the asset
quality of the banks in future.
LIMITATIONS
The study uses secondary data analysis & it may reflect the perspective of the original investigator may not
reflect the question of interest to others [13].Using the secondary data for analys is limit there searcher to do
what is possible from the available data and shape the questions to match with the data[14].
REFERENCES
[1] Raghavan,L.,&Vahanti,G.(2009).Going Green in India.Landor,1-5.
[2] Ottman, J. (1998). Green Marketing: Opportunity for Innovation. New York, NY: NTC- McGraw-Hill.
[3] Chen,T.B.,& Chai,L.T.(2010).Attitude towards the environment and green products: Consumers’ perspective.
Management Scienceand Engineering, 4(2),27-39.
[4] Porter, M. E., & Van der Linde, C. (1995). Greenandcompetitive:ending the stalemate. Harvard businesss
review,73(5),120-134.
[5] Orasto, R.J. (2006). Competitive Environmental Strategies: When does it pay to be green. California
Management Review,48(2),127-143.
[6] Porter,M.E.,&Vander Linde,C.(1995). Toward a new conception of the environment-competitivenessr
elationship. The Journal of Economic Perspectives, 9(4),97-118.
[7] Chakraborty, I.(2010). Financial Development and Economic Growth inIndia An Analysis of the Post-reform
Period. South Asia Economic Journal, 11(2),287-308.
[8] Shimizu,S.(2010).TheStateoftheIndianBankingSectoranditsRoleinIndia’sHighGrowth. RIM Pacific Business
and Industries, 10(36), 1-35.
[9] Dinodia Capital Advisors (2013). Indian Banking Industry: Rising Above the Waves, Retrieved Accessed 25
July,
2013
at
http://www.dinodiacapital.com/pdfs/Indian%20Banking%20Industry%20%20Rising%20Above%20the%20Waves,%20January%202013.pdf.
[10] Porter, M.E.,& Vander Linde, C. (1995). Toward a new conception of the environment-competitiveness
relationship. The Journal of Economic Perspectives, 9(4),97-118.
[11] Shimizu,S.(2010).The State of the Indian Banking Sector and its Role in India’s High Growth. RIM Pacific
Business and Industries, 10(36), 1-35.
[12] Khan,H.R.(2013).Indian financial market-fuelling the growth of Indiane conomy. ADB Annual Conference,
Greater Noida, Accessed 09August,2013http://www.bis.org/review/r130514d.pdf?frames=0.
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Contemporary Issues in Banking, Insurance and Financial Services
[13] Blaikie,N.(2000). Designing Social Research. Polity Press in association with Black well Publishers:
Malden,MA,USA.
[14] Hancock,B.(2000).Trent Focus for Research and Development in Primary Health Care: An Introduction to
Qualitative Research. Trent Focus,
1998. Retrieved
fromhttp://faculty.cbu.ca/pmacintyre/course_pages/MBA603/MBA603_files/IntroQualitativeResear
ch.pdf
[15] Mishra, D. K. (2013). Green strategies: Response of Indian banks to climate change. Development, 25, 27
[16] Ikram, M., Zhou, P., Shah, S., & Liu, G. (2019). Do environmental management systems help improve
corporate sustainable development? Evidence from manufacturing companies in Pakistan. Journal of Cleaner
Production, 226, 628–641
[17] Jan, A., Marimuthubin Mohd, M. M. P., & Isa, M. (2019). The nexus of sustainability practices and financial
performance: From the perspective of Islamic banking. Journal of Cleaner Production, 228, 703–717.
[18] Nizam, E., Ng, A., Dewandaru, G., Nagayev, R., & Nkoba, M. A. (2019). The impact of social and
environmental sustainability on financial performance: A global analysis of the banking sector. Journal of
Multinational Financial Management, 49, 35–53.
[19] Miah, M. D., Rahman, S. M., & Mamoon, M. (2020). Green banking: The case of commercial banking sector
in Oman. Environment Development and Sustainability, 1–17
97
Contemporary Issues in Banking, Insurance and Financial Services
Corporate Governance in Banking Industry: A Comparative
Perspective
Ms. Shivani, Research Scholar
University School of Management, Kurukshetra University
Email- shivani.usm17@kuk.ac.in
Dr. B S Bodla. Professor
University School of Management,Kurukshetra University
Email-bsbkuk@gmail.com
Abstract: In many countries, including India, the period of liberalization, globalization, and opening up the
contours of national economies emerged in the 1990s. The banking sector has always reacted to these
changes. Banks have implemented many strategies to adapt their policies and processes to safeguard their
strength and to handle changes-related reforms effectively. Millions of depositors put their hard-earned
money in banks with the expectation that the principal would be safe. In order to preserve depositors'
interests, stringent governance frameworks should be enforced in the banking sector. The current research is
explanatory and analytical in nature, with the aim of better understanding the conceptual framework and
analyzing corporate governance practices based on their free float market capitalization listed on the BSE as
of March 31, 2020, as well as some selected public and private sector banks. It also looks at the relationship
between board size, the proportion of executive directors on the board, net profit, net non-performing assets
accrued, and the capital adequacy ratio in Banks in India.
Key Words: Governance, Non-Performing Asset, Bank, Capital Adequacy Ratio.
BACKGROUND
“As per Confederation of Indian Industries (CII), 'Corporate Governance occupies mind space of the
government, regulators, corporate, boards, markets, employees and Investors-Almost the entire society-as one
of the most important business constituents given its all-pervasive characteristic'. The corporate governance
mechanism is much more crucial in the banking sector due to multifold reasons. Banks serve a crucial link in
the nation's financial system, banks are highly leveraged as they accept large amount of uncollateralized
public funds as deposits in a fiduciary capacity and further leverage those funds through credit creation. Apart
from these, banks provide access to payment systems and a variety of retail financial services for the economy
at large. Interrelatedness of transactions makes the risk of contagion a reality and consistently poor decisions
by one bank can create serious troubles for other banks. Banks, more than other corporate have to match the
conflicting interests of different stakeholders.” (Dhar, S. K., & Lama, P. (2018))
During the British rule in India, modern banking was adopted with the principle of unlimited liability. The
General Bank of India was established in 1787 to serve as the government's banker. In 1771, the Bank of
Hindustan was introduced in Calcutta. In 1860, limited liability joint stock banking was created. “During the
years 1870-1894, 7 banks with limited liability clauses were created. In 1905, the Swadesi movement decided
to give up a share of the market to indigenous banks, and between 1906 and 1913, five large banks and a
number of small banks arose. Bank of Baroda, Mysore Bank, Indian Bank, and Bank of India were the four
major banks.”(Pathak, 2007)
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Contemporary Issues in Banking, Insurance and Financial Services
“During World war-I and earlier to that nearly 54 small banks failed and nearly 34% paid up capital of
banking sector was lost. By the end of 1923, total number of bank failures was 143. From the beginning of
20th century banking has been so developed that in fact, has come to be called 'life blood' of trade and
commerce.”(Munjal,1990). “During the post-independence era, the increasing tempo of economic activity led
to the expansion of scope and direction of banking at a rapid pace.” (Naruala, 1992).
LITERATURE REVIEW
Ghosh (2005), highlighted that the linkage between the financial condition of the corporate and banking
sector asset quality is modelled at the aggregate level. The asset quality of banks is a function of corporate
leverage and a set of control variables.” Mahapatra (2012) “said that Indian banks will have high common
equity capital ratio and it will prove to be a good thing for the Indian banks. More than 50% of the Indian
banks have a common equity capital ratio of more than 8% and hence these can implement Basel III even
today. Since the Government is holding high stake in the PSUs banks, the dependency of these banks on
Government for capital support will go up.
Roy (2013), opined that Indian banks have a high capital adequacy as of now and therefore they may not need
any additional capital till 2015. But after that, when the capital requirements will increase because of the
countercyclical buffer requirements, it would be difficult for the public sector banks to raise money. It will
increase the borrowings of the government and will negatively affect the fiscal deficit. Hence the date of
implementing the common equity for the public sector banks should be delayed for 2-3 years to cope with the
increasing burden on Government.
Saibaba (2013) indicated that in the Indian context, the firms with large board size have better valuation.
Perhaps the justification needing a larger board size in Indian context is that SEBI's clause 49 of the listing
agreement has both mandatory and voluntary requirements for the formation of different committees such as
audit committee, nomination committee etc. Larger board size may minimize the overlapping of functions.
Satpathy, Behera and Digal (2015), discussed that NPAs in the Indian banking sector have been on rise
significantly which is a cause for serious concern for the policymakers, particularly the Government and the
RBI.
Kumar, R. (2016) has depicted in his investigation that Public Sector banks need more noteworthy
useful independence in a deregulated domain, notwithstanding, should be joined by more prominent
responsibility with respect to their sheets to investors and partners and strategy on corporate administration
will be filled in as in compelling way for accomplishing the chose objective. Kumar,S. S. and
Kannappan, M. (2018) has shown that there is a parallel improvement of administration in each open and
private division association. In Adoption comparable fundamental shrewd organization administration
guidelines, the overall population and private area created as parallel premise on possess particular
administration models, practices and components that suit each individual association.”
OBJECTIVES OF THE STUDY
The objectives of the proposed study are as follows (i) To identify the need of corporate governance in Indian Banking Sector
(ii) To analyze the corporate governance practices of selected Banks.
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Contemporary Issues in Banking, Insurance and Financial Services
RESEARCH METHODOLOGY
This study is empirical in nature and the sources of data are secondary data which are collected from websites
and the annual reports of concerned banks for the fiscal year (2019-20). The banks included in Bankex
(BSE) as of March 31, 2020 are chosen based on their free float market capitalization (Exhibit 1).
Exhibit-1: Banks included in the BANKEX [BSE] as on 31st March 2020
In the analysis section, appropriate statistical methods such as correlation coefficient are considered
between proportion of executive directors in board and net profit, board size and net profit, board
size and capital adequacy ratio, proportion of executive directors in board and Net NPA and
proportion of executive directors in board and capital adequacy ratio. Exc el is used to analyze data.
NEEDS OF CORPORATE GOVERNANCE IN INDIAN BANKING SECTOR
The corporate world is taking a relentless march towards better corporate governance standards and
adoption of uniform accounting standards and disclosure requirements. These twin requirements are
particularly relevant to the banking sector where depositors' funds are many times higher than the equity
of promoters. For effective governance, it has to be ensured that the conflicts of interest between the
stakeholders are mitigated. Proper governance has emerged as an important benchmark for improving
competitiveness and enhancing efficiency and thus improving investors' confidence and accessing
capital , both domestic as well as foreign. Banks operate on trust and the funds they receive from
depositors are on the basis of trust. Last but not the least, in case of public sector banks the importance
of governance is further magnified because of their large share of the banking business and also because
of the fact that they are government owned entities (Kamath, 2014).
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Contemporary Issues in Banking, Insurance and Financial Services
Table1:Evolution of Corporate Governance in Indian Banks
Supervisory role of the Reserve Bank of India:
The Reserve Bank of India (RBI), the nation's apex financial institution, began operations on April 1, 1935, in
compliance with the provisions of the RBI Act of 1934. “Often the institutional change was triggered by a
banking crisis which hurt the reputation of the supervisors. Nevertheless it is an ongoing debate whether the
supervisory structure should be reformed and if so in what direction. It can be said without any ambiguity that
a flawless, efficient and effective supervisory model can be created if regulatory independence, supervisory
independence, institutional autonomy and budgetary independence are free from the political interference and
bureaucratic hassles” (Masciandaro et al, 2007). “The risk based supervision provides major emphasis on risk
where risk arises from the asset liability mismatch in the banking sector. A vital issue in the strategic bank
planning is Asset and Liability Management (ALM). The objective of ALM is to maximize returns through
efficient fund allocation given an acceptable risk structure. ALM is a multidimensional process, requiring
simultaneous interactions among different perspectives. If the simultaneous nature of ALM is discarded,
decreasing risk in one dimension may result in unexpected increases in other risks” (Tektas et al, 2009).
Excessive off-balance-sheet exposure is another area of concern for banks.
Emergence of Basel Framework:
The Basel Committee establishes broad supervisory principles and guidance, as well as statements of best
practise in banking supervision, with the aim that member authorities and authorities from other countries will
take action to enforce them in their own national frameworks, whether in legislative form or otherwise. The
Basel Committee on Banking Supervision (BCBS) exists to facilitate convergence toward similar approaches
and standards. The Committee is not a traditional multilateral body, in part because it lacks a founding treaty.
BCBS does not issue binding regulations; instead, it serves as an informal platform for the creation of policy
solutions and standards. The BCBS proposed that resources be used to cover losses. Minimum capital levels
provide a minimum level of resilience against risks and help to shield a bank from insolvency. As a result,
banks should retain a certain capital adequacy ratio as a safety cushion.
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Contemporary Issues in Banking, Insurance and Financial Services
SEBI Clause 49: A Government resolution created the Security Exchange Board of India in 1988. On
February 21, 1992, the SEBI was granted statutory status as an autonomous, independent, and quasi-judicial
regulatory body. The SEBI has introduced a variety of policies to encourage institutional investors to the
Indian capital market. When they conduct various workshops and seminars through SEBI accredited financial
resource persons to raise the awareness of individual investors, they are also gradually implementing stringent
corporate governance regulations to gain the confidence of lay investors. On May 7, 1999, the Security
Exchange Board of India formed a corporate governance committee with the goal of stimulating and raising
corporate governance standards. In compliance with SEBI guidelines, the stock exchanges in India have
changed the listing conditions by incorporating a new clause (clause 49) to ensure that companies make
proper disclosure for ensuring corporate governance.
National Voluntary Guidelines on Business Responsibilities
The Ministry of Corporate Affairs, Government of India, published the National Voluntary Guidelines on
Social, Environmental, and Economic Obligations of Company in July 2011.
Table2: Nine areas/principles of business responsibilities adopted by the Government
Companies Act. 2013
The Companies Act.2013 added a new dimension in the literature of corporate governance by way
of introduceing new definition and features like auditing standards, accounting standards, associate
company, CFO, CEO, deposit, employee stock option, control, financial statement, Indian
depository receipt, global depository receipt, independent director, key managerial personnel,
interested director, promoter, small company, one person company,voting right, turnover,etc.
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Contemporary Issues in Banking, Insurance and Financial Services
COMPLIANCE OF SEBI GUIDELINES (CLAUSE 49 OF CORPORATE GOVERNANCE)
The Security Exchange of India (SEBI) requires all listed companies to follow the SEBI clause 49.
The company's Board of Directors must have an optimal mix of Executive and Non-Executive
Directors. If the board has a non-executive chairman, independent directors must constitute at least
one-third of the total number of directors on the board of the company. If the board has an executive
chairman, independent directors must make up at least half of the total number of directors.
Table3: Details of the selected PSU and private banks as on 31st March, 2020
S.No
Name of
theBank
Total
no. of
directors
No. of
Proportion
ex. directors Of executive
directorsx100
Net Profit
(Crore)
CapitalAdequ
acyratio GrossNPA NetNPA
1
SBI
13
2
15.38%
862.23
13.06%
6.15%
2.23%
2
PNB
8
4
50%
(9,975.49)
12.84%
14.21%
5.78%
3
BankofBaroda 9
4
44.44%
433.52
12.50%
9.40%
3.13%
4
Bank ofIndia
7
2
28.57%
(5,546.90)
12.80%
14.78%
3.88%
5
CanaraBank
9
4
44.44%
347.02
12.77%
8.21%
4.22%
6
AxisBank
10
3
30%
1,627.22
17.53%
4.86%
1.56%
7
FederalBank
11
2
18.18%
1,542.78
14.70%
2.84%
1.31%
8
HDFCbank
10
2
20%
26,257.32
18.90%
1.26%
0.36%
9
ICICIBank
12
3
40%
7,930.81
16.11%
5.53%
1.41%
10
IndusIndBank 10
3
30%
4,417.91
14.19%
2.45%
0.91%
11
9
Kotak
MahindraBank
9
YesBank
4
44.44%
5,947.18
21.20%
2.25%
0.71%
2
22%
(16,418.03) 6.48%
16.80%
5.03%
12
Sources:Compiled by author(s) from annual reports of the respective banks for the financial year2019-20
This policy extends to all listed banks, whether public or private. According to SEBI clause 49,
banks must provide a detailed description of their risk management strategies in their corporate
governance report. Banks are mandated by International Basel Norms to maintain certain minimum
capital adequacy ratios. According to Basel III guidelines, banks must maintain at least 10.5 percent
capital adequacy ratios, while the RBI has ordered all Indian banks to maintain at least 11.5 percent
capital adequacy ratios. Tier – II capitals does not reach 2% of the 11.5 percent.Non-Performing
Assets (NPA) have become a big challenge to Indian banking sector players. Banks first attempt to
restructure their bad loans through the Corporate Debt Restructuring (CDR) cell. Banks normally
offer lenient terms, such as lowering the interest rate or extending the repayment period, so that
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Contemporary Issues in Banking, Insurance and Financial Services
debtors can repay their loan. Regardless, if the condition does not change, banks normally write off
bad loans or sell them to Asset Restoration Firms (ARCs).
CONCLUSION
In order to ensure sound corporate governance, chairman and CEO should not be same individual.
Apart from State Bank of India and Punjab National Bank, all other banks have implemented
Chairman and CEO Duality.The correlation coefficient between PSU board size and net profit is
0.62. The correlation coefficient between the private bank board size and net profit is 0.2. Hence
large board size facilitates to boost up the performanceof the bank. The correlation coefficient between
proportion of executive directors in PSU board and net profit is -0.08. It implies more executive directors
in the board reduce the efficiency of the PSU banks. On the contrary, the correlation coefficient between
the proportion of executive directors in the board of private banks and net profitis 0.07 shows number of
executive directors do not reduce the efficiency of the private bank. Initially it seems that the results are
contradictory though the same can be logically substantiated. Lack of red tape lesser bureaucratic
hassles as well as minimum political intervention in recruitment have provided the private banks
more edge with respect to its PSU peers. Managerial efficiency, dynamism as well as professional
experienceare were taken into consideration during the recruitment of executive directors of private
banks. Correlation coefficient between PSUs board size and capital adequacy ratio is 0.55.
Correlation coefficient between private board size and capital adequacy ratio is 0.12. It implies
larger the board size, banks are in aposition to maintain higher amount of capital adequacyratio
irrespective of the fact whether it is a PSUs or private. The proportion of executive directorsin the board
of PSU bank and capital adequacy ratio are inversely related. So PSUs banks having higher
proportion of non-executive/independent directors will have morelikelihood of maintaining higher
capital adequacy ratio. Correlation coefficient between proportion of executive directors in PSUs
banks and Net NPA is 0.55. Correlation coefficient between proportion of executive directors in
Private Banks and Net NPA is -0.39. For PSUs banks, correlation efficient is almost close to
one.Since PSUs banks are not driven by profit motive like their private and foreign peers, of ten they
don't exert their full effort to recover their NPAs.Few cases loans are sanctioned due to political
compulsion in spite of knowing the fact that borrowers are not creditworthy enough to repay the loan.
More non-executive directors and independent directors in the board can reduce the net NPA of the
banks. It can be concluded from the study that large board size is preferable for good governance in
banks. More and morenon-executive and independent directors in the board arepreferable as the same
will help to reduce the NPA of thebank. The purpose of effective corporate governance will be fulfilled
only when independent directors will act independently in true sense and utilize their personal and
professional integrity as well as professional skepticism tothe fullest extent to facilitate decision making
process at the board level of the banks.
REFERENCES


Brahmbhatt,M,PatelRandPatelS.(2012).AnEmpiricalInvestigationofCorporateGovernanceScenarioinPub
licVsPrivateBanksinIndia.International Journal of Marketing, Financial Services and Management
Research,10(1),12-28
Das A, Ghosh S (2006). Financial Deregulation andEfficiency: an Empirical Analysis of Indian
banks During Post- reforms Period. Review of Financial Economics,15,193-221.
104
Contemporary Issues in Banking, Insurance and Financial Services







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


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Dhar, S. K., & Lama, P. A Study on Corporate Governance Practices followed by Selected PSU and Private
Banks of India.
Gauba,R.(2012).TheIndianBankingIndustry: Evolution, Transformation & the Road Ahead,
PacificBusinessReviewInternational,5(1),85-97.
Ghosh,Saibal.(2005),“DoesleverageInfluenceBanks'
Non-performing
Loans?
Applied
EconomicsLetters,pp.913–918.
KalluruSR,BhatKS(2009).DeterminantsofCostEfficiencyofCommercialBanksinIndia.ICFAIUniversi
tyJournalofBankManagement,8:32–50.
Kumar, R.
(2016). Corporate Governance Practices in Public and Private Sector Banks.
International Journal for Innovative Research in Multidisciplinary Field, Vol. 2 (11), pg. 338-342.
Kumar, S. S., & Kannappan, M. (2018). A Comparative Study on Corporate Governance in Public Sector and
Private Sector. International Journal of Pure and Applied Mathematics, Vol. 119 (17) pg. 933-943.
KumbhakarSC,SarkarS(2003).Deregulation,Ownership and Productivity Growth in the
BankingIndustry:EvidencefromIndia.JournalofMoneyCreditandBanking.35:403–424.
Mahapatra,B.(2012).ImplicationsofBaselIIIforCapital,LiquidityandProfitabilityofBank.SpeechDelivered
at National Institute of Banking Management,Pune.
MaheshHP,RajeevM(2006).LiberalizationandProductive Efficiency of Indian Commercial Banks:
AStochastic Frontier Analysis, Retrieved July 24, 2011,fromMPRAPaperNo.827.
Reddy, AA. (2004). Banking Sector Liberalization and Efficiency of Indian banks. ICFAI Journal of
Bank Management,Vol.3,pp.37–53.
Saibaba, M. D. (2013). Do Board Independence andCEO Duality Matter in Firm Valuation? An
Empirical Study of Indian Companies.The IUP Journal of Corporate Governance,12(1),50-67.
Satpathy, Asish, Behera Samir Ranjan and Digal SabatKumar (2015), Macro-Economic Factors
Affecting the NPAs in the Indian Banking System: An Empirical Assessment. The IUP Journal of Bank
Management, 14(1),57-74.
105
Contemporary Issues in Banking, Insurance and Financial Services
An Empirical Examination of Measures taken by Public Sector Banks
for the Management of Non-performing Assets (NPAs)
Dr. Vijay Kumar, Asstt.Professor
Deptt. of Commerce, S.A.Jain College. Ambala City
Chanchal Rani, Asstt. Professor
Deptt. of Commerce, Govt. College, Naraingarh
Abstract
The banks and financial institutions in India have made significant contributions to almost all the sectors of
the Indian economy such as agriculture, industries of all categories and sizes, trade, employment and
infrastructure. The ever-increasing trends in deposits and credits speak the volumes for the performance of
Indian banks. However, the NPAs in the credit portfolios of the banks and financial institutions have become
thorn in the flesh during the last one decade or so. NPAs have not only affected the profitability and
productivity of the banks and financial institutions, but also put a stigma on the image of Indian banking and a
drain on the very value system of the society. The multiplicity of factors is responsible for the present status
of NPAs in these financial institutions in India. The present study was undertaken to examine the factors
responsible for NPAs in Indian banking sector. To attain this objective, 54 bank branches of 21 public sector
banks have been included in the study. It was observed that banks were not only taking corrective measures of
(Recovery, Rephasement and Rehabilitation) but were also depending upon preventive measures (proper
selection of borrower, financing only the viable schemes, proper sanction, avoiding over drawing, ensuring
proper end use) and drastic measures (filing of suit and enforcement of primary securities) in varying degrees
for reducing and controlling the menace of NPAs.
KEYWORDS: Financial Institution, Banking, Measures, Financing, Borrowers, NPAs.
INTRODUCTION:
The most calamitous problem being faced by commercial banks all over the world in recent times is spiraling
non-performing assets (NPAs). They are affecting their viability and solvency. NPAs adversely influence
lending activity of banks as non-recovery of loan installments and interest on the loan portfolio negates the
effectiveness of credit dispensation process. Non recovery of loans also hurt the profitability of banks.
Besides, banks with high level of NPAs have to carry more own funds by way of capital and create reserves
and provisions and to provide cushion for the loan losses. NPAs, thus, make two pronged attack on the
bottom lines of commercial banks: one, interest applied on such assets is not taken into account because such
interest is to be taken into account only on its realisation, two, banks have to make provisions for NPAs from
the income earned by them on performing assets. Persistently high level of NPAs make banks and financial
institutions fragile leading ultimately to their failure. This shakes confidence both of domestic and global
investors in the banking system.
Thus, managing bad loans and keeping them at the lowest possible level is critical and need of the hour for
banks. An NPA level of over five percent is indicator of poor quality of loan portfolio. With growing
competition and shrinking spreads, banks should strive to keep NPAs much below the level of ten percent to
make net earnings necessary for their survival and growth. Under the new RBI monitoring system a bank’s
performance has become crucially dependent on the recognition of income and non-performing assets. Before
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Contemporary Issues in Banking, Insurance and Financial Services
discussing how to manage loans in commercial banks, it would be pertinent to comprehend the concept of
NPAs and examine factors contributing to the emergence of NPAs in the loan portfolio of banks.
MEANING AND DEFINITION OF NPA:
Banks always strive to adopt an appropriate operational approach with a view to maintain liquidity and
profitability of their assets. But there are many assets in the banking system, where there is an imbalance
between the liquidity and profitability. Such assets are term loan, overdraft, cash credit account, government
securities, etc. The amount to be received from these assets remains unpaid or remains overdue. The
government securities, bonds and debentures of corporations can also be included in non-performing assets, if
interest is not received regularly from them and if still there are some recoverable arrears. In other words, an
asset will become non-performing asset, if it does not generate income to the bank.
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

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
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An asset is classified as non-performing asset if dues in the form of principal and interest are not paid by the
borrower for a period of 180 days. However, with effect from March 2004, default status would be given to a
borrower if dues are not paid for 90 days. If any advance or credit facilities granted by banks to a borrower
become non-performing, then the banks will have to treat all the credit facilities granted to that borrower as
non-performing without having any regard to the fact that there may still exist certain credit advances having
performing status. Bank assets are classified as under:
Standard Assets
Sub-Standard Assets
Doubtful Assets
Loss Assets
Standard Assets
These are those assets which do not disclose any problem and do not carry more than normal risk. These are
not NPAs. In general, all current loans may be treated as standard assets.
Sub-Standard Assets
Asset which has remained NPA for a period less than or equal to 12 months is known as sub-standard.
Doubtful Assets
An asset would be classified as doubtful if it has remained as an NPA for more than a period of 12 months.
D1=doubtful up to 1 year.
D2=doubtful 1 to 3 years.
D3 =doubtful more than 3 years.
Loss Assets
These are those assets where the loss has been identified by the bank but the amount has not been written off,
wholly or partly.
Gross NPAs are the total of all loan assets that are classified as NPAs as per RBI
guidelines. Net NPAs
are those types of NPAs in which the bank has deducted the provisions regarding NPAs. Net NPAs shows the
actual burden of banks.
Net NPAs = Gross NPAs – Provision.
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Contemporary Issues in Banking, Insurance and Financial Services

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MEASURES TO REDUCE NPAs:
The following are the some measures for reduction of NPAs:Rephasement of the Loan - It is necessary to fix repayment schedule for term loan according to the income
generating capacity of the unit. If repayment schedule is not fixed properly or a unit is not able to generate
expected profit, possibility may be explored in consultation with the borrowers for rephasement of the loan
installment. Rephasement of the loan installment should be done only when it is expected to get payment after
the rephasement.
Rehabilitation of Potentially Viable Units - It may be encouraged where units are potentially viable and
management is reliable. If the rehabilitation programme runs smoothly, it may not be necessary to make
provisions even after one year for additional facility provided.
Compromise Proposal - A compromise may be called where borrower agrees to pay a certain amount to the
banker with some concession. A large number of compromise proposals are being approved by banks with a
view to reduce their NPAs and recycling of funds instead of resorting to legal procedures.
Filing of Civil Suits or Legal Action for Recovery - Where compromise proposal is not acceptable to banks,
it is better to recall the advances at an early stage instead of waiting for a long time. Civil suit may be filed
against borrowers.
Debt Recovery Tribunals - On the suggestion of the Narasimham Committee, Government had formed Debt
Recovery Tribunals (DRTs). In respect of public and private sector banks, the number of cases disposed off
by the DRTs as on March 31, 2002 were 13520 involving recovery of Rs. 2,864 crore.
Assets Recovery Branches - Some banks have opened Assets Recovery Branches at critical centres for
undertaking bad and doubtful debts. Such assets will be transferred to these recovery branches which have
special trained staff with necessary background for recovery.
Revenue Recovery Act - The Talwar Committee had recommended a simplified procedure for recovery of
commercial banks’ dues financed under State Government sponsored schemes. These recommendations have
been accepted by most of the major States. However, results in terms of recovery have not been encouraging.
Staff Training - The success of a bank depends on staff competence in performing certain jobs. The credit
officer and the clerk attached shall be trained effectively for the successful implementation of reforms. They
will train the other staff members and avoid failures and keep the bank away from committing mistakes.
Staff Incentives for Recovery - Banks are supposed to keep their NPAs at a low level to maintain
profitability. Banks should try recovery from hardcore NPAs. This is possible through staff only. With the
incentives provided, staff will work with zeal and take special interest to recover the dues by the appropriate
method in consultation with their higher authorities.
Identification of Borrower - Normally processing of a loan application and disbursement of loan by the
manager is taken up in consultation with credit department. While disbursing any loan to anyone it will be
better to introduce the borrower to all the staff about his activity and the quantum of loan disbursed to him.
Credit Investigation - Better management information system and credit investigation set up by banks would
go a long way in preventing the defaulters of one bank from moving to another bank in the same area.
Further, effective and speedy approach shall be adopted for compromise wherever necessary and the
settlement should be transparent.
More Powers to Debt Recovery Tribunal - Loans which are above Rs 10 lakhs and became NPA as per
prudential norms will be referred to DRT for recovery. They are not in a position to dispose off the cases
quickly and many cases are pending with DRTs. In order to avoid delay in the process, DRTs shall be given
special powers to dispose off the security of NPA accounts and realise the advances.
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Contemporary Issues in Banking, Insurance and Financial Services
 Legislative Reforms - The law of Incidence, The Transfer of Property Act, The Sick Industrial Companies
Act, The Banking Regulation Act and the Reserve Bank of India Act are the examples of legislation, which
are in urgent need of redrafting. Enactment of Securitisation Act 2002 is the latest legislation for reducing the
NPAs of banks.
OBJECTIVES AND RESEARCH METHODOLOGY OF THE STUDY:
The present study is an attempt to carry out an analysis for the various measures taken by banks for
management of non-performing assets in selected banks. In this comprehensive framework the study seeks to
meet the following objectives: To know the meaning and types of NPAs.
 To examine the various measures taken by public sector banks to manage the NPAs.
The present study was undertaken to examine the factors responsible for NPAs in Indian banking sector. To
attain this objective, 54 bank branches of 21 public sector banks have been included in the study. The
respondents banks covered are situated in Haryana, Punjab, Delhi and Chandigarh. The investigation is made
for both primary and secondary data. The primary data from the strategic level management executives of the
banks were availed through personally administered well designed questionnaire. The views of the
respondents to various aspects of the study have been dealt with from all the 54 branch offices at the different
levels. The opinions expressed by respondents have been shown at local, regional and zonal levels for inter
level comparison in respect of various aspects of the questionnaire for the study.
DATA ANALYSIS
The results survey data are presented in tables 1 to 11 along with Chi- square test outcome.Tables 1 to 11,
prepared for preventive, corrective and drastic measures to check NPAs, have shown the acceptance
of the null hypothesis for 2 values. It implies that all the measures are independent of the levels of
bank operations.
Table – 1 Proper Selection of Borrowers
Frequency of Use
Level
Summary
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
Local
—
2 (7.14)
26 (92.86)
28 (100)
0.93
2.93
0.26
8.87
Regional
—
1 (6.67)
14 (93.33)
15 (100)
0.93
2.93
0.25
8.53
Zonal
—
1 (9.09)
10 (90.91)
11 (100)
0.91
2.91
0.29
9.97
Total
—
4 (7.41)
50 (92.59)
54 (100)
0.93
2.93
0.26
8.87
2=0.06(df: 2)
Source: Sample Survey
Figures given in parentheses represent percentages
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Contemporary Issues in Banking, Insurance and Financial Services
Hence, it is concluded that all these measures are strictly undertaken by the banks irrespective of
their level of operations. To sum up, it can be described that banks have made the use of all types of
preventive, corrective and drastic measures in various degrees taking the ‘always’ and ‘occasionally’
together. The segment devoted to management of NPAs provided certain insights about following up
of guidelines of RBI by banks at various levels, opinion about fairness of 90 days norm, use of
various preventive, corrective and drastic measures, methods for reducing NPAs, use of OTS, DRT
and Securitisation Act and machinery to deal with NPAs and different measures undertaken by
banks for checking the menace of NPAs.
Table-2 Financing Viable Schemes
Level
Frequency of Use
Summary
Never
Occasionally
Always
Total
WAS Avg.
SD
CV
—
7 (25.00)
21 (75.00)
28 (100)
0.75
2.75
0.43
15.64
Regional —
1 (6.67)
14 (93.33)
15 (100)
0.93
2.93
0.25
8.53
Zonal
—
1 (9.09)
10 (90.91)
11 (100)
0.91
2.91
0.29
9.97
Total
—
9 (16.67)
45 (83.33)
54 (100)
0.83
2.83
0.37
13.07
Local
2=2.93(df: 2)
Source: Sample Survey
Figures given in parentheses represent percentage.
Table – 3 Holding of Recovery Camps
Frequency of Use
Level
Local
Summary
Never
Occasionally
Always
Total
WAS Avg.
SD
CV
—
12 (42.86)
16 (57.14)
28 (100)
0.57
2.57
0.49
19..07
6 (40.00)
8 (53.33)
15 (100)
0.47
2.47
0.62
25.10
Regional 1 (6.67)
Zonal
—
2 (18.18)
9 (81.82)
11 (100)
0.82
2.82
0.39
13.83
Total
1 (1.85)
20 (37.04)
33 (61.11)
54 (100)
0.59
2.59
0.53
20..46
2=4.94(df:4)
Source: Sample Survey
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Contemporary Issues in Banking, Insurance and Financial Services
Table – 4 Proper Sanctions
Frequency of Use
Level
Summary
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
Local
—
3 (10.71)
25 (89.29)
28 (100)
0.89
2.89
0.31
10.73
Regional
—
2 (13.33)
13 (86.67)
15 (100)
0.87
2.87
0.34
11.85
Zonal
—
1 (9.09)
10 (90.91)
11 (100)
0.91
2.91
0.29
9.97
Total
—
6 (11.11)
48 (88.89)
54 (100)
0.89
2.89
0.31
10.73
2=0.12(df: 2)
Source: Sample Survey
Figures given in parentheses represent percentages
Table – 5 Avoiding Over-drawing
Frequency of Use
Level
Never
Local
Occasionally
2 (7.14) 5 (17.86)
Summary
Always
Total
WAS Avg.
SD
CV
21 (75.00)
28 (100)
0.68
2.68
0.60
22.39
Regional —
7 (46.67)
8 (53.33)
15 (100)
0.53
2.53
0.50
19.76
Zonal
—
3 (27.27)
8 (72.73)
11 (100)
0.73
2.73
0.45
16.48
Total
2 (3.70) 15 (27.78)
37 (68.52)
54 (100)
0.65
2.65
0.55
20.75
2=5.48(df: 4)Figures given in
Source: Sample Survey
parentheses represent percentages
Table –6 Ensuring Proper End-use
Frequency of Use
Level
Never
Local
Occasionally
2 (7.14) 4 (14.29)
Regional —
5 (33.33)
Summary
Always
Total
WAS Avg.
SD
CV
22 (78.57)
28 (100)
0.71
2.71
0.59
21.77
10(66.67)
15 (100)
0.67
2.67
0.47
17.60
Zonal
1 (9.09) 1 (9.09)
9 (81.82)
11 (100)
0.73
2.73
0.62
22.71
Total
3 (5.55) 10 (18.52)
41 (75.93)
54 (100)
0.70
2.70
0.57
21.11
Source: Sample Survey
Figures given in parentheses represent percentages
111
2=4.03(df:4)
Contemporary Issues in Banking, Insurance and Financial Services
Table- 7 Recovery
Level
Frequency of Use
Summary
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
—
4 (14.29)
24 (85.71)
28 (100)
0.86
2.86
0.35
12.24
Regional —
4 (26.67)
11 (73.33)
15 (100)
0.73
2.73
0.44
16.12
Zonal
—
5 (45.45)
6 (54.55)
11 (100)
0.55
2.55
0.50
19.61
Total
—
13 (24.07)
41 (75.93)
54 (100)
0.76
2.76
0.43
15.58
Local
2=4.27(df: 2)
Source: Sample Survey
Figures given in parentheses represent percentages
Table – 8 Rephasement
Level
Frequency of Use
Summary
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
Local
1 (3.57)
22 (78.57)
5 (17.86)
28 (100)
0.14
2.14
0.44
20.56
Regional
—
13 (86.67)
2 (13.33)
15 (100)
0.13
2.13
0.34
15.96
Zonal
—
7 (63.64)
4 (36.36)
11 (100)
0.36
2.36
0.48
20.34
Total
1 (1.85)
42 (77.78)
11 (20.37)
54 (100)
0.19
2.19
0.43
19.63
2=3.20(df: 4)
Source: Sample Survey
Figures given in parentheses represent percentages
Table – 9 Rehabilitation
Frequency of Use
Level
Summary
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
Local
3 (10.71)
19 (67.86)
6 (21.43)
28 (100)
0.11
2.11
0.56
26.54
Regional
—
13 (86.67)
2 (13.33)
15 (100)
0.13
2.13
0.34
15.96
Zonal
—
7 (63.64)
4 (36.36)
11 (100)
0.36
2.36
0.48
20.34
Total
3 (5.56)
39 (72.22)
12 (22.22)
54 (100)
0.17
2.17
0.50
23.04
2=4.94(df:4)
Source: Sample Survey
Figures given in parentheses represent percentages
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Contemporary Issues in Banking, Insurance and Financial Services
Table -10: Filling a Suit
Level
Frequency of Use
Summary
Never
Occasionally Always
Total
WAS Avg.
SD
CV
Local
1 (3.57)
21 (75.00)
6 (21.43)
28 (100)
0.18
2.18
0.47
21.56
Regional
—
10 (66.67)
5 (33.33)
15 (100)
0.33
2.33
0.47
20.17
Zonal
1 (9.09)
8 (72.73)
2 (18.18)
11 (100)
0.09
2.09
0.51
24.40
Total
2 (3.70)
39 (72.22)
13 (24.07)
54 (100)
0.20
2.20
0.49
22.27
2=2.29(df: 4)
Source: Sample Survey
Table – 11: Enforcement of Primary Securities
Frequency of Use
Summary
Level
Never
Occasionally
Always
Total
WAS
Avg.
SD
CV
Local
3 (10.71)
17 (60.71)
8 (28.58)
28 (100)
0.18
2.18
0.60
27.52
Regional
1 (6.67)
8 (53.33)
6 (40.00)
15 (100)
0.33
2.33
0.60
25.75
Zonal
1 (9.09)
5 (45.46)
5 (45.45)
11 (100)
0.36
2.36
0.64
27.12
Total
5 (9.26)
30 (55.56)
19 (35.18)
54 (100)
0.26
2.26
0.61
26.99
2=1.30(df: 4)
Source: Sample Survey
Figures given in parentheses represent percentages
CONCLUSION
NPA is a virus affecting banking sector. It affects profitability, liquidity and solvency of the banks.
A lot of NPAs result from lack of proper monitoring and control. NPA Management is a matter of
concern to entire banking industry. So a effective monitoring and control system will definitely
restrict the NPAs.Banks have also created and established machinery for managing the NPAs by
different names like Asset Recovery Branches, Settlement Advisory Committee, Recovery Cell,
NPA Management Department, NPA Cell and Credit Investigation & Information Agency. It was
also observed that banks were not only taking corrective measures of (Recovery, Rephasement and
Rehabilitation) but were also depending upon preventive measures (proper selection of borrower,
financing only the viable schemes, proper sanction, avoiding over drawing, ensuring proper end use)
and drastic measures (filing of suit and enforcement of primary securities) in varying degrees for
reducing and controlling the menace of NPAs.
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Contemporary Issues in Banking, Insurance and Financial Services
REFERENCES:
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
Baiju, S. and Gabriel Simon Thttil (2000). Performance of Banks with Non-Performing Assets: An Analysis
of NPAs.Yojna, March pp. 5-9
Banambar Sahoo (1999).Rating of Banks on NPA Management. IBA Bulletin, October, pp. 29-34.
Devnath, Kalyan (1994).Managing Non-performing Asset – A Professional Approach for Better Asset
Management. IBA Bulletin, May.
Kaveri, V.S. (1998).Prevention of NPAs – suggested Strategies. National Institute of Bank Management
Seminar.
Patel, K.V. and Kaveri, V.S. (1998).Non-Performing Advances in Priority Sector – A Study.IBA Bulletin,
June , pp. 16-23
S. Sambasiva Rao (2002).A Printer for NPA Management. IBA Bulletin, June, pp. 23-26.
114
Contemporary Issues in Banking, Insurance and Financial Services
An Assessment of Spiritual Intelligence among the banking sector
employees
Dr. Rajan Sharma,
Assistant Professor, Insitute of Management Studies, Kurukshetra University, Kurukshetra,
drrajansharma@kuk.ac.in
Sumit Saini
Research Scholor, University School of Management, KUK
Abstract
One of the basic pillars of economy is the financial services sector. The employees working in the same have
been put forth to the toughest of times and challenges in the changing socio-economic milieu. The spirituality
on the other hand is extensively becoming an emerging applied field in Management. Spirituality in
management is towards a continuously strive for excellence, which is not only good for employees but for the
organisation and its customers in the long run. This paper is a humble attempt to evaluate the spiritual
intelligence at various levels of bank employees and correlate with their workplace performance. The findings
of this study will provide opportunity to assess the employee satisfaction as well the interrelationship between
spiritual intelligence and their synchronicity with the organisational value system and beliefs. It would also
assess the various interventions used by banks to enthuse spirituality at work place to align the employee’s
values with the organisational goals.
Key words: workplace spirituality, values at work, employee commitment
INTRODUCTION
With the advent of technologies, businesses and other organisations are confronted with enormous
complexities such as an imbalanced economy, foreign market competitiveness, political problems,
amalgamation mergers and takeovers, and revamped automated platforms, among other things. These
framework modifications also altered the environment of all common domains of organisations, including the
banking sector. In today's scenario, economic growth is dependent on a country's financial system, but the
banking sector faces various obstacles and risks in terms of operations majorly undertaken by human capital,
which are the most valuable assets of any company. The traditional structure has shaped emotional control,
integrated functioning, self-control, and moral facets of people's lives as a result of modernization.
Researchers agreed that Spiritual Intelligence is a driving factor that is required in one's life to manage
complexities or challenges during difficult times. According to Zohar and Marshall (2000), Spiritual
Intelligence assists humans in discovering the deepest essence, vision, ideals, and sense of intent in their lives,
which include themselves as a whole.
LITERATURE REVIEW
Spiritual intelligence or SQ is the intelligence with which we address and solve problems of meaning and
value, the intelligence with which we place our actions and lives in a wider, richer, meaning-giving context,
the intelligence with which we can assess that which course of action or one life-path is more meaningful than
another (Zohar & Marshall 2000).
Cindy Wigglesworth defines, "Spirituality, as I define it, is the innate human need to be connected to
something larger than ourselves, something we consider to be divine or of exceptional nobility."
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Contemporary Issues in Banking, Insurance and Financial Services
Ken O'Donnell, Integrated Spiritual Intelligence (SQ) with both Rational Intelligence (IQ) and Emotional
Intelligence (EQ) as IQ helps us to interact with numbers, formulas and things, EQ helps us to interact with
people and SQ helps us to maintain inner balance of life.
Helmatin 2017 conducted a research through collection of data from 57 respondents that focus on Education
Sector and showed that IESQ is significant in managing employee performance particularly for academic staff
members and explain that Spiritual Quotient is currently a concern for organization because an individual
with good balance of SQ will be able to give goodness in process of work accomplishment and results showed
that IQ helps in completion of work, EQ supports job completion and SQ will be able to give goodness in
process of work accomplishment.
Janelle C.hall 2020 explored Spiritual Intelligence and career success among people of color working in nonprofit educational institutions and recommend that organization can develop Spiritual Quotient to improves
work performance and relationships.
Thus, considering the above, it seems likely that Spiritual Intelligence shows its impact on quality of life;
work performance ultimately leads to individual & organisation growth.
Spiritual Intelligence has positive and meaningful impact on the workplace environment in a study by the
directors of Bank of Tehran.
In a research conducted by Sukhwinder Kaur (2017) in Punjab, Spiritual Intelligence serves as a mediator
with an impact on work satisfaction, and it was discovered that IQ and Personal Competencies vary in
employees of commercial banks.
In a study conducted by T.Jayakrishan (2019) between professionals of Traditional Private Sector Banks and
New Generation Private Sector Banks, gender has a major impact on PMP (Personal Meaning Production)
subscales, while professionals of two groups display a significant gap in PMP and TA (Transcendental
Awareness) subscales of Spiritual Intelligence.
MeghanaC.Mohan et. al. (2020) discovered a major positive relationship between Spiritual Intelligence,
Personality, and Work Satisfaction among Kerala Commercial Bank Managers. Job satisfaction is described
as the degree of contentment that employees have with their jobs.
The research objective of this paper was to determine the Spiritual Intelligence of selected banking workers at
different levels, as well as to create interrelationships with the organisational value system and beliefs.
According to the literature review, there haven't been several research conducted to determine and explore the
interrelationships between these two structures. As a result, there is a need to investigate the evaluation of
Spiritual Intelligence and its relationship to organisational culture.
At Trent University in Peterborough, Ontario, Canada, David B. King has been studying moral wisdom. King
defined spiritual intelligence as a set of adaptive mental capacities based on non-material and transcendent
aspects of reality, specifically those that: "contribute to the awareness, integration, and adaptive application of
the nonmaterial and transcendent aspects of one's existence, leading to such outcomes as deep existential
reflection, enhancement of meaning, recognition of a transcendent self, and mastery of spiritual states".
King further proposed four core abilities or capacities of spiritual intelligence:
1. Critical Existential Thinking: The ability to think objectively about the essence of life, truth, the cosmos,
space, time, and other existential/metaphysical issues, as well as non-existential issues in relation to one's own
existence (i.e., from an existential perspective).
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Contemporary Issues in Banking, Insurance and Financial Services
2. Personal Meaning Production: The capacity to build and master a life goal, as well as the power to draw
personal significance and purpose from both physical and mental experiences.
3. Transcendental Awareness: During regular states of consciousness, the ability to recognise transcendent
dimensions/patterns of the self (i.e., a transpersonal or transcendent self), others, and the real universe (e.g.,
non-materialism), as well as their connection to one's self and the physical.
4. Conscious State Expansion: The right to choose when and how to enter and leave higher levels of
consciousness (e.g., pure consciousness, cosmic consciousness, unity, oneness) and other states of trance (as
in deep contemplation, meditation, prayer, etc.).
Vineeth V. Kumar and Manju Mehta has also done detailed research on the definition. They
operationalized moral wisdom as "an individual's capacity to provide a socially meaningful meaning in life
through understanding gap and possessing a high degree of conscience, compassion, and dedication to human
values."
This research study used of David king’s the spiritual intelligence Self report Inventory (SISRI-24) to
measure the spiritual intelligence of employees in banking sector.
Proposed Model and Hypothesis
Critical Existential
Thinking (CET)
Personal Meaning
Production (PMP)
Transcendental
Awareness (TA)
Conscious State
Expansion (CSE)
Spiritual Intelligence
Organization Culture& Spiritualism
HYPOTHESES
HO1: There is no significant impact of Spiritual Intelligence on organization excellence
HO2: Spiritual Intelligence doesn’t have significant influence on Organization Culture & performance
effectiveness.
METHODOLOGY
a. Statistical Population: The statistical population for this study is the workers of commercial banks in India,
which includes both public and private sector banks.
b. Sample: To collect data from bank employees, a questionnaire was created using Google Forms and
circulated online across Haryana.
c. Instrument: A systematic questionnaire with three parts was used to gather the requisite data and evaluate the
hypothesis.
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Contemporary Issues in Banking, Insurance and Financial Services



d.
Demographic Profile of the respondents
Spiritual Intelligence Self Report Inventory (SISRI-24)- David King(2008)
Organizational excellence Statements (Self structured)
Reliability: Cronbach's alpha was used to assess reliability. All of the variables' Cronbach's alpha reliability
was greater than 0.7 (>0.7), indicating that all of the scales were reliable represented by Figure 1.
Figure 1: Constructs Reliability
Constructs
Cronbach's Alpha
Composite
Reliability
Average Variance
Extracted (AVE)
Conscious State
Expansion
0.911
0.912
0.675
Critical Existential
Thinking
0.885
0.883
0.522
Organizational
Excellence
0.896
0.865
0.499
Personal Meaning
Production
0.876
0.875
0.591
Spiritual
Intelligence
0.951
0.952
0.455
0.898
0.562
Transcendental
Awareness
0.897
Figure 2: Composite Reliability
e. Validity: The composition of the research was examined using factor analysis in this study with the help of
SMART PLS. The questionnaire's architecture was investigated using Confirmatory Factor Analysis (CFA)
using Smart PLS. Many of the above parameters were evaluated in these questionnaires, according to factor
analysis.
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Contemporary Issues in Banking, Insurance and Financial Services
ANALYSIS AND FINDINGS
Fornell and larcker ,1981 pp-39-50 (Journal of Marketing research) said if AVE (Average Variance
Extracted) is less than 0.5 but the composite reliability is higher than 0.6 the convergent validity of construct
is still adequate as in Figure 1. This study tends to investigate the relationship among spiritual intelligence of
employees and organizational excellence in banking sector in India. For testing the hypotheses, the study
performed structural model using Smart PLS applying 24 dimensions of spiritual intelligence, 7 dimensions
of organizational excellence. Figure 3 shows the results of the SEM analysis using Smart PLS.
Figure 3: Output of SMART PLS showing relationship between Spiritual Intelligence and Organization
Effectiveness.
The above figure 3 shows that Spiritual intelligence (SI) impacts Organizational Excellence (OC)
significantly. It is evident from the figure that Spiritual intelligence improves organization performance in
terms of internal atmosphere, management trust, happiness among employees etc. of employees in banking
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Contemporary Issues in Banking, Insurance and Financial Services
sector to the extent of 0.435 and all the items of spiritual intelligence are significantly correlated and even
spiritual intelligence is highly significant to organization excellence as P values are less than 0.05.The R 2 (R
square) value indicates the percent of variance in the criterion (dependent variable) that is accounted for by
the linear combination of predictor (independent) variables. As a Rule of thumb, Typically R2 values greater
than 0.5 are considered acceptable. Spiritual Intelligence has R2 value of 1.0 which indicates the model
completely fit and explained all the variances with respect to Spiritual intelligence to Organization excellence
but Organizational excellence has R2 value of 0.210 which indicates that only 21% of variance in
organizational excellence is accounted by Spiritual Intelligence and rest 79% of variance is unexplained.
Figure 4:
Showing Path Coefficients’ between Male and Female.
Constructs
Path Coefficients Original
(Female)
Path Coefficients Original
(Male)
Conscious State Expansion ->
Spiritual Intelligence
0.278
0.309
Critical Existential Thinking ->
Spiritual Intelligence
0.284
0.214
Personal Meaning Production > Spiritual Intelligence
0.257
0.258
Spiritual Intelligence ->
Organizational Excellence
0.561
0.450
Transcendental Awareness ->
Spiritual Intelligence
0.325
0.374
Figure 4 depicts that Spiritual Intelligence impacts organization performance differently on the basis of
gender. As we can see from the table path coefficients of female to the extent of 0.561 as are greater than
males to extent of 0.450. So it shows that there is significant difference of Spiritual Intelligence among male
and females.
LIMITATIONS
Spiritual intelligence notions have not been adequately investigated in the realm of management, particularly
their impact on organisational excellence and performance effectiveness, particularly in the banking industry.
Further empirical study in the field of management research and practise can make a substantial contribution.
Scholars can first establish a new study agenda to determine the nature of the impact it may have on employee
performance, which may help the business achieve its ultimate aim. As a result, management Spiritual
Intelligence levels may be tested, and relevant HRD interventions may be planned and implemented based on
the findings to improve employee and organisational performance. Future investigations might also look at
the role of personal beliefs and ethical behaviour in mediating the link between SI and organisational
citizenship behaviour. Finally, the study's sample size is considered modest. More study should be done with
a big sample size to allow for improved generalisation. Hopefully, this study will create researchers' interest
in doing additional spirituality-related research that will add to the new dimensions of organisational
management, especially in light of recent corporate scandals and ethical transgressions. In this sense, this
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Contemporary Issues in Banking, Insurance and Financial Services
study might serve as a springboard for additional research in relevant fields of studies for updating the
knowledge.
CONCLUSION
The aim of this study was to look into the connection between spiritual intelligence and organisational
excellence among employees in India's banking sector. Spiritual intelligence has an important and
constructive effect on corporate excellence, according to the report. Previous research has looked at the
connection between spiritual intelligence and organisational success. However, the lack of adequate research
into the relationship between these two influences and spiritual intelligence was the impetus for this research.
It has been shown that organisational success contributes to lower employee turnover rates and increases
individual and organisational efficiency Examining the causes that can boost employees' organisational
excellence has long arouse the attention of management analysts and academics, which was another
compelling justification for conducting this study.
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Emmons, R. A. (2000) “Is Spirituality an intelligence? Motivation, Cognition, and the psychology of ultimate
Concern” The International Journal for the psychology of Religion, 10(1): 3- 26.
Guleryuz, G., Guney, S., Aydin, E. M., & Asan, O. (2008) “The mediating effect of job satisfaction between
emotional intelligence and organizational commitment of nurses: A questionnaire survey” International
Journal of Nursing Studies, 45: 1625-1635.
Jelodar, S. Y. & Goodarzi, F. L. (2012) “What Is the Relationship between Spiritual Intelligence and Job
Satisfaction among MA and BA Teachers, International Journal of Business and Social Science, 3(8).
Khorshidi, A. & Ebadi, M. G. (2012), “Relationship between spiritual intelligence and job satisfaction”, J.
Appl. Environ. Biol. Sci., 2(3): 131-133.
Nadiri, H. & Tanova, C. (2010), “An investigation of the role of justice in turnover intentions, job
satisfaction, and organizational citizenship behavior in hospitality industry”, International Journal of
Hospitality Management, 29: 33-41.
Rastgar, A. A., Davoudi, S. M. M., Oraji, S., Abbasian, M. (2012b), “A study of the relationship between
employees' spiritual intelligence and job satisfaction: A survey in Iran's banking industry”, Spectrum: A
journal of multidisciplinary research, 1(2): 57-74.
Rutherford, B., Boles, J., Hamwi, G. A., Madupalli, R., & Rutherford, L. (2009), “The role of the seven
dimensions of job satisfaction in salesperson's attitudes and behaviors”, Journal of Business Research, 62:
1146-1151.
Sweeney, J. T., & Quirin, J. J. (2009), “Accountants as layoff survivors: A research note”, Accounting,
organizations and society. 34: 787-795.
Khorshidi, A., & Ebadi, M. (2012). Relationship between Spiritual Intelligence and Job Satisfaction. Journal
of Applied Environmental and Biological Sciences ,2 (3), 131-133.
Altaf, A., & Awan,M.A. (2011). Altaf, A., & Awan, M. A. (2011). Moderating affect of workplace
spirituality on the relationship of job overload and job satisfaction. Journal of business ethics, 104(1), 93-99.
SQ: Connecting with our Spiritual Intelligence, December 2005 Zohar and Marshall.
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Contemporary Issues in Banking, Insurance and Financial Services
Non-Performing Assets and Profitability: A Case of Indian Banking
Sector
Mukul
Assistant Professor, Chandigarh University
Mukulbhatnagar1993@gmail.com
Abstract
The Indian banking industry is currently facing a difficult time in the context of a rising trend in nonperforming assets (NPAs) that is challenging its power and resilience. The purpose of this analysis is to
analyse the NPA-profitability relationship for the Indian banking sector to assess the severity of NPAs' effect
on bank profitability. Other bank-specific, industry-specific and macroeconomic variables that influence
banking benefit were also taken into account. For the purpose of the appropriate study a balanced panel of
data comprising all Indian banks over a period of 8 years (2011–2018) has been used. Fixed effects and
random effect panel regression models have been drawn. There is a strongly unfavorable association between
NPA and the profitability measure: asset return (ROA). The results of the study identified NPA as the biggest
detractor of the income of the banking industry because NPA has the highest negative regression coefficient.
It means that decreasing credit quality hinders and causes banks to fail.
INTRODUCTION
For a nation's economy, the existence of large and viable financial institutions is crucial. This applies
primarily to developed countries such as India, where economic structures are traditionally banking. As the
significant fund driver, the banking sector effectively mobilizes domestic deposits, provides investment
financing, and manages a seamless payment mechanism that facilitates money management. As the Chief
Financial Broker, the banks carry out the crucial duty of financing capital formation, thus growing
manufacturing potential and foreign trade, increasing work prospects, and speeding up economic acceleration
(Levine, 1997; Rajan & Zingales, 1998). The Indian banking sector is currently facing a tough time testing its
power and durability. The Indian economy has seen a growing trend of non-performing assets (NPAs) in the
banking sector over the last few years, in particular. The banks persist under the continuously rising pressure
of strained investments and weak credit expansion. As reported in The Indian Express article (Iyer, 2018), the
"irrational exuberance" caused by the plausible growth of the Indian economy even in the 2007-2008 time of
the global financial crisis is at the heart of today's NPA problem. Due to this NPA crisis, the Indian economy
has seen a sinister spiral of inadequate capital demand and supply. The sluggish efforts in poor lending are a
big challenge for India's banking industry (Sathye, 2005). The effect of NPAs on banks' productivity and
profitability is triple. First, provision must be made for losses arising from defaulted loans that restrict the
banks' subsequent lending ability (Rajeev & Mahesh, 2010). Secondly, the lender's estimated cash inflow
reduces in the absence of interest charges or principal sums. Finally, the natural loss of the bad loans should
be excluded from the income.
The problem of soundness in financial institutions in general and bank efficiency, in particular, has drawn the
proper attention of many researchers and policymakers in the aftermath of the 2007-2008 US financial crisis.
As Messai and Jouini (2013) said, minimizing NPAs is a crucial prerequisite for improving the economic
conditions. NPAs are among the significant factors that prevent banks' solidity and development (Ramli,
Mohammed, Hussin, & Khairi, 2018). Karim, Chan and Hassan (2010) found out that the accumulation
depletes bank capital of issue credit during the Malaysia and Singapore financial sectors. Thus, the degree to
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Contemporary Issues in Banking, Insurance and Financial Services
which these bad credits influence banking institutions' efficiency can be calculated by determining the relation
between NPAs and the profitability of the banks. The key reason and inspiration for this research are that any
negligence of these institutions will result in economic instability in an economy like India, where
commercial banks are an integral part of the financial sector. Many scholars were interested in the topic
mentioned above, and many studies examined the causal factors affecting bank profitability and stability.
Much of these reports concentrate on the international financial sector and the banking industry of developing
economies. Just a tiny volume of literature on transitional economies is zero. The findings from the studies on
more economically developed economies, Agoraki, Delis, and Pasiouras (2011), do not affect the developing
nations. The explanation for this is the conflicting democratic, legislative, and economic conditions of the
two. Therefore, the factors that influence the success of banks in developed countries must be discussed.
Besides, the seriousness of the NPA problem in these economies still requires consideration. The present
study will explore the aspects that shape the Indian banking industry's productivity and success to evaluate the
severity of NPA's impact on banks' profitability. Therefore, the goal of the analysis is to empirically study the
effect of NPAs on bank profitability, as well as some other bank-specific and external influences, and
examine the impact of this impact. The study demonstrates, amongst other aspects, how effectively oversight
and regulation were carried out by analyzing the extent of the effect of bad loans on the financial performance
of the banks.
Furthermore, this study will also assess the macroeconomic context in which the banks operate. The present
study uses NPAs as the primary predictor of bank income to define and analyze this relationship between
NPAs and bank profitability and some other factors that influenced the projected variable for the Indian
banking industry during the period between 2005 and 2018. The rest of the report is conducted as follows:
The second segment will address historical research and bank results determinants. The third section would
describe the methodological research approach and the required details on the report's variables. The
analytical results are presented in the fourth segment. Finally, in section 5, the assumptions and consequences
are addressed.
LITERATURE REVIEW
The aim of this segment will be to review current literature relating to bank output studies and their
determinants. There are a significant number of research studies analysing the factors affecting bank results.
The findings of each of these studies have highlighted that credit rating is a statistically imperative 'insolvency
indicator' and that large numbers of NPAs have been identified associated with failing organisations prior to
collapse (Demirgüç-Kunt, 1989; Whalen, 1991).
There are a fair number of studies investigating the success of the banking sector and the factors responsible
for its effects. Test trials for this reason analysed the banking sector of each country or conducted a crosscountry analysis. The former study party includes Berger (1995a), Neely and Wheelock (1997), Barajas,
Steiner and Salazar (1999), Abreu and Mendes (2002). (2003). Studies on Molyneux and Thornton (1992),
Demirgüç-Kunt and Huizinga (1999), Dell'Atti (2015), Pacelli and Mazzarelli, amongst others, are covered in
the latter grouping. Short (1979) and Bourke contributed to the notable work in determining variables that
influence bank success (1989). Inspired by their groundbreaking work, several research pieces have been
carried out to examine the above-mentioned connection. There are therefore two approaches to studying bank
results, namely the productivity approach and the profitability approach. Technical reliability was used to
assess bank production under the efficiency strategy. As indicated by Bhattacharyya, Lovell and Sahay (1997)
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Contemporary Issues in Banking, Insurance and Financial Services
and Arora, Arora and Kanwar (2018), the technical productivity demonstrates the capacity and management
of banking institutions to transfer capital into different financial services. Cost-efficiency was also used to
measure banking sector performance (Mitchell & Onvural, 1996). The extent of NPA contributes to banks'
cost inefficiency (Berger & DeYoung, 1997; Girardone, Molyneux, & Gardener, 2004). The profitability
strategy, on the other hand, uses financial ratios such as ROA and ROE as a proxy for bank results. In this
technique, simple or complex panel regression models are used. The following parts have clarified this
profitability strategy in depth.
As seen in the events of the global financial crisis of 2007-2009, a banking problem can cause a financial
crisis, which can result in an economic meltdown (Marshall, 2009). In order to safeguard the banking sector
from such crises, the analysis of bank efficiency has also gained due attention from academics and policy
makers. Commercial banks' main focus, aside from their social objectives, is profit maximisation. In order to
make more money, banks also take on extremely speculative investments that can impede their long-term
stability. The present research is therefore concerned with indicators of profitability and the factors leading to
them. In current literature, various financial measures, such as return on assets (ROA), return on equities
(ROE) etc., were used as surrogate for bank income.
RESEARCH GAP
Studies on the importance of NPA-profitability for the Indian banking sector are scarce. Studies have found
only public sector banks, or have researched banks group-specific (Bodla & Verma, 2006) (Seenaiah et al.,
2015). Studies covering all planned commercial banks (SCBs) in their study analysed only internal bank
variables (Haque & Shahid, 2016). Few researchers have extended their model to incorporate both internal
and external factors but the studied duration is not quite comprehensive. In view of both internal and external
explanatory variables, this thesis attempts to illustrate the NPA connection to profitability and resolve this
discrepancy in the degree to which NPA has an effect on bank profitability, which is of significant substance.
OBJECTIVES OF THE STUDY
1. To explore the determinants of bank performance.
2. To study the significance of the influence of NPA on bank performance
RESEARCH METHODOLOGY
For drawing results, time-series data from 2011 to 2018 has been framed of ROA, CAR, NPA, GDP. The
available data is then assessed through the PLS model to obtain a conclusion. Data collection has been done
from the official websites of RBI and the World Bank. With the help of a bank profitability model, an attempt
to meet the research objectives has been made. Following research tool has been employed: Mean, Standard
Deviation, Correlation and T-test.
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Contemporary Issues in Banking, Insurance and Financial Services
DATA ANALYSIS
COMPARATIVE DEPICTION OF VARIOUS INDICATORS USED IN
RESEARCH
16
14
12
10
8
6
4
2
0
2011
2012
CAR
2013
ROA
2014
2015
GDP
2016
NPA
2017
2018
Linear (ROA)
From the above diagram it can be depicted that return on asset has a negative trend line and the upcoming
sections of research will be focusing on the finding the reasons for the same. The diagram shows a time series
data of various indicators and shown along with return on assets of Indian banks. It shows the values of
capital adequacy ratio, GDP, nonperforming assets and return on assets of Indian Banks from the period 2011
to 2018.
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Contemporary Issues in Banking, Insurance and Financial Services
PLS-QUALITY CRITERIA
1.2
0.63026
1
1
1
1
0.8
1
0.863047
0.789092
1
1
1
1
0.789092
0.63026
0.525336
0.6
0.4
0.2
0.087757
0
-0.2
AVE
Composite
Reliability
R Square
Cronbachs Alpha
Communality
Redundancy
-0.4
-0.6
-0.8
-0.814942
-1
BANK PROFITABILITY
BANK SPECIFIC FACTOR
DESCRIPTIVE SUMMARY ANALYSIS
TABLE- 1
CAR
MEAN
13.6375
STANDARD DEVIATION 0.48679
MINIMUM
13
MAXIMUM
14.2
CAR <- BANK SPECIFIC
FACTOR
GDP <- MACRO-ECONOMIC
FACTOR
NPA <- BANK SPECIFIC
FACTOR
ROA
<BANK
PROFITABILITY
ROA
1.46375
0.766531
0.23
2.47
GDP
6.738751
1.12267
5.241345
8.256306
NPA
6.125
2.997976
2.7
10
Standard
Deviation
(STDEV)
Sample Mean
(M)
TABLE-2: Factors
MACRO-ECONOMIC FACTOR
Standard
Error
(STERR)
T Statistics
(|O/STERR|)
0.7946
0.7973
0.0455
17.4734
1
1
0
0
-0.4192
-0.4154
0.0323
12.9984
1
1
0
0
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Contemporary Issues in Banking, Insurance and Financial Services
TABLE-3
BANK
PROFITABILITY
1
BANK
PROFITABILITY
BANK
SPECIFIC 0.929003
FACTOR
MACROECONOMIC
FACTOR
-0.888309
BANK SPECIFIC MACROFACTOR
ECONOMIC
FACTOR
1
-0.929571
1
RESULTS AND DISCUSSION
The findings and description of the study to examine the effect of NPA on bank output are presented in this
section.
Table 1 shows the original overview statistical results. The table indicates that the average ROA was held by
the sample banks at 1.46 percent over the time span considered for the analysis. The average CAR for the
same time is 13.63%. However, the variance of ROA in banks is higher than CAR. The highest standard
deviation for operational efficiency has been reported. Furthermore, the findings suggest that banks do not
perform well in the field of operational costs. NPAs are up to 10 percent in the market, and on average 6.1
percent of banks' loans go badly.
Table 3 shows the matrix of correlations that indicate the strength of the interaction between the forecasting
variables. As seen in the table, none of the independent variables are highly correlated. As suggested by
Kennedy (2003), where the association between explainable variables is over 0.80 the issue of
multicollinearity persists. But this is not the case in this analysis, and the highest association between ROA
and Bank specific factors is shown as 0.92.
CONCLUSIONS AND POLICY IMPLICATIONS
Profitability of the banking industry has been an area of interest to the Indian economy as the prevailing
metric for estimating the output of the business. Indian banks are under relentless stress from the increasing
NPAs. Bad loans persistently rob banking earnings and thereby hamper banks' reputation. NPA has been
measured by the ratio of total non-performing assets to net advances for the purposes of the present job. The
findings of this analysis showed NPA as the biggest detractor to the earnings of the banking sector. An rise in
the share of bad loans in the overall loan portfolio of banks is showing a declining trend both of the benefit
indicators. It means that decreasing credit quality impedes and contributes to bank results. When a problem
exists where debts have not been repaid, these loans must be reported as a loss and charged against the
earnings of the time concerned. Finally, it causes banks to fail to succeed, seen by lower ROA or ROE.
Understanding the far-reaching effect of NPAs on banking income is of vital concern to policy-makers and
banks, as the management system can be planed to cope with these bad loans and structured accordingly. The
banking authority, the RBI, has made efforts to contain bad loans. The list of prompt remedial measures
(PCA) and the Insolvency and Bankruptcy Code (IBC) are some of the latest moves in that direction. The
effectiveness of these measures, however, is not as expected. The PCA list is intended for banks to avoid
incremental credit. This action would exacerbate the condition of the banks until repayments begin. Similarly,
for IBC, the bottleneck in insolvency cases cannot be cleared more rapidly and the crisis continues to drag. In
the meantime, focus should be paid to what works for the banks and allows them to produce good returns.
The Finance Minister's policy proposal to integrate banks in the public sector may result in a positive shift.
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Contemporary Issues in Banking, Insurance and Financial Services
When it turns out to result in a greater asset base, banks can expand and the fusion organisation can then
benefit from consolidated synergy and economies of scale. Provided that management performance is a good
factor for sustainability, according to an estimation of the ratio of operating profits to total assets, due
attention should be paid to it. Non-traditional income generation should be stimulated so that banks do not
rely upon interest income and are attracted to more risky schemes to achieve better returns. In addition,
careful distribution of resources should be taken into account to minimise running costs generated for benefit
generation. Therefore, in order to remain afloat, it is necessary for banks to handle their loan portfolios well.
If long dragged, the NPA problem can jeopardise the banks' viability, causing their returns to be negative.
The analysis shows insights for commercial banks in India with domestic holding. Since data related to
international banks are unavailable, such institutions cannot be included in the report. The present study is
therefore restricted only to the review of domestic banks. More detailed findings for the NPA-profitability
partnership can be obtained by considering international banks. The moderating position of ownership and
origin can also be calculated by initiating a cross-country study. The opportunity for further research thus
remains by the extension of the survey and the accounting of a more diverse group of banks.
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Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and
macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions
and Money, 18(2), 121–136.
Barajas, A., Steiner, R., & Salazar, N. (1999). Interest spreads in banking in Colombia, 1974–1996. IMF Staff
Papers, 46(2), 196–224.
Berger, A. N. (1995a). The profit-structure relationship in banking— Tests of market-power and efficientstructure hypotheses. Journal of Money, Credit and Banking, 27(2), 404–431. Berger, A. N. (1995b).
The relationship between capital and earnings in banking. Journal of Money, Credit and Banking, 27(2), 432–
456.
Berger, A. N., Clarke, G. R., Cull, R., Klapper, L., & Udell, G. F. (2005). Corporate governance and bank
performance: A joint analysis of the static, selection, and dynamic effects of domestic, foreign, and state
ownership.
The World Bank. Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial
banks. Journal of Banking and Finance, 21(6), 849–870.
Bhattacharyya, A., Lovell, C. K., & Sahay, P. (1997). The impact of liberalization on the productive
efficiency of Indian commercial banks. European Journal of Operational Research, 98(2), 332–345. Bodla, B.
S., & Verma, R. (2006).
Determinants of profitability of banks in India: A multivariate analysis. Journal of Services Research, 6(2),
75–89. Bougatef, K. (2017).
Determinants of bank profitability in Tunisia: Does corruption matter? Journal of Money Laundering Control,
20(1), 70–78.
Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and
Australia. Journal of Banking and Finance, 13(1), 65–79.
Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risktaking and competition revisited. The Journal of
Finance, 60(3), 1329–1343. Dell’Atti, S., Pacelli, V., & Mazzarelli, G. (2015). The efficiency of the European
banking groups and its determinants. Managerial Finance, 41(7), 734–751. Demirgüç-Kunt, A. (1989).
Deposit-institution failures: A review of empirical literature. Economic Review, 25(4), 2–19. Demirgüç-Kunt,
A., & Huizinga, H. (1999).
Determinants of commercial bank interest margins and profitability: Some international evidence. The World
Bank Economic Review, 13(2), 379–408. Diamond, D. W., & Rajan, R. G. (2000).
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A theory of bank capital. The Journal of Finance, 55(6), 2431–2465. Dietrich, A., & Wanzenried, G. (2011).
Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of
International Financial Markets, Institutions and Money, 21(3), 307–327.
Doyran, M. A. (2013). Net interest margins and firm performance in developing countries: Evidence from
Argentine commercial banks. Management Research Review, 36(7), 720–742.
Epure, M., & Lafuente, E. (2015). Monitoring bank performance in the presence of risk. Journal of
Productivity Analysis, 44(3), 265–281.
Fidanoski, F., Choudhry, M., Davidović, M., & Sergi, B. S. (2018). What does affect profitability of banks in
Croatia? Competitiveness Review: An International Business Journal, 28(4), 338–367.
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Contemporary Issues in Banking, Insurance and Financial Services
A Comparative Analysis of NPA in Priority Sector of Public Sector
Banks and Private Sector Banks in India
Ananya Bhatia, Research Scholar
Department of Economics, Maharishi Dayanand University, Rohtak
(Email:ananyabhatia30@gmail.com)
Jagdeep Dahiya, Assistant professor,
Department of Economics, Maharishi Dayanand University, Rohtak
(Email:jagdeepdhy@gmail.com)
AbstractBanking sector is one of the important part of Indian financial system and one of its main function is to
disburse credit to the sectors who need them the most. Thus, banks act as an intermediary between Saver and
investor. On 14 December,1967 Moraraji Desai, Deputy PM and Finance Minister of the country made a
statement in Lok Sabha about the continual complaints, that agriculture and small scale industries were not
receiving adequate capital. Thus, the concept of 'Priority Sector' was introduced on 23 December, 1967 and
all the commercial banks are directed to lend 40% of total advances to the borrowers in priority sector which
was known as 'Priority Sector Lending'(PSL).PSL ensures that the strategic sectors of the society get adequate
funds and include sector like Agriculture, Micro Medium and Small Enterprise (MSME), Export Credit,
Education, Housing, Social infrastructure, Renewable energy and others. This research paper aim at studying
the trends of NPA in Priority and Non- Priority sector in Public and Private sector banks and to check whether
Public and Private sector Banks in Priority sectors are able to achieve the target of priority sector lending as
fixed by RBI or not. For the purpose of study, secondary data is retrieved from the RBI website for a period
of 5 years from 2013-2017.
Keywords- Priority Sector, Public Sector Banks, Private Sector Banks, Non- Performing Assets (NPA), NonPriority Sector
INTRODUCTION
Banking sector is one of the important part of Indian financial system and one of its main function is
to disburse credit to the sectors who need them the most. Thus, banks act as an intermediary between
savers and investors. Availability of cheap and adequate credit is a blessing. But sectors like
agriculture and small scale industries were not receiving sufficient credit for their proper functioning
which led to rise of term ‘Priority sector’. Priority sector include sectors which are of national
importance and providing loan to these sectors are termed as ‘Priority sector Lending’. Priority
Sector Lending (PSL) ensures that the strategic sectors of the society get adequate funds and include
sector like Agriculture, Micro Medium and Small Enterprise (MSME),Export Credit, Education,
Housing, Social infrastructure, Renewable energy and others. As per RBI norms, all the banks are
directed to lend 40% of the bank advances to these sectors. This initiative was taken to benefit the
weaker sections of the society but like every coin has 2 sides, providing credit bring with them
certain risk i.e. default risk and problem of bad loans i.e. NPA. NPA is a double edge sword as it not
only cease the generation of income rather provision has to made for such loans (Olekar and Talwar,
2012).NPA in simple words are those loans or assets , which stops generating income for the banks
or whose interest and principle is due for 90 days.
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Contemporary Issues in Banking, Insurance and Financial Services
History of Priority Sector Lending –
Priority sector paved its way at the time when in July 1966, an All India Rural Credit Review
committee was set up keeping in view the increasing demand of credit by agriculture sector due to
advent of green revolution in India and State Bank of India, was unable to fulfill this demand.
On December,1967 Morarji Desai, Deputy PM and Finance Minister of the country made a
statement in Lok Sabha about the continual complaints, that agriculture and Small Scale Industries
were not receiving their due share of credit. This is the first time, when the term ‘Priority Sector’
was used.
In 1968-69, idea of social control of banks came into mind of government under which Banks were
directed to work under the line of national objectives and for this Banking Law (Amendment) Act
was passed in 1968 and came into force on 1969. In 1968, National Credit Council was formed to
eliminate the presence of money lenders and to review the needs of credit by different sectors of the
society.
This Experiment of social control of banks was not possible without the Nationalization of Banks
and thus, under the leadership of Indira Gandhi, Banking Companies (Acquisition and Transfer of
undertakings) ordinance was passed which allow Nationalization of 14 banks. Aim of nationalization
of banks was to avoid economic concentration and provide adequate credit to neglected sectors of
the society.
In 1972, for the very first time, Priority Sector Lending got formalized through the report ‘Informal
Study Group on Statistics’ which was related to the advances of priority sector. At that time, some of
the sectors which were identified as priority sectors were- Small scale industries
Industrial estates, Road and water transport operators, Professional and self-employed
persons, Retail traders, Education.
In the beginning there were no fixed target imposed on Banks by the RBI but on Nov, 1974 it was
fixed at 33% of aggregate advances by the banks. The same rate was applicable on the private sector
banks too and was further revised to a target of 40% as advised by the committee in 1985(lead by the
Dr.K.S. Krishnaswamy).
Since then, several changes have been practiced from time to time, regarding the categories of
priority sector and targets and sub- targets for their lending.
As per RBI guidelines on 4 September, 2020 following sectors fall in the category of Priority sectorAgriculture, Micro, Small and Medium Enterprise, Export Credit, Education, Renewable
Energy, Housing, Social infrastructure, Others.
LITERATURE REVIEW
Uppal (2009) examined the trends, issues and strategies of priority sector of Public and Private
Sector Banks for a period of 2006 and 2007. The studyrevealed thatpriority sector advances were
increased in all the bank groups which further led to problem of High NPA and low profitability of
banks. In spite of increased advances, Banks were unable to meet their targets of Priority Sector
lending as fixed by the RBI.
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Contemporary Issues in Banking, Insurance and Financial Services
Veerakumar (2012) studied the level of Gross NPA for 10 years (2001-11) in commercial banks
and result of regression found out thatlevel of Gross NPA will rise in coming 10 years. Also, the
NPA in Priority sector was higher in case of Public Sector Banks as compared to Private And
Foreign Sector Banks. Also, there was a significant impact of the NPA in Priority sector on the total
NPA of Public Sector Banks while opposite was the case in the Private Sector Banks.
Shabbir & Mujoo (2014) identified the problems of Non-Performing Asset in priority sector in
India for a time period of 2001-11.The study revealed that there was a continuous decline in the
NPA in 2011 than 2001 in both Public And Private Sector Banks but NPA of Public Sector Banks
were higher than Private Sector Banks in priority sector due to better management of private sector
in handling loans.
Ota & Sarkar (2016) highlighted the impact of priority sector advances on the rural development
and found out that lending by commercial banks to weaker sections like agriculture, small scale
industries and export have helped in their growth but this lead to higher cost to banks in terms of
high bad loans.
Kaur&Kumar (2018) made a comparative analysis of NPA of Priority sector in pre and post crisis
period of Public and Private Sector Banks. The study analyzed that level of NPA during pre-crisis
period level of NPAs in priority sector was comparatively higher among Public and Private Sector
Banks but both Public and Private Sector Banks registered negative growth rate during post crisis
period.
OBJECTIVES
1.To study the trends of NPA in priority and Non-priority sector of Public and Private Sector Banks.
2. To examine the target achieved by Public and Private sector banks for Priority Sector Lending in
2016-17 and 2017-18.
RESEARCH METHODOLOGY
Data has been procured over a period of 5 years i.e.2013-17 from Secondary sources like Reserve
Bank of India Publications on NPA. Data is presented with the help of tables.
DATA ANALYSIS AND INTERPRETATION
For the comparison of Priority and Non-Priority sector of Public and Private Sector Banks, Data are
compiled for a period of 2013-17 and some of the results are mentioned below.
Table 1shows that Gross Advances and Gross NPA in priority sector had increased in absolute terms
while in relative terms % of Gross NPA decreased continuously during the period of study from
42.9% to 24.1% while in Non- priority sector it has increased from 57.1 % to 75.9%. Data clearly
revealed that Advances in priority sector were increasing but Public Sector Banks were able to
manage NPA in the Priority sector way better than Non –Priority sector.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 2 reveals that NPA of Private Sector lending in priority sector has fallen down to 18% in 2017
from 26% in 2013 while Non-priority sector was showing a increasing trend of NPA from 74 % to
82 %.
TABLE 1- Gross NPA of Public Sector Banks in Priority and Non–Priority Sector in India (in
Crores)
Priority Sector
Non-Priority Sector
Total
Gross
Year
Gross
Gross
NPAs as
Gross
Gross
Advances NPAs
Per Cent
Advances NPAs
of Total
Gross
Gross
NPAs ( % Advance
of Total)
s
Gross
NPAs
2013
1,279,000 66,900
42.9
2,776,900 89,000
57.1
4,055,900 155,900
2014
1,519,297 79,192
36.5
3,071,160 137,546
63.5
4,590,458 216,739
2015
1,685,954 93,685
35.7
3,159,315 169,060
64.3
4,845,269 262,745
2016
1,873,748 128,116
25.5
3,208,408 373,952
74.5
5,082,156 502,068
2017
1,959,915 154,276
24.1
3,182,309 486,780
75.9
5,142,224 641,056
Source: Statistical Table relating to bank in India, RBI
TABLE 2- Gross NPA of Private Sector Banks in Priority and Non–Priority Sector in India. (In
Crores)
Total
Priority Sector
Non-Priority Sector
Gross
Year
Gross NPAs Advances
as Per Cent
Gross
Gross
Advances
NPAs
2013
315,700
5,200
26.0
730,900
14,800
2014
383,055
6,054
26.6
828,675
2015
442,762
7,211
22.8
2016
561,977
10,139
2017
652,004
13,293
Gross NPAs
Gross
Gross
Advances
NPAs
74.0
1,046,600
20,000
16,689
73.4
1,211,731
22,743
994,577
24,365
77.2
1,437,339
31,576
21.0
1,229,704
38,241
79.0
1,791,681
48,380
18.0
1,452,876
60,549
82.0
2,104,880
73,842
of Total
Gross
NPAs
as Per Cent
of Total
Source: Statistical Table relating to bank in India, RBI
Gross advances and Gross NPA has increased in both priority and non- priority sector but the
proportion of Non-priority Sector outweighs the priority sector. The study revealed that the Private
Sector Banks were spending a large portion of the advances on the Non –Priority sector (which has
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Contemporary Issues in Banking, Insurance and Financial Services
lesser chances of default and are highly secured), still the banks were facing having percentage of
Bad loans in the Non –Priority sector(82% in 2017 from 74% in 2013).
Table 3: Priority Sector Lending to various sector (as a percentage of ANBC/OBC)*
Years
Public Sector
Banks
Agriculture
Micro
Enterprise
Weaker Section
2016-17
Private Sector
Banks
Public Sector
Banks
2017-18
Private Sector
Banks
Target By
RBI
18.3
16.5
18
16.2
18
6.3
8.3
6.4
7.9
7.5
11.4
9
11.5
9.5
10
42.5
39.9
40.8
40
Total
Priority
Sector Advances 39.5
*40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure
(OBE), whichever is higher
Source: Trend and Progress Report of RBI, various issue.
Table 3 clearly shows the comparison of target achieved by Public and Private Sector Banks in the year 201617 and 2017-18.In terms of overall performance, private sector bank has performed better than public sector
bank in both the years i.e. public sector banks were not able to achieve the overall target of 40 % directed by
RBI. Sector wise allocation depicts a different picture, Public Sector Banks performed better in providing
credit to agriculture and weaker sections while the target of credit to the micro enterprise was not achieved by
the banks. Comparing the situation with Private Sector Banks it was seen that sectors in which public sector
banks were performing well, their performance in those sectors (Agriculture and Weaker sections) was not so
good. Private Sector Banks were performing well in those sectors in which Public Sector Banks was
unable to achieve its desired target.
●
●
●
FINDINGS AND CONCLUSIONS
Comparing the Priority sector of both the Banks, it is depicted that Gross NPA in priority sector has declined
in both Public and Private Sector Banks but Gross NPA in Public sector banks (24%) is still higher than the
Private Sector Banks (18%). The reason behind this is that Public Sector Banks accounted for a higher
proportion of advances to priority sector than Private Sector Banks. Also, Public sector Banks are
Government controlled and due to political interference that have to lend more loans to these sectors which
have high chances of becoming NPA.
On the other hand, Non- priority sector accounted for a greater proportion of Advances and NPA in both
Public and Private Sector Banks but Gross NPA in Non–Priority sector of Private Sector Banks (82% in
2017) have higher percentage than Public Sector Banks. (75.9% in 2017).This clearly shows that the Private
Sector Banks are incapable of managing their NPA in these sector.
Public and Private Sector Banks are able to achieve the target of Priority sector fixed by the RBI but Private
Sector Banks performed better than Public Sector Banks.
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Contemporary Issues in Banking, Insurance and Financial Services
●
Comparing the sector wise target of the banks Public Sector Banks work better in ‘Agriculture’ and ‘Weaker
section’ sector while the Private Sector Banks performed better in ‘Micro Enterprise’ sector.Priority Sector
Lending helps in overall development of strategic sectors and is successful in achieving its purpose of
providing credit to these sectors But results will be more fruitful for the society as well as banking sector if
the amount of bad loans will decrease in near future as it directly affect the profitability and working
mechanism of banks.
REFERENCES
●
●
●
●
●
●
Raj Udit (2016). Priority Sector Lending in India. Retrieved from
http://www.legalservicesindia.com/article/2417/Priority-Sector-Lending-In-India.html
Kaur, M., & Kumar, R. (2018). Sectoral Analysis of Non-Performing Assets during Pre and Post Crisis Period
in Selected Commercial Banks. Pacific Business Review International, 11(3), 34-41.
Ota, R., & Sarkar, P. (2016) Priority Sector Lending of Commercial Banks and its Impact on the
Development of The Rural Economic Status in India. International Journal of Innovative Research and
Advanced Studies (IJIRAS), 3(7).
Shabbir, N., & Mujoo, R. (2014). Problem of Non-performing Assets in priority sector Advances in
India. Journal of economics and development studies, 2(1), 241-275.
Uppal, R. K. (2009). Priority sector advances: Trends, issues and strategies. Journal of accounting and
taxation, 1(5), 079-089.
Veerakumar, K. (2012). Non-performing assets in priority sector: A threat to Indian scheduled commercial
banks. International Research Journal of Finance and Economics, 93(1), 6-23.
135
Contemporary Issues in Banking, Insurance and Financial Services
A Study on Financial Saving Behaviour during COVID 19 Pandemic
Sangeeta
Research Scholar, Sharda University
Pradeep KumarAggarwal
Professor (Dr, CMA), Program Director, Sharda University
Abstract
Covid-19 not only affects the economy but also individually. This pandemic has become a worldwide
problem and it affects socially, economically, and emotionally. The purpose of the research is to gain an
insight into people's perception about the covid-19 and its impact on their income, saving, and expenditure
and to Study the change in behavior after COVID 19 Pandemic about the Financial Saving for Strengthening
the Financial Wellbeing. For this study data were collected from 114 from the respondent and result show that
during pandemic income, saving affect adversely and expenditure also decrease. Result also shows that the
financial attitude and financial behavior of respondents also changed towards saving, now respondents prefer
more saving rather than consumption and investment for strengthening the financial wellbeing. So, for
reducing the uncertainty of the future and strengthen financial wellbeing, financial literacy becomes
mandatory for all. This pandemic changes the way of looking at every aspect of life.
Keyword: Covid-19, Financial Wellbeing, Financial Attitude, Financial Behaviour, and Financial Stability
INTRODUCTION
Due to the sudden COVID-19 pandemic, the whole world is suffering instability and suffering. This pandemic
occurred at a time when the world economy was still struggling. As a result, in the specified case, it is critical
to take responsible financial steps, both preventive and corrective, to maintain an individual's and his/her
family's overall financial wellbeing. The COVID 19, also known as the coronavirus pandemic, is a worldwide
pandemic of coronavirus disease 2019 (COVID 19) caused by extreme acute respiratory syndrome
coronavirus 2. (SARS COV-2) The epidemic was discovered in Wuhan, China, in December of 2019. On 30
January 2020, the World Health Organization declared the disease a Public Health Emergency of International
Concern, and on 11 March, it was declared a pandemic. COVID-19 is a cause of stress because it is a very
horrifying disease which is even transferable by any contact, due to which people around the world are not
allowed to make the social gathering, all the markets, companies, schools, offices business had been shut.
which is causing so many job loss, lack of money in the family because of economic crisis or job crisis. The
daily wagers have no money for the survival of their family as they need daily food and there is no source left.
people don't have enough money for their medical investigation, so due to this pandemic people are suffering
a lot, it's being a halt in their flow of life and now people may be able to realize what is the importance of the
saving concept. savings are more important than unusual expenditure. The following factors affect the
household's behavior towards saving and investment (1) dealing with sudden emergencies such as funerals,
deaths, accidents, sicknesses, and natural disasters. (2) To purchase other properties (i.e., target savings) such
as bikes, residential houses, furniture, sewing machines, and car. (3) To cover fixed costs (such as tuition fees,
life, and health insurance premiums, etc.). (4) Future expenditure medicine, education, marriage, etc. (5)
retirement security (6) Investment (7) Interest and returns, growth, etc. If the fear of the global economy
undergoing a recession increases, it is more likely that a liquidity crisis will occur, followed by strong
inflationary pressures. Setting short-term financial targets become necessary in this scenario. Any investment
decision taken within this time frame should take an individual's short-term priorities into account. The
portfolios should be sufficiently liquid to offset contingencies to satisfy short-term needs. Financial literacy is
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Contemporary Issues in Banking, Insurance and Financial Services
important for assisting customers in investing enough to have adequate income in retirement while preventing
elevated levels of debt that could lead to unemployment, defaults, and foreclosures. Many with bad financial
literacy, on the other hand, borrow more, have less wealth, and end up paying needless fees for financial
goods. In other words, people with lower financial literacy are more likely to buy on credit, struggle to pay
their full credit card balance, and end up paying more in interest. This community also does not contribute,
has debt problems, and has a weak view of the terms of their loans. Worryingly, many people feel they are
much more financially literate than they are. Although this may seem to be an individual issue, it is more
common and has a larger effect on the entire population than was commonly thought. Everything that is
needed is a glance at the 2008 financial crisis and see the financial effect on the whole economy that came
from a lack of comprehension. As all know that this lockdown situation has created a problem in the path of
country success(Srivastava et al., 2020). During the lockdown, more than 50% lost their job, and still future is
uncertain, people start cutting down spending for future security (Coibion et al., 2020).
LITERATURE REVIEW
Zhang, et al (2020) shows that the threats of the global financial system in response to the pandemic have
risen considerably. Specific stock-market responses in each nation are directly related to the extent of the
outbreak. The pandemic's great uncertainty and its resulting economic losses have led to extremely volatile
and unstable markets.
Barrafrem et al. (2020) study conducted a study in UK and Sweden on 2021 samples and find the respondent
feels that the individual economy is far better than the national economy and world-wide economy. This study
also focuses on the financial well-being of individuals and insight into the factors associated with financial
welling during the hard and stressful period. The paper of Staboulis (2020) focusing on human resource
capital and digital skill gives a stronger base to the economy. Under this study research, the main focus is to
analyse the impact of covid-19 on the employment level of the education sector, e-commerce, telemedicine,
entertainment, digital collaboration.
Yuesti et al. (2020),show that financial literacy is necessary to overcome stress and depression. Financial
attitude and financial behavior are the important variables of financial literacy and the financial wellbeing of
an individual. Srivastava et al. (2020)focuses on the impact of covid-19 on Sustainable development goals
(SDG 2030) and suggested few corrective measures. Shenbagavalli et al.(2015)this paper finds that women
believe and having the habit of saving more than men, this paper also found that saving is influenced by
demographic factors such as age, gender, income, and occupation. Brown, Rocha, and Cowling
(2020)explores how covid -19 affects the entrepreneur financing sources. The article investigates this
speculation by analyzing a source of equity investments in real-time data. Our results indicate that the volume
of new equity transactions in the UK has declined significantly since the COVID-19 pandemic broke out.
Farré et al., (2020)indicates Covid -19 increase the inequality among gender in paid and unpaid work
during the lockdown, in this endemic large population, lost their jobs and women lost more the male.
It also found that covid-19 increases the childcare and housework responsibility for those who are
already working from home and creating stress among them.
Coibion, Gorodnichenko, and Weber (2020) paper find that due to covid-19 more than 50% loss
income and wealth, and this paper also reported that the level of unemployment will be increased in
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Contemporary Issues in Banking, Insurance and Financial Services
upcoming years and spending also goes down. They also found people feel uncertainty about
employment, inflation, and income. Shenbagavalli et al.(2015) found that as compare to men,
women believe more in saving and also having saving habits, this paper also concluded that
demographic factors also influenced saving.
Ibrahim and Alqaydi (2013) studied that financial education could change the financial attitude as
well as reduce dependence on loans and borrowings. It also concluded that financial attitude is
dependents on financial literacy. Pandey and Kathavarayan (2017) this study found that
demographic factors are significantly related to Investment preferences. Education and income
having a greater influence the Investment preferences. Investment preferences also depend upon
upcoming expenditures like children's education, marriage, and health.From the above literature, it
was concluded that Covid -19 adversely affect the Induvial life
THE OBJECTIVE OF THE STUDY
1. To gain an insight into people’s perception about the covid-19 and its impact on their income,
saving, and expenditure.
2. To Study the change in behavior after COVID 19 Pandemic about the Financial Saving for
Strengthening the Financial Wellbeing
RESEARCH METHODOLOGY
For this study questionnaire was sent to 200 people but data was collected only from 117 through
electronic mode through a self-made questionnaire to study the effects of covid-19 on the financial
wellbeing of a person. 22% of the respondent belong to a rural area, 15% belong from an Urban area
and 63% belong to the semi-urban area. Maximum responses (55%) got from the respondent under
30 years, then 45% from the respondent under 31-45 years, 6 from 46-60 years, and 1 from above
60. Male shows more interest in filling the form as compare to the female out of 60% are married.
54% are non-government employees, 22% are part-timers, 18% running their own business and only
7% are government employees. 24% were earning below 10,000, 36% earning 10,001-30,000, 15%
earning 30,001-50,000, 8% were earning 50,001-70,000, 10% were earning 70,001-1,00,000 and 8%
earning above 1,00,000.
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Contemporary Issues in Banking, Insurance and Financial Services
Table1. Demographic and Socioeconomic Details of the Respondents
Frequency
Percent
Particulars
Rural
Urban
Place of residence
Semi-Urban
Up to 30 years
31-45
46-60
Age
60 above
Female
Gender
male
Married
Marital Status
Unmarried
Single
2 Member
3 Member
4 members
Family Size
More than 4
Government employee
Non-Government employee
Part-Time employee
Occupation
Own Business
Below 10000
10,001-30,000
30001-50000
50001-70000
Monthly Income of 70001-100000
Respondent
Above 1,00,000
25
17
72
62
45
6
1
51
63
68
46
7
7
25
29
46
8
61
25
20
27
41
17
9
11
9
21.93
14.91
63.16
54.39
39.47
5.26
0.88
44.74
55.26
59.65
40.35
6.14
6.14
21.93
25.44
40.35
7.02
53.51
21.93
17.54
23.68
35.96
14.91
7.89
9.65
7.89
Table -2 shows that according to 67.5% of the respondent, covid-19 affected income, 14% says covid-19
doesn't affect the Income and 18.4% are not able to decide whether income affected or not. Hence table-2
shows covid-19 Income is affected.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 2. Income affected during Covid-19
Income has affected
Frequency
Percent
Yes
No
May be
77
16
21
67.5
14
18.4
Table-3 shows that covid-19 impacts the income of the respondent. Only 20% of the respondent said that
there is no impact on Income during covid and 26.3% said their income impacted up to 25%, 26.3% of the
respondent claimed that their income impacted up to 50%, 18.4 claim the impacted up to 75% and 11.4% of
the respondent claims that their income gets impacted 100%. Hence, results shown that Covid-19 impacted
the level of income of the respondent.
Table3. Percentage Income affected during Covid-19
What % Income affected
Frequency
Percent
No Impact
up to 25%
Up to 50%
Up to 75%
100% Impact
20
30
30
21
13
17.5
26.3
26.3
18.4
11.4
Table- 4 shows that covid-19 impacted financially to the maximum, 19.3% of the respondent loss their job,
and there was a pay cut of 40.4% of the respondent. 17.5% lost their job. 10.5% does not get the
perks/benefits and only 12.3% responded that there is no impact on the income due to the covid-19. Hence in
total 87.7% of the respondent get affected due to the covid-19.
Table 5 shows that maximum respondent decreases their expenditure and only 10.5% says that there is no
change in expenditure due to covid-19. Table:6 Descriptive study of expenditure shows that maximum
expenditure increases who are earning in between 10,001-30,000, under the age of 45 also reduces their
expenditure.
Table4. How covid-19 affects income
How covid-19 affects income
Frequency
Percent
Pay cut
Job Loss
loss of pay
46
22
20
40.4
19.3
17.5
Incentives/ Benefits
12
10.5
No Impact
14
12.3
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Contemporary Issues in Banking, Insurance and Financial Services
The result shows that the expenditure of the respondent who is living in rural and semi-rural also decrease and
expenditure of urban respondent increase during this pandemic. Expenditure of female reduces and male
increases, it shows that women expenditure on clothing, makeup get reduces during covid-19 and expenditure
of male increase. Only 3 government employees fill the questionnaire and out of 3, 2 respondents that their
expenditure increases, and 1 responded that their expenditure gets decreases during covid-19. Hence from the
study, it's concluded that due to covid-19 expenditure reduces maybe because of a decrease in income.
Table5. Impact of Covid-19 on Expenditure
Frequency
Percent
Increase
47
41.2
Decrease
55
48.2
No Impact
12
10.5
Table:7 shows that according to maximum respondent saving decrease due to covid-19 and according to
32.5% of respondent claims that they don’t have enough money during this pandemic, 8.8% on the
respondent thing because of covid-19 saving increases and 12.3% claimed that covid-19 did not affect saving.
And table:8 shows that the attitude of respondents moves towards saving more during covid-19 and the
purpose of saving also changed. Respondent attitude and preference also changed now respondent reduces to
save for the comfort buying and investment purposes, they save money for medical, future uncertainty and
fear of job loss.
RESULT AND DISCUSSION
The main agenda of the research is to gain an insight into people's perception about the covid-19 and its
impact on their Income, saving, expenditure, and financial strength. The above discussion shows that covid19 is affected economically and socially. According to the above results, 77% of the respondent their income
decreases due to the covid-19 pandemic. Maximum respondent suffers economically by job loss, reduction in
pay, and Incentives. In fear of uncertainty, 48.2% of the respondent reduces their expenditure. From the above
result, it's concluded that during pandemic saving also decrease because of less income and for making secure
future maximum respondent attitude changed. Their attitude and behavior for the saving also changed now
respondent save for the uncertainty of future, job loss, and medicine. As previous research shows that during
covid-19, family dispute, suicide case, stress, and depression cases also increases. For the above research, it's
concluded that due to mismanagement of finance or lack of financial literacy maximum respondents get
affected and their financial wellbeing gets affected so for strengthening the financial stability basic financial
literacy is important for all.
LIMITATION OF THE STUDY AND FUTURE SCOPE
This study is not free from the limitation. Firstly, this study was conducted on small sample size, and the
result was concluded based on that so for removing the limitation research should be conducted after taking
more samples. Secondly, for more and in-depth knowledge, research should target only one income group at a
time. In future researcher may study farmers, retailer and private sector employees’ attitude toward the saving
and expenditure pattern after this pandemic because this pandemic s not completely gone from our country
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Contemporary Issues in Banking, Insurance and Financial Services
Table:6 Descriptive study of expenditure pattern during covid-19
Demographic Factors
Increase
7
Below 10000
Monthly Income of
Respondent
Age
Place of residence
Gender
Marital Status
Family Size
Occupation
Decrease
16
10,001-30,000
22
19
30001-50000
7
8
50001-70000
3
3
70001-100000
Above
Total
Up to 30 years
5
3
47
24
3
6
55
27
31-45
19
25
46-60
3
3
60 above
1
0
Total
47
55
Rural
9
15
Urban
11
5
Semi-Urban
27
35
Total
47
55
Female
21
26
male
26
29
Total
Married
47
55
30
34
Unmarried
17
21
Total
47
55
Single
3
4
2 Member
3
4
3 Member
10
10
4 members
11
15
More than 4
Total
Government employee
Non-Government employee
Part-Time employee
Own Business
Total
20
47
2
25
8
12
22
55
1
33
15
6
142
47
55
Contemporary Issues in Banking, Insurance and Financial Services
Table 7 Saving affected during Covid
Effect on saving
Frequency
Increase Saving
Decrease Saving
No effect on saving
Don't have enough money to save
10
53
14
37
Table 8 Attitude toward Saving for future
Should Save for Future
Yes
No
Table 9 Attitude toward Saving
Purpose of Saving after covid
Comfort buying
Fear of job loss
Uncertainty of future
Medicine risk
Investment Purpose
Frequency
105
9
Responses
yes
No
yes
No
Yes
No
Yes
No
yes
No
Frequency
45
69
58
56
81
33
69
45
47
67
Percent
8.8
46.5
12.3
32.5
Percentage
92.10
7.89
Percent
39.47
60.53
50.88
49.12
71.05
28.95
60.53
39.47
41.23
58.77
REFERENCE
•
•
•
•
•
Barrafrem, K., Västfjäll, D., & Tinghög, G. (2020). Financial well-being, COVID-19, and the financial betterthan-average-effect. Journal of Behavioral and Experimental Finance, 28, 100410.
https://doi.org/10.1016/j.jbef.2020.100410
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Contemporary Issues in Banking, Insurance and Financial Services
An Analysis of Education Loans and NPAs in India
Vineet Kumar, Research Scholar,
Department of Economics, Kurukshetra University, Kurukshetra
Dr. Archna Chaudhry, Associate Professor
Department of Economics, Kurukshetra University, Kurukshetra
Abstract
Education is mandatory for the overall growth and development of individuals. Educated people can do
productive work, think logically, and make a better society to live in for themselves and others. Simply
providing education may be unproductive, but the quality of education also matters. Educational loans are
providing finance facilities to achieve the dreams and avail quality education. This study focuses on bank’s
education loans and education loan NPAs of banks, Percentage of education loans, NPAs of different states of
India in total education loans, course-wise percentage and amount of education loan NPAs. The significant
findings of the study are that engineering courses have the highest amount of NPAs of Rs. 4040.68 crores
with a 12.13 percent education loan NPA rate with respect to total education loan amount, and loans up to Rs.
4 lakhs have a higher share in the NPAs of education loans. As a policy suggestion the banks should improve
their application reviewing and loan granting process. Banks should make a policy to review and rank the
good education institutes.
Keywords: Education Loan, NPA, Unemployment, Economic Development, Banks
INTRODUCTION
Are education loans contributing in NPA? In India quality higher education is costly. To provide
finance assistance to students, education loans came into existence in 1995 by the State Bank of
India and thereafter many banks started providing education loans to students. Government has
developed Vidya Lakshmi Portal for students seeking education loans. Education is one of the
important factors of economic growth and development of a country. Quality education is the fourth
goal in UNDP sustainable development goals, which wishes to provide equitable and inclusive
quality education and promoting lifelong learning opportunities for all. Education can promote
innovative ideas in the economy in the field of technology, production and product, which can
enhance the economic growth of a country (Lucas, 1988).
Knack et al. (1995) found that the average age of attaining education up to higher level is 25 years
for males and over 25 years shows a positive relationship with the growth of country. Arvind
Subramanium, chief economic adviser to the government considers “India’s NPA problem as the
number one macroeconomic challenge for the Indian economy.” Cross-country studies find a
positive significant relationship between education and economic growth (Mankiw et al. 1992).
Barro et al. (1998) studied the existing cross country measures of the quality of education and found
quality of school education is more important than quantity. The quality of education, which
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Contemporary Issues in Banking, Insurance and Financial Services
enhances cognitive skills, has a powerful economic effect, means economic growth of a country is
strongly affected by the quality of skill of workers (Hanushek et al. 2010).
Robert J. Barro “more human capital facilitates the absorption of superior technologies from leading
countries.” Study on the relationship between higher education and growth in Africa found growth
elasticity of higher education human capital is twice than the growth impact of physical capital
investment (Gyimah et al. 2006). Vivek Rajbahadur Singh (2016) found that the growth of NonPerforming Assets in Commercial Banks has a direct impact on profitability of banks; NPAs affect
the liquidity and profitability of banks. The problem of NPAs is not only affecting the banks but also
the whole economy. Das, S. (2010) analyses the parameters that are actually the reasons of NPAs,
and those are, market failure, corruption motive, poor follow-up and supervision, non-cooperation
from banks, poor Legal framework, and diversion of funds.
Arora et al. (2014) studied the comparison of loan assets of public and private banks and concluded
that NPAs of public sector banks are higher than the NPAs of private sector banks. The main
objective of this study is to analyze the behavior of education loans given by banks, number of loans
and of what amount given, or to determine how much education loans are becoming NPA. For this
study, data is collected from the government reports, RBI reports, the Indian Banking Association.
Vidya Lakshmi portal: In budget speech of FY 2015–16, Shri Arun Jaitley, Honorable Union
Finance Minister said "India is one of the youngest nations in the world with more than 54% of the
total population below 25 years of age. Our young people have to be both, educated and employable
for jobs of the 21st century. Yet, today, less than 5% of our potential workforce gets formal skill
training to be employable and stay employable. With a view to enable all poor and middle class
students to pursue higher education of their choice without any constraint of funds, I propose to set
up a fully IT based Student Financial Aid Authority to administer and monitor Scholarship as well
Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.
We will ensure that no student misses out on higher education for lack of funds. The IT based
mechanism under the Pradhan Mantri Vidya Lakshmi Karyakram is expected to provide students a
single window electronic platform for Scholarships and Educational Loans."
Under the guidance of the Department of Financial Services, Department of the Higher Education
and Indian Banks Association a Portal Vidya Lakshmi is made for student seeking education loan.
This online portal is developed and being maintained by NSDL e- Government Infrastructure
Limited. On this portal student can apply and track their loan application. Under this scheme 38
banks are registered.
The Salient features of the scheme are as under


Under this scheme students can avail loan up to Rs. 7.5 lakh for studies in India, and student can
avail loan up to Rs. 15 lakh for studies abroad.
Students can avail loan up to 4 Lakh without collateral and at Prime Lending Rates (PLR) and
for loan more than 4 lakh at PLR plus 1 percent
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Contemporary Issues in Banking, Insurance and Financial Services

Students can repay this loan over a period of 5 to 7 years and with a grace period of one year after
completion of course
LITERATURE REVIEW
Tamar Lewin (2011) in his study, found that in the US half of the under graduates who left the
colleges in 1993 were having educational loans whereas number of students having education
loans increased to one-third in 2008. Gicheva (2011) has studied on the chances of delay in marriage
for students on education loans. She found that borrowing an additional amount of $10000 resulted
in the decreased probability of getting marriage by 7 per cent. She concluded a high degree of
correlation exists between the student loans and their expected marital status.
Vivek Rajbahadur Singh (2016) found that the growth of non-performing assets in commercial
banks has a direct impact on the profitability of banks; NPAs affect the liquidity and profitability of
banks. The problem of NPAs is not only affecting the banks but also the whole economy. Das (2011)
studied the process of education loan by bank and found out the problem faced by students in
availing education loan, for his statistical study he used a probit model. The study found that private
banks are reluctant to extend student loans.
Dr. Partap Singh (2012) study shows improvement in the management of NPA. The study analyzed
the direction of NPA’s, reason of NPA’s and conducted a comparative analysis of total loan amount
and NPA, assets of PSB and private banks. Dhar and Bakshi (2015) study the factors that determine
banks non-performing assets in India and deduce that bank lending to sensitive sectors, net interest
margin and CRAR as most important determinants of NPAs. Robert J. Barro (2001) study the
relationship between education and economic growth and found that growth is a positive related to
the average of schooling years of male adults, whereas growth is not significantly related to the case
of females.
DATA AND RESEARCH METHODOLOGY
For this study data is collected from the government reports, RBI reports, and State Level Bankers
Committee reports of each state. Data is analyzed using average and bar graphs.
ANALYSIS OF EDUCATION LOAN NPAs
Economies should realize this that for better, safe, improving future, education is the most
significant factor. There is still some quality of education courses, which are costly. To provide these
courses in the reach of people who cannot afford it education loans are provided by different public
sector banks and private banks. However, NPA in education loans can be a problem for the overall
efficiency of banks. The present study is an attempt to find out rate of education loan NPAs.
Table 1- Bank wise Default Rate of Public Sector Banks under Education Loan
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Contemporary Issues in Banking, Insurance and Financial Services
Name of Bank
Education Loan Upto Rs 4 Education Loan between 7Lakh (%)
10 lakh(%)
Allahabad Bank
14.03
0.62
Andhra Bank
12.62
1.05
Bank of Baroda
21.07
4.26
Bank of India
25.7
4.13
Bank of Maharashtra
16.7
7.63
Canara Bank
15.82
3.16
Central Bank of India
23.95
1.09
Corporation Bank
29.8
4.9
Indian Bank
22.07
0.75
Indian Overseas Bank
9.94
3.16
Oriental Bank of Commerce
14.36
2.45
Punjab National Bank
23.02
3.19
Punjab & Sind Bank
12.58
5
Syndicate Bank
10.74
0.31
UCO Bank
36
4
Union Bank
21.08
2.4
United Bank of India
20.26
3.29
State Bank of India
24.02
3.09
IDBI Bank Ltd
13.19
1.48
Average rate
19.31
2.94
Source: www.rbi.org.in and author’s calculation
As per the data shared by Ministry of Human Resource Development on 1st July 2019 on rate of NPA
of education loans given by Indian banks, the average rate of NPA of education loan up to four lakh
rupees is 19.31% while average rate of NPA of education loan between seven lakh to ten lakh is
approx. 3%, which shows that education loans are contributing in NPA of Banks but education
loan up to 4 lakhs are contributing more in NPAs. In addition, the education loans up to 4 lakh rate
of NPA of Corporation Bank has highest 29.8%, after this Bank of India with 25.7%, State Bank of
India 24.02%, Central Bank of India 23.95%, Punjab National bank 23.02%, Indian bank with
22.07% as NPAs. While in education loans between 7 and10 lakh rate of NPAs is highest in Bank
of Maharashtra 7.63%, and followed by Punjab and Sindh bank with 5%, the Bank of Baroda
4.26% and Bank of India 4.13% .
Education Loan Application Received
Table 2 Number of education loan applications received by public sector banks
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Contemporary Issues in Banking, Insurance and Financial Services
Financial Year
2014-15
2015-16
2016-17
2017-18
2018-19
Source: data.gov.in
Number of Applications
254420
261257
215422
242433
238989
Figure 1 Number of applications received by banks
Table 2 shows the number of applications received by the public sector banks. In the year 201415, 2.5 lakh application were received, after that in the year 2015-16 2.6 lakh, in 2016-17 2.1 lakh
and in year 2017-18 2.4 lakh, in 2018-2019 2.3 lakh application received. An average of 2.4 lakh
applications per year was received by public sector banks.
Non-Performing Assets (NPAs)
Banks give loans, and when the repayment of principle and interest is missed for a fixed period then
these loans are said to be NPA of banks. According to RBI “An asset, including a leased asset,
becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’
(NPA) was defined as a credit facility regarding which the interest and or installment of principal has
remained ‘past due’ for a specified time.” Or “a non-performing asset (NPA) shall be a loan or an
advance where;
i. interest and installment of principal remain overdue for a period of more than 90 days regarding a
term loan,
ii. the account remains ‘out of order’ as indicated at below, regarding an Overdraft/Cash Credit
(OD/CC),
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Contemporary Issues in Banking, Insurance and Financial Services
iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and
discounted,
iv. the installment of principal or interest there on remains overdue for two crop seasons for short
duration crops,
v. the installment of principal or interest there on remains overdue for one crop season for long
duration crops,
vi. The amount of liquidity facility remains outstanding for more than 90 days, regarding a
securitization transaction undertaken in terms of guidelines on securitization dated February 1, 2006.
vii. regarding derivative transactions, the overdue receivables representing positive mark-to-market
value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due
date for payment”
Classification of NPA
Substandard Assets: According to the guidelines of RBI, if a loan remains NPA for a period of
one year or less than one year it will be considered a substandard asset. In such case the borrower’s
current net worth of security given by him is not enough to ensure the recovery of the amount of
bank.
Doubtful Assets: If an asset remains as substandard asset for a period of one year or twelve months
it will be considered doubtful asset.
Loss Assets: When a loan asset completes one year as doubtful assets then it is known as loss
assets, such assets are identified by banks audit and also identified by RBI, such assets are
considered loss of banks and recovery of such loans is not possible.
Education loan NPAs status
As per question asked in parliament on NPA of education loans and data provided by the
government, NPA in North Eastern Region is 6.74 percent, out of 807.90 crore education loans
54.42 crore turned into NPA. In Eastern Region percentage of NPA is 14.21 with the amount of
1511.23 core out of the total loan amount 10637.32 crore, in Central Region 6.13 percent with
amount of 541.39 crore out of total amount of 8828.83 crore.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 3 Region wise percentage of NPA and amount of NPA
State-wise number and number of outstanding education loans and Non-performing
Assets(NPAs) as on 31.12.2020
AmountRsinCrore
Education Loan
Outstanding
NORTHEASTERNREGION
Assam
Meghalaya
Mizoram
ArunachalPradesh
Nagaland
Manipur
Tripura
Total
EASTERNREGION
Bihar
Jharkhand
WestBengal
Odisha
Sikkim
Andaman&Nicobar
Total
CENTRALREGION
UttarPradesh
Uttarakhand
MadhyaPradesh
Chattisgarh
Total
NORTHERNREGION
Delhi
Punjab
Haryana
Chandigarh
Education NPA
Education Loan
NPA as Percentage
of total Education
Loan
A/cs
Amount
12840
3504
324
407
350
832
4123
22380
461.80
132.73
12.64
37.88
13.73
36.20
112.92
807.90
105043
61332
63327
51943
713
485
282843
3524.88
2831.17
2505.44
1732.59
19.56
23.68
10637.32
119171
20982
86987
19574
246714
4319.08
851.79
2937.96
720.00
8828.83
11186
1209
8639
1514
22548
287.42
32.60
186.00
35.37
541.39
6.65
3.83
6.33
4.91
6.13
35361
29934
33517
4232
2191.02
1748.48
1644.69
281.65
1451
1849
3654
154
43.64
52.63
100.84
4.05
1.99
3.01
6.13
1.44
151
A/Cs Amount
1151
174
43
46
27
87
454
1982
30.60
5.03
1.59
1.67
0.77
3.19
11.58
54.42
6.63
3.79
12.56
4.42
5.59
8.80
10.26
6.74
24384 908.16
6235 232.53
5506 159.30
5341 210.29
18
0.42
20
0.53
41504 1511.23
25.76
8.21
6.36
12.14
2.15
2.24
14.21
Contemporary Issues in Banking, Insurance and Financial Services
Jammu&Kashmir
14323
Ladakh
40
HimachalPradesh
16201
Rajasthan
45407
Total
179015
WESTERNREGION
Gujarat
48437
Maharashtra
224276
DadarNagar Haveli&Daman&Diu 465
Goa
7593
Total
280771
SOUTHERNREGION
AndhraPradesh
111822
Telengana
63534
Karnataka
256219
Lakshadweep
19
Tamilnadu
697066
Kerala
325703
Puducherry
18311
Total
1472674
G.Total
2484397
Source:StateLevelBankers'Committee
518.36
1.17
505.92
2015.72
8907.01
501
0
884
2483
10976
11.94
0.00
26.70
61.23
301.03
2.30
0.00
5.28
3.04
3.38
3291.33
9534.49
19.28
1902
22276
11
47.31
448.00
0.22
388.93
13234.03
392
24581
16.96
512.49
1.44
4.70
1.14
4.36
3.87
6741.70
5786 115.23
4773.93
2953
75.33
8040.76 28694 495.69
0.59
0
0.00
17193.58 168410 3490.75
10236.12 54519 1396.23
481.80
4307
93.31
47468.48 264669 5666.54
89883.57 366260 8587.10
1.71
1.58
6.16
0.00
20.30
13.64
19.37
11.94
9.55
In Northern Region 3.38 percent with amount of 301.03 crore out of 8907.01 crore, in Western
Region 3.87 percent and amount of 512.49 crore out of 13234.03 crore of loan amount and in
Southern Region percentage of NPA is 9.55 with amount of 5666.54 crore out of total loan of
47468.45 crore. Overall Education Loan NPA is of 8587.10 crore out of total loan amount of
89883.57 crore rupees.
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Contemporary Issues in Banking, Insurance and Financial Services
Figure 2 Percentage of NPA in different regions of India
4.6 Stream-wise number and amount of outstanding education loans and NPAs
Table 4Stream-wise number and amount of outstanding education loans and NPA
Stream
LoanOutstanding
NPAs
Education
Loan NPA as
Percentage of
course wise
loan amount
Amount(RsinCrore)
No. Amount(RsinCrore)
MedicalProfession 156338
1023968
Engineering
123359
NursingCourses
216623
MBA
No.
10147.05
33315.64
17676
176256
633.15
4041.68
6.23
12.13
3674.68
22013
520.16
14.15
9541.36
28736
685.51
7.18
Source:State Level Bankers' Committee
153
Contemporary Issues in Banking, Insurance and Financial Services
Figure 3 Education loan NPAs as percentageof total education loan
16
14.15
14
12.13
12
10
8
7.18
6.23
Percentage of NPA
6
4
2
0
Medical Profession
Engineering
Nursing Courses
MBA
NPA according to stream- wise, percentage of NPA in Nursing Courses is 14.15 percent with the
total amount of 520.16 crore, in the medical profession NPA is 6.23 percent with amount of 633.15
crore, in Engineering NPA is 12.13 percent with the amount of 4040.68 crore, and in MBA course
NPA is 7.18 percent with amount of 685.16 crore. As per data engineering course has the highest
amount of NPA.
Table 5 Percentage of NPAs under education loans vis-à-vis other type of loans (in percent)
As on
Education Housing Vehicle Consumer Other Agriculture&Allied
Industry
Loans
Durables
Retail
Loans
31-03-20188.11
1.56
1.96
1.99
2.19
7.84
21.14
31-03.20198.29
1.43
1.82
4.53
2.06
8.96
16.66
31-03-20207.61
1.61
1.68
6.91
1.52
10.33
13.60
Source: www.rbi.org.in
Table shows the comparison of percentage of NPAs of three years of education loan with other
loans. Over the three years, industry has the highest percentage of NPAs with an average of 17.13
percent and average agriculture NPA is 9.04 percent and for education loans average NPA is 8
percent. Durable goods average NPA is 4.48 percent.
154
Contemporary Issues in Banking, Insurance and Financial Services
Figure 4 Percentage of NPAs under education loans vis-à-vis other type of loans
16
14
12
10
8
6
4
2
0
13.6
10.33
7.61
6.91
1.61
1.68
1.52
Percentage of NPA
CONCLUSION
The present study focuses on education loans and how much these loans are becoming NPAs of
banks, the study also attempts to determine the direction of education loans NPAs of public and
private banks. The main motive of education loan was to fulfill finance problem of students to take
education in their desired field. The study found that annually approx. 2.4 lakh student applies for
education loan. The rate of NPA of education loans in loan up to four lakh rupees is higher than the
rate of NPA of loans between seven to ten lakhs rupees. Total NPA amount of education loan is
Rs.8587.10 crore out of total loan amount of Rs.89883.57 crore. Northern Region has the lowest rate
of NPA 3.38% , while Eastern Region has the highest rate of NPA 14.21%. Percentage of NPA in
nursing course is highest with 14.15 % while medical profession has 6.23%. Amount of NPA in
engineering course is Rs 4040.68 crore with 12.13 % NPA rate. One of the primary reasons behind
the increasing NPA trend in education loans is amount up to four lakh has highest rate of NPA than
higher amount of education loans. Corporation Bank, PNB, Indian Bank, SBI and Central bank of
India have the highest rate of NPA, also fewer job opportunities and high unemployment growth
may be the reason of NPA in education loans. As a policy suggestion the banks should improve their
application reviewing and loan granting process, or banks should make a policy to review and rank
the good education institutes. Government should take steps to join industries, businesses with the
education institutions to provide required skill, and job oriented environment.
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

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156
Contemporary Issues in Banking, Insurance and Financial Services
HR Issues in Indian Banking Sector
Dr Ravneet Kaur, Assistant Professor,
GMN College, Ambala Cantt
Email: ravneetgulati08@gmail.com
Abstract
There has been rapid transformation in Indian Banking Sector since its inception. Banking profile has
witnessed a drastic change to include various activities like mutual funds, merchant banking, innovative
financial services and products. The major issue facing the banking sector is to cope up with the
environmental scenarios and face the challenges of competition. There is an emerging need for technological
advancement and digitalization in banking sector which is possible through effective and efficient
management of human resources. Moreover, HR also poses serious challenge to banking sector in India. The
aim of the paper is to analyze the HR issues experienced by HR managers in Indian Banking sector and how
to cope up with them.
Keywords: HR, HR Issues, Financial services, Digitalization, Banking sector.
INTRODUCTION
Financial institutions play significant role in economic development of country. Corporate sector is facing lot
of challenges due to new Information era. Moreover, globalization has turned the scenario of economy and
big business houses are developing new techniques for dealing at national and international level in all the
areas. Indian banking sector has taken a forefront in the economy and banks play a vital role in making the
economy face the challenges of global world. Land, capital and technology together have lesser worth in
achieving competitiveness and human resource is only a factor which plays pivotal role in sustaining global
competitiveness because the talent, knowledge and skills of human factor can’t be imitated. So business is
facing tough competition from the immediate outside environment in which human resources become most
significant for survival and growth of business organizations.
Indian banking sector is recognized as the best sector among the other banking sectors in the world and in
recession era the success of banking sector was recognized by the whole world. In ancient times Barter
system was prevalent in Indian economy where goods were exchanged for goods. But after a certain time
period this system turned into banking system. The first bank in the country then started in Calcutta in 1770.
This bank was started by Alexander and company and it was based on European banking system. This was
the turning point in Indian banking system and this bank was named as Bank of Hindustan but this bank can’t
make its global presence and was unsuccessful. After this various turnarounds and changes were experienced
by Indian banking sector and now the banking sector has become the backbone of Indian economy. Now we
have a proper regulatory body naming RBI for Indian banking system which gives proper guidelines and
standards for proper functioning and working of banks. The Indian banks can be classified into three types
such as: 1.Private Banks; 2. Public Banks; and 3. Foreign Banks
Due to digitalization in Indian banking sector various changes have taken place and new era of banking has
emerged like retail banking, corporate banking, universal banking etc. Due to this new technological era
banks are devising appropriate strategies for skill and talent requirement and management. So, HR function is
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Contemporary Issues in Banking, Insurance and Financial Services
occupying pre dominant place but still public sector banks are far behind and in public sector banks Human
resource function is not given much emphasis. This is a serious issue and due to which inefficiency is
cropping up in public sector banks. In present scenario private sector banks are dominating and ruling the
economy and have competitive edge over public sector banks and they consider public sector as their rivals.
LITERATURE REVIEW
Human resource management (HRM or simply HR) is the management of an organization's workforce, or
human resources. It is responsible for the attraction, selection, training, assessment, and rewarding of
employees, while also overseeing organizational leadership and culture, and ensuring compliance with
employment and labour laws. In circumstances where employees desire and are legally authorized to hold a
collective bargaining agreement, HR will typically also serve as the company's primary liaison with the
employees' representatives.
According to Mark A. Huselid “An increasing body of work contains the argument that use of High
Performance Work Practices, including comprehensive employee recruitment and selection procedure,
incentive compensation and performance management system, and extensive employee involvement and
training, can improve knowledge the knowledge, skills, and abilities of a firm’s current and potential
employees, increase their motivation, reduce shirking, and enhance retention of quality employees while
encouraging nonperformers to leave the firm”. Various researches have conducted on HRM for analysing the
role and impact of HR practices on the performance of firm. And found that the good HR practices work as a
catalyst for the growth of organisations.
Shalini Shukla / Procedia - Social and Behavioral Sciences 133 (2014) 358 – 363 Banking in India originated
in the last decades of the 18th century. Banking dates back to 1786, the first bank established in India, then
the nationalization of banks in 1969 and recently the liberalization of the same since 1991. Bouquets of
services are at customers demand in today’s banking system. Different types of accounts and loans,
facilitating with plastic money and money transfer across the globe. In India the banking sector is segregated
as public or private sector banks, cooperative banks and regional rural banks. The last decade experienced a
complete reform in the financial and banking sector. With the advancement of technology, banking sector has
become easier, fast, and accurate and also time saving, ATMs, Mobile Banking, SMS Banking and Net
Banking is only the tip of an ice-berg. So that the HRM issues, VRS, Training & development, empowerment
and career plan etc, need to considered to cope up with the changing environment.
According to FICCI Report (Annual survey Feb, 2010) Public Sector Banks, Private Sector Banks as well as
Foreign Banks view difficulty in hiring highly qualified youngsters as the major threat to their HR practices
ahead of high staff cost overheads, poaching of skilled quality staff and high attrition rates.
T.T. Ram Mohan et al (2004) argue in one of his research studies that the ‘India’s public sector banks (PSBs)
are compared unfavourably with their private sector counterparts, domestic and foreign. This comparison
rests, for the most part, on financial measures of performance, and such a comparison provides much of the
rationale for privatization of PSBs.’ So, Faulty implementation of strategy is one reason for rolling back the
PSB’s. The Banking industry is currently in a transition phase. On the one hand, the PSBs, which are the
mainstay of the Indian Banking system, are in the process of shedding their flab in terms of excessive
manpower, excessive non-Performing Assets (NPA’s) and excessive governmental equity, while on the other
hand the private sector banks are consolidating themselves through mergers and acquisitions. And these
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Contemporary Issues in Banking, Insurance and Financial Services
changes are creating the pressure on HR manager for adopting the external changes in their policies and
practices.
TABLE-1 DESCRIPTIVE STATISTICS
According to KV Kamath, S S Kohli & et al (2003) ,“The biggest opportunity for Indian banking system
today is Indian consumer. Demographic shift in term of income level and culture shift in terms of life style
aspirations are changing the profile of Indian consumers. This is and will be key drivers of economic growth
going forward.” So, the opportunities are immense in Indian banking sectors. High population, liberalized
government policies etc are attracting the new private players. Existing players in banking industry are also
trying to increase efficiency and competitiveness by incorporating different new ways. Jolting economic
condition and competitive pressure by new entrance, changing labour market, less differentiation of products,
highly regulated market poses many threats on the position of existing players. So, the best acquisition &
utilization of resources become mandatory for the survival. As G. Bharati discussed in his study that “Service
sectors are playing a dominant, important role in the growth of economies, and on the other, these economies
are moving towards more liberalization and globalization. In the changing context of an environment where
competitiveness becomes key to survival, are domestic industries geared up to meet the competition? Banks
happen to be one service sector that uses a huge amount of human capital and customer capital for its
survival.”
The banking industry in India seems to be unaffected from the global financial crises which started from U.S
in the last quarter of 2008. Despite the fallout and nationalization of banks across developed economies,
banks in India seems to be on the strong fundamental base and seems to be well insulated from the financial
turbulence emerging from the western economies. The Indian banking industry is well placed as compare to
their banking industries western counterparts which are depending upon government bailout and stimulus
packages.
According to Priti Jain (2006) if any organization aspires to be growth oriented, people need to be trained,
motivated, rewarded, recognized and empowered to perform to their optimum capabilities. A Shalini Shukla /
Procedia - Social and Behavioral Sciences 133 (2014) 358 – 363 361 Human resource strategy must keep
pace with the changing environment in terms of addressing changing needs and expectations of customers and
employees.
RESEARCH METHODOLOGY
Sampling Technique: Convenience sampling method is used for choosing banks and random sampling is
used for selecting employees working in various branches.
Sample Size: Sample of 100 employees (50 from public sector and 50 from private sector are used.
Instrument Used: Questionnaire having statements on five point Likert scale was used to collect data.
Data Collection: Data has been collected from both primary sources such as structured questionnaire and
secondary sources such as online review of literature, RBI website, referred journals etc.
ANALYSIS OF DATA
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Contemporary Issues in Banking, Insurance and Financial Services
Data is collected through structured questionnaire and various factors such as employee turnover, incentives,
performance appraisal, staffing and talent acquisition were measured by using descriptive statistics and
anova. SPSS statistical software is used for analyzing the data.
Table-1 presents mean, standard deviation and standard error on various HR issues cropping in Indian
Banking Industry. One-way anova is used to analyze various HR issues between public and private sector
banks. Anova is used to study whether the difference between two samples mean is significant or not.
Table-1 presents mean, standard deviation and standard error on various HR issues cropping in
Indian. Table 1 shows mean score 29 and 27 in case of Public sector and private sector banks respectively in
so far as talent acquisition is concerned. To examine the significance of difference between the banks of two
sectors Anova was applied. In Table 2, values of F ratio are given and the value of F is 2.511 and p value is
0.104. So, p>.05 which shows that there is no significant difference between talent acquisition & development
in public and private sector banks.
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Contemporary Issues in Banking, Insurance and Financial Services
TABLE-2 ANOVA
Sum of
Squares
Talent
Acquisition
Performance
Appraisal
Employee
Staffing
Employee
Turnover
Employee
Rewards and
Incentives
d.f.
Mean
Square
Between Groups
2.604
1
2.604
Within Groups
58.895
98
0.592
Total
61.499
99
Between Groups
0.621
1
0.623
Within Groups
37.227
98
0.327
Total
37.848
99
Between Groups
0.058
1
0.044
Within Groups
34.125
98
0.33
Total
34.183
99
Between Groups
0.022
1
0.023
Within Groups
51.503
98
0.545
Total
51.525
99
Between Groups
0.116
1
0.116
Within Groups
48.244
98
0.501
Total
48.36
99
F
Sig.
2.511
0.104
1.541
0.049
0.145
0.039
0.043
0.021
0.231
0.629
The mean score Regarding Performance Appraisal worked out 42 in public sector banks and 39 in
case of private banks. As perTable 2, F value is 1.541 for performance appraisal and p value is
0.049. So, p< .05 which shows that there is significant difference between performance appraisal in
public and private sector banks.
Regarding ‘Employee Staffing’ the mean score in case of public sector banks (33) is slightly lower
than private sector banks(34.6). The value of F is 0.145 for employee staffing and p value is 0.139.
Here, p greater than .05 which shows that the difference between employee staffing in public and
private sector banks is not significant.
However, that there is significant difference between employee turnover in public and private sector
banks in so far as Employee turnover is concerned. Here, the value of F is 0.043 for employee
turnover and p value is 0.021, thus, p< .05. In case of Employee Rewards and Incentives, there is no
significant difference between in public and private sector banks because p> .05 as F is 0.
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Contemporary Issues in Banking, Insurance and Financial Services
CONCLUSION:
On the basis of results of Anova we can conclude that there is significant difference between various HR
issues/ challenges cropping in PSB’s and private sector banks for various factors such as performance
appraisal, employee staffing, turnover and employee rewards. It means both public and private sector banks
follow different practices for efficient management of their employees. So, for survival of business, they need
to adopt competitiveness and HR is totally neglected area in PSB’s. Public sector banks need to adopt more
comprehensive and administered policy related to HRM. PSBs need to acquire right talent, talent
development and retention strategies for sustaining employees. So, HR reforms need to be revised and HR
practices and policies should be linked appropriately with Indian banking sector.
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REFERENCES
A Huselid Mark. (1995). The impact of Human Resource Management Practices on Turnover, Productivity
and Corporate Financial Performance. Academy of Management Journal, vol. 38, No.3, pg. 635-872.
Ahmad A. And T. Agarwala. (1994) A decade of Management Research in India. Association of Indian
Management School.
Alcazar Martin Fernando and Romera- Fernandez Pedro et al. (2008) Human Resource Management as a
Field of Research. British Journal of Management, Vol.19, Pg 103-119. Banking Annual (Business
Standard)., January 2013, volume 4, Issue 1.
Bharati G., Kamath. (2007). The intellectual capital Performance of Indian Banking Sector. Journal of
Intellectual Capital, Vol.8, No.1, Pg. 96-123. Kamath K V et al. (2003). Indian Banking sectors: challenge
and opportunity. Vikalpa, Vol 28, No.3. Kamath K. R. (March 2012) Banking Sector: Emerging challenges.
PNB Monthly Review, Punjab National Bank, Regd. No. RN-34704/79.
Mutsuddi Indranil. (2010) Essentials of HUMAN RESOURCE MANAGEMENT. New Age International
Publishers, 5th Edition.
Ram T. T. Mohan et al. (2004). Productivity Growth and Efficiency in Indian Banking: A Comparison of
Public, Private, and Foreign Banks. Department of economics Working paper series (University of
Connecticut).
Rao V S P. (2000) Human Resource Management (Text and Cases). Published by Excel Books, New Delhi,
Fifth edition. Singh K. Sanjay. Upcoming HR challenges In PSB’s. PNB Monthly Review, Punjab National
Bank, Regd. No. RN-34704/79
Jain, Sameeksha and Gautam, Aditya (2014), Implementing performance management system: a strategic tool
for effective human resource management. Prabandhan Guru, 5 (1-2) pp. 28-31.
Jain, Sameeksha and Gautam, Aditya (2016).Comparison of performance management systems in public and
private sector: a study of manufacturing organizations” International Journal of Management, IT and
Engineering, Vol. 6, No. 5, 111-128.
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Contemporary Issues in Banking, Insurance and Financial Services
Social and Economic Impact of Insurance:
A Case Study of India
Dr. Amita: Assistant Professor,
GMN College, Ambala Cantt. Email: amita.bodla@gmail.com
Abstractnancial growth and infrastructure
The importance of insurance, like banking and the stock market, is vital for the social wellbeing and
sustainable development of any country. The insurance industry directs pooled funds towards infrastructure
and government bonds, thus indirectly funding large-scale government and private projects. The industry also
generates large-scale employment by employing people as agents, distributors and service providers. In this
paper, an attempt is made to find the progress of insurance penetration and assess the social impact of the
insurance sector in India. The reference period of ten years between 2010 and 2019 was considered for impact
assessment. The study used the secondary data obtained primarily from annual reports of IRDA available on
its website. To strengthen the results, studies conducted by other researchers and consultancy firms were also
referred. The data was analyzed using percentages, growth rates and t-test. The results were presented through
tables and diagrams. The investigation indicated that between FY10 and FY19, claims worth Rs 1.64 lakh
crore were cleared by the life insurance industry. Rs 5.62 lakh crore was paid out in claims by the general
insurance industry during the same period.
Key words: Insurance impact, Life insurance, claim ratio, health insurers, Death claims
INTRODUCTION
The risk exists in every human activity whether social life or economic activities (Din, Angappan, &
Baker, 2017). We face threat because of the possible occurrence of events that can have severe social, human
or financial consequences: property damage, natural disaster, sickness, disability, accidents in their myriad
forms, and of course death. The insurance helps us to mitigate their consequences and thus alleviate our fear
of their occurrence. Insurance benefits consumers, businesses and society in many ways. Individuals take
insurance to dodge being faced with financial trouble when accidental damage resulting from a particular
event (non-life insurance) or when an individual wants to build up a monetary reserve for a specific plan and
tries to decrease mortality, deprivation and endurance risks (life-insurance). Everyone knows, insurance
performs similar functions as banking sector and the stock market. The share of insurance sector is
approximately 6.23% in world gross domestic product (Sajid Mohy, et. al. 2017). Furthermore, Insurance also
promotes a greater sense of security, peace of mind, reduction in anxiety and fear among individuals,
businesses and governments. It enables an individual to sustain his continuous consumption of his property in
the case of theft or damage. Similarly, Insurance enables businesses can operate in a cost-effective manner on
the strength of insurance as it uses risk transfer mechanisms. In simple words, the essential gift of insurance to
the community is the stipulation of risk sharing, risk transfer capabilities and loss prevention steps, which are
a primary element of the insurance industry and are necessary for a well-functioning economy but remain
mostly unseen (iKnowledge Team, Feb. 22, 2019). Insurance is an industry that not only contributes to the
financial growth and infrastructure development of a country but also keeps its gross domestic product (GDP)
secure.
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Contemporary Issues in Banking, Insurance and Financial Services
Insurance is a mechanism of financial security for a family after the breadwinner dies. It encourages a person
to seek medical help without fearing the expense and assists a homeowner or business owner in rebuilding his
property after a fire or flood. Enabling families and businesses to remain financially stable in the face of
hardship constitutes the primary social protection mechanism of insurance that has many positive spill overs
or facilitating effects. Thus insurance can help maintain a decent standard of living and quality of life after
retirement in the case of certain life insurance products and long-term care insurance. It can prevent business
interruptions that could lead to bankruptcies, which in turn can result in job loss and economic hardship for
employees. Eric Grant (2012) says that Insurance should be perceived not only as a protection mechanism,
but more importantly as a partnership that allows individuals and businesses to spread their wings and go
where they might otherwise not have dared to go.
However, there are limited studies regarding the impact of insurance from an economic perspective.
Therefore, there is a need to study the social and economic impact of insurance. The social relevance of the
insurance industry is unlike that of any other industry. The present study is conducted under the above
background and it aims to assess social and economic impact of insurance in reference to India. This paper is
organised in five sections: Introduction, Review of Literature, Research Methodology, Results and discussion,
and conclusion.
REVIEW OF LITERATURE
Bodla and Sushma Verma (2007) examine buyer behaviour regarding life insurance policies in the rural area
of Haryana. The results of the study are based on a field survey of 188 respondents selected from five villages
of district Hissar by using convenience sampling technique. The study brings out that agents are the most
important source of information and motivation as the people take a policy that is suggested by the agent;
Money-back policy is the most preferred policy in the rural area, followed by Jeevan Anand and Endowment
policy, and the rural people have less faith in private players.
Kjosevski (2011) investigated the impact of insurance on economic growth in case of Macedonia. For this, the
author applied the multiple regression models by taking data for the period 1995-2010. This study highlighted
that aggregate insurance industry and non-life insurance has a positive and significant effect on economic
growth of Macedonia. Life insurance was found having significant (but negative) affect on the economic
growth of Macedonia. The study advocated that a strong banking sector could be the possible reason for the
negative relationship between life insurance and economic growth of this country. Microinsurance is an
innovative product for developing economies that consists of providing low-cost life, health, crop and
property insurance in low income societies where people have traditionally relied on an extended network of
family and friends for support. By extending insurance with low transaction costs, microinsurance serves to
protect the most vulnerable areas from floods, hurricanes and drought, and contributes to alleviating poverty
and economic growth said Kelly, A. (2011).
Hadhek Zouhaier (2014) explores the relationship between the insurance business and the economic growth
of 23 OECD countries over the period 1990-2011, using a static panel data model. The key findings emerged
from the empirical analysis show a positive impact of non-life insurance, as measured by the penetration rate
on economic growth and a negative effect exerted by the total insurance and non-life insurance, as measured
by the density on economic growth.
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Contemporary Issues in Banking, Insurance and Financial Services
A study of PWC (2020) assessed the impact of insurance on social and economic aspects of India. This study
shows that, in 2009–10, the life insurance industry recorded a premium income of INR 2.65 lakh crore, which
increased to INR 5.1 lakh crore in 2018–19. The non-life insurance industry collected direct premiums worth
INR 39,300 crore in 2009–10, which grew to INR 1.7 lakh crore in 2018–19. During the decade of 2009–
2019, the life insurance industry collected a total of INR 35.26 lakh crore in premiums, while the non-life
insurance industry collected INR 9.4 lakh crore as gross direct premiums.
Insurance companies were nationalized after independence and the industry was opened-up to private players
only after the post-liberalization measures in 1991. Today, the value of gross premiums collected by life
insurance companies is over five trillion Indian rupees with insurance penetration levels as well as
the density showing an upward trend. Even then, India has a far lower insurance penetration rate compared to
the global average, leaving much room for growth (Sandhya Keelery, March 5, 2021).
The data published by Statista Research Department (Mar 4, 2021) reveals that, in 2019, the life insurance
density in India amounted to about 58 U.S. dollars, while the non-life insurance density was at 19 U.S.
dollars. Insurance density is measured as insurance premium (in U.S. dollars) to total population.
Insurance penetration continues to be a challenge as it only marginally improved to 3.76 per cent in 2019
from 2.71 per cent in 2001, the Economic Survey 2020-21 shows. The penetration in non-life segment, in
fact, slipped to 0.94 per cent from 0.97 per cent in 2018. The life insurance segment recorded higher
penetration at 2.82 per cent from 2.74 in 2018. In contrast, insurance penetration in Asian countries such as
Malaysia, Thailand and China stood at 4.72, 4.99 and 4.30 per cent, respectively in 2019. "Globally insurance
penetration was 3.35 per cent for the life segment and 3.88 per cent for the non-life segment in 2019 (Aprajita
Sharma, March 10, 2021).
RESEARCH METHODOLOGY
This paper made an impact assessment of insurance in case of India. To achieve the objectives of this study
secondary sources of data are used. The study used recent ten years data (2010 to 2019) for assessing impact
of insurance.The main sources of data include IRDAI's annual reports, IRDAI Handbook on Indian Insurance
Statistics for 2013-14 and 2018-19, and www.statista.com. Moreover, the articles and research papers
available at various internet websites are referred and used. The scope of this study is deliberately limited to
India, a biggest democracy in the world. At the end of March 2019, there were 70 insurers operating in India,
of which 24 were life insurers, 27 were general insurers, 7 were standalone health insurers and 12 were
reinsurers, including branches operated by foreign reinsurers and Lloyd’s India.
For determining the impact of insurance, the data regarding various indicators such as benefits paid, number
of claims settled and amount of claims paid by various categories of insurers was collected and analyzed. The
death claim settlement ratio is defined as the percentage of insurance claims settled by an insurer compared to
the total number of claims received. A higher claim settlement ratio indicates better performance of insurer in
settling the claims filed. The data was analyzed using simple statistical tools like Year-on-year growth,
Compound Annual Growth Rate (CAGR), and market share in percent. For ease of reader and better
understanding, the results of data analysis are also displayed through diagrams and graphs. Use of Microsoft
Excel and SPSS, version 24 was made for data analysis. Paired t-test was applied to examine validity of the
null hypothesis established for this research. The authors examined the null hypothesis that there is no
difference in death claim ratio of the years 2010-11 and 2019-20.
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Contemporary Issues in Banking, Insurance and Financial Services
RESULTS AND DISCUSSION
To begin with, we have analysed the impact of insurance in terms of amount of benefits paid, number of
claims settled and amount of claims paid (table 1). It is evident from table 1 that the life insurance industry
paid benefits worth Rs 3.3 lakh crore in 2018–19 and Rs 20.6 lakh crore between, 2010–2019.
Table 1: Amount of benefits paid and Claims Settled Over last Decade by Insurers in India
Financial
Benefits paid
No. of claims
Claim amount Claim paid(in Rs Claim paid(in Rs
Year
(in Rs crore) by settled (in
paid(in Rs
Crore) by
Crore) by Health
Life Insurers
Lakh) by life
crore) by life
General Insurers and specialised
insurers
insurers
Insurers
2010
95565
1.071
8,220
29,935
2,456
2011
142150
1.287
10,404
39,198
2,562
2012
152617
1.256
11,616
44,501
2,679
2013
191220
1.244
13,024
50,123
2,931
2014
216396
1.311
15,188
55,636
3,437
2015
210915
1.322
16,106
63,136
4,234
2016
204454
1,401
18,278
76,209
4,626
2017
236340
1.579
20,806
98,086
5,848
2018
277954
1.608
23,144
100,252
6,340
2019
250936
1.731
28,106
93,636
7,415
Total
2058289
13.810
164,892
650,712
42,528
Source: IRDAI Handbook on Indian Insurance Statistics for 2013-14 and 2018-19
Life insurance companies settled 1.4 crore claims on individual and group policies, with a total pay-out
amounting to Rs 1.6 lakh crore between 2010–2019. The settlement ratio in the life insurance industry was at
97.6% in 2018–19 and the repudiation ratio decreased to 0.74% from 1.1% in 2017–18. PwC's study( 2020)
on 'impact assessment' of insurance has revealed that the general insurance industry has underwritten gross
direct premium worth Rs 9.4 lakh crore in India between 2010–2019. The net worth of incurred claims of
general insurers stood at Rs 5.7 lakh crore during the corresponding period, The incurred claims ratio (net
incurred claims to net earned premium) of the general insurance industry was 89.16% during 2018–19.
Diagram 1: Benefits paid (in INR Billion) by life insurance
Industry
300.00
200.00
100.00
95.57
142.15
152.62
2011
2012
191.22
216.40
210.92
204.45
2013
2014
2015
2016
236.34
277.95
250.94
2018
2019
0.00
2010
Benefits paid (in INR Billion)
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Contemporary Issues in Banking, Insurance and Financial Services
Diagram 2: No. of claims settled (in Lakhs) by life insurers
20.00
15.00
10.72
12.88
12.57
12.44
13.11
2011
2012
2013
2014
13.22
14.01
2015
2016
15.79
16.08
2017
2018
17.31
10.00
5.00
0.00
2010
2019
No. of claims settled (in Lakhs)
Diagram 3: Claim amount paid(in INR crore) by life insurers
28.11
30.00
20.00
10.00
8.22
10.40
11.62
13.02
2011
2012
2013
15.19
16.11
2014
2015
18.28
20.81
23.14
0.00
2010
2016
2017
2018
2019
Claim amount paid(in INR crore)
Table 2: Claims of life insurers (Rs Crore)
Table 2 indicates that the life insurance industry paid benefits of Rs 3.51 lakh crore in 2019-20 (Rs3.30 lakh
crore in 2018-19) constitutes 61.21 per cent of the gross premium underwritten (64.88 per cent in 2018-19).
The benefits paid by the private insurers was Rs 97,916 crore in 2019-20 (Rs 80,393 crore in 2018-19)
constituting 50.60 per cent of the premium underwritten (47.12 per cent in 2018-19). LIC paid benefits of
Rs2.53 lakh crore in 2019-20, constituting 66.62 per cent of the premium underwritten (Rs2.49 lakh crore in
2018-19 and 73.86 per cent of the premium underwritten). The benefits paid on account of surrenders /
withdrawals increased to Rs1.22 lakh crore in 2019-20 (Rs1.11 lakh crore in 2018-19), of which LIC
accounted for 57.51 per cent and remaining 42.49 per cent by private sector. In the current year, in case of
LIC, out of the Rs70,148 crore surrenders, ULIP policies accounted for Rs3,106 crore (4.43 per cent) as
against Rs4,082 crore (5.89 per cent) in 2018-19. In case of the private insurers, the ULIP surrenders
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Contemporary Issues in Banking, Insurance and Financial Services
accounted for Rs38,327 crore (73.96 per cent) in 2019-20 as against Rs 35,949 crore (85.73 per cent) in 201819.
Table 3: Net Incurred Claims of General and Health insurers (Rs Crore)
The position of Claims of General and Health Insurers is heighted in table 3. The net incurred claims of the
former stood at Rs1.08 lakh crore in 2019-20 as against Rs1.01 lakh crore in 2018-19. The incurred claims
exhibited an increase of 7.26 per cent during 2019-20. The private sector general insurers, standalone health
insurers and specialized insurers reported increase of 16.21 per cent, 35.47 per cent and 15.95 per cent
respectively, while PSU general insurers reported decrease in the incurred claims by 1.09 per cent. I.2.2.43
The incurred claims ratio (net incurred claims to net earned premium) of the general insurance industry was
85.90 per cent during 2019- 20 which was less than the previous year claim ratio of 89.16 per cent. The
incurred claims ratio of public sector insurers was 98.28 per cent for the year 2019-20 as against the previous
year’s ratio of 103.46 per cent. Whereas incurred claims ratio of the private sector general insurers, standalone
health insurers and specialized insurers was 75.52 per cent, 64.13 per cent and 115.40 per cent respectively
for the year 2019-20 as compared to the previous year’s ratio of 76.20 per cent, 60.68 per cent and 106.33 per
cent respectively. Health insurance premiums worth INR 44,873 crore were collected during FY 2018–19.
The net incurred claim ratio for health insurance was at 91% in 2018–19.As per PwC’s Health Insurance
Consumer Pulse Survey (PwC (2020), health insurance customers were largely found to have a positive
outlook towards their health insurance journey. They were largely satisfied with their health insurance and
claims settlement experience, which challenges the conventional perception towards insurers. General
insurance companies resolved 98.65% of the complaints received during 2018–19.
In financial year 2019, the insurance claims ratio of private multi-line insurers across India was 75 percent,
while that of public multi-line insurers stood at 102 percent. The claims ratio differential between public and
private multi-line insurers in the country had increased significantly since fiscal year 2016. Insurance claims
ratio is the percentage of claims costs incurred to the insurance company in relation to the premiums earned
(Statista Research Department, Mar 2, 2021).
The Insurance Regulatory and Development Authority of India (IRDAI), in its latest annual report, has given
details of claim settlements of all life insurance companies for the year 2019-20. Max Life Insurance has the
highest claim settlement ratio in terms of number of claims with 99.22%. This is followed by HDFC Life
Insurance and Tata AIA Life Insurance with 99.07% and 99.06%, respectively. Out of the top 10 life insurers,
nine have a claim settlement ratio of more than 98%. The biggest life insurance company, LIC of India has a
claim settlement ratio of 96.69% for the year 2019-20. While all the private life insurance companies put
together had 1.16 lakh claims to be settled in the year 2019-20, LIC had a 7.58 lakh claims for settlement. The
total benefit amount claimed from private life insurance companies was Rs 5,725 crore where as LIC had a
total benefit claim amount of Rs 13,694 crore. With such a huge base, it is remarkable that the biggest life
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Contemporary Issues in Banking, Insurance and Financial Services
insurance company, LIC of India has performed quite well to maintain a settlement ratio of 96.69% by
number of policies and 93.45% by benefit amount and be in top bracket.
Here, we describe the results about the regulator's death claim settlement ratio of life insurers for the years
2010-11 and 2019-20 (table 4). It is obvious from the table that the mean death claims settlement ratio of life
insurers across India, in year 2010-11, was 77.66 percent with 16.26 per cent standard deviation, while in the
year 2019-20, this ratio increased to 96.29 with 3.56 per cent standard deviation. T-test was applied to test
the validity of the hypothesis- there is no significance difference between the death claim ratio, in case of life
insurance, between financial year 2010-11 and 2019-20. The results given in table 5 A shows that the
hypothesis is rejected at 1 per cent level of significance as p is less 0.01 and calculated t-value= 6.142. Hence,
there is a significant difference between the means of death claim ratios of the above mentioned two time
periods.
Table 4: Death claim settlement ratio of life insurers, in India
S. No. life insurers
Death claim
settlement
ratio(2010-11)
1
Max Life Insurance
77.96
2
HDFC Life Insurance
94.61
3
TATA AIA Life Insurance
81.93
4
Pramerica Life Insurance
51.22
5
Exide Life Insurance
50.52
6
Reliance Nippon Life Insurance
81.36
7
Canara HSBC OBC Life Insurance
71.02
8
Bajaj Allianz Life Insurance
88.67
9
Aegon Life Insurance
52.31
10
ICICI Prudential Life Insurance
64.92
11
Aditya Birla Sun Life Insurance
94.66
12
Aviva Life Insurance
84.15
13
Bharti Axa Life Insurance
87.17
14
PNB MetLife Insurance
85.43
15
Star Union Daichi Life Insurance
80.69
16
Life Insurance Corporation
97.03
17
India First Life Insurance
90.49
18
IDBI Federal Life Insurance
82.01
19
Kotak Life Insurance
89.30
20
Future General Life Insurance
95.41
21
SBI Life Insurance
82.24
22
Shriram Life Insurance
55.69
23
Sahara India Life Insurance
53.23
24
Edelweiss Tokio Life Insurance
71.79
Mean of Death Claim Settlement Ratio(DCSR)
77.66
Standard Deviation of DCSR
15.26
Source: IRDAI Annual Report 2017-18 and 2019-20
169
Death claim
settlement
ratio(2019-20)
99.22
99.07
99.06
98.42
98.15
98.12
98.12
98.02
98.01
97.84
97.54
97.53
97.35
97.18
96.96
96.69
96.65
96.47
96.38
95.28
94.52
91.61
89.45
83.44
96.29
3.56
Contemporary Issues in Banking, Insurance and Financial Services
Table 4A: Paired Samples Test
Paired Differences
Pair
Mean
Std.
Std. Error
Deviation
Mean
Death claim settlement
ratio(2010-11) & (201920)
-18.63458
14.86391
3.03408
t
-6.142
df
23
Sig. (2tailed)
0.000
In the end of analysis, let us evaluate the role of insurance in Employment generation. There was a network of
22,854 offices in the entire insurance industry across India, in year 2018–19. The industry provides
employment not only in metros but in Tier 2 cities and below as almost 40% of the offices are located beyond
the metros. The number of offices for general insurance has almost doubled from 6,075 in 2010 to 11,575 in
2019. The number of persons directly employed by the sector went up from 92,135 in 2010 to 135,308 in
2019. Indirect employment in the form of temporary, contractual and leased staff, ancillary workers and
vendors is much higher.
Further, the insurance Industry generates livelihoods for around 32 lakh agents. Among these agents, Life
insurance sector have around 22 lakh agents, while general insurance companies have about 10 lakh agents.
Agents generate income through commission on the policies they sell. Moreover, 9,659 members (2,177
licentiates, 4,479 associates, 3,003 fellows) are registered under the Indian Institute of Insurance Surveyors
and Loss Assessors, out of which 9,393 members were active as on 31 March 2019. A recent study by PWC (
On Insurance Impact Assessment study-2020) states that the insurance industry also plays a significant role in
Women’s empowerment in India. Presently, around 27% of life insurance and health insurance agents are
female. The industry provides livelihood opportunities to around 7.5 lakh women. Thus, this industry
provides a unique entrepreneurial opportunity to women to gain financial independence.
CONCLUSION
The results of the study found that the life insurance industry paid benefits worth Rs 20.6 lakh crore between
2010 and 2019. Life insurance companies settled 1.4 crore claims on individual and group policies, with a
total pay-out amounting to Rs 1.6 lakh crore between 2010–2019. The settlement ratio in the life insurance
industry was at 97.6% in 2018–19 and the repudiation ratio decreased to 0.74% from 1.1% in 2017–18.
Further, the life insurance industry paid benefits of Rs 3.51 lakh crore in 2019-20, which constitutes 61.21 per
cent of the gross premium underwritten. The net incurred claim ratio for health insurance was at 91% in
2018–19. The study has also indicated that the number of persons directly employed by the sector went up
from 92,135 in 2010 to 135,308 in 2019. In total, insurance sector generates livelihoods for around 32 lakh
agents (Life insurance 22 lakh agents and general insurance companies 10 lakh agents). Moreover, the
industry provides livelihood opportunities to around 7.5 lakh women. Thus, this industry provides a unique
entrepreneurial opportunity to women to gain financial independence. In nutshell, the insurance sector has
contributed significantly towards social and economic wellbeing such as claims paid, women empowerment
and employment generation.
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Contemporary Issues in Banking, Insurance and Financial Services
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Bodla, B. S. and Verma, Sushma Rani (2007). Life Insurance Policies in Rural Area: Understanding Buyer
Behavior. ICFAI Journal of Services Marketing. Vol. 5 Issue 4, p 18-27.
Density of life and non-life insurance in India 2000-2019. The data published by Statista Research
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Din, S. M. U., Angappan, R., & Baker, A. A. (2017). Insurance effect on economic growth-among economies
in various phases of development. Review of International Business and Strategy, 27(4), 409–427.
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https://www.genevaassociation.org/sites/default/files/research-topics-document-type/pdf_public/ga2012the_social_and_economic_value_of_insurance.pdf
G Naga Sridhar (April 14, 2020). Non-life insurance premium up 11.67% in FY20. Available at:
https://www.thehindubusinessline.com/premium/non-life-insurance-premium-up-1167-infy20/article31340903.ece
Hadhek Zouhaier (2014). Insurance and Economic Growth. Journal of Economics and Sustainable
Development, www.iiste.org ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online) Vol.5, No.12, pp. 102-113
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Kelly, A. (2011) “Can microinsurance protect the poor?”, The Guardian, 21 February.
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emerging/developing economies, Cogent Economics & Finance, 5:1, DOI: 10.1080/23322039.2017.1390029
171
Contemporary Issues in Banking, Insurance and Financial Services
Efficiency Analysis of Indian Insurance Sector: Technical Efficiency,
Pure Technical Efficiency and Scale Efficiency
Garima Dudeja, Assistant Professor
Department of Economics, K U Kurukshetra
Dr. Archna Chaudhry
Department of Economics, K U Kurukshetra
Abstract
Efficiency is the main concern for every organizational unit. Considering this important aspect the present
paper has analysed the Technical Efficiency, Pure Technical Efficiency and Scale Efficiency for the Indian
Insurance Sector using Data Envelopment Analysis. The main objective of the study is to estimate the
efficiency scores of the various Decision Making Units (DMUs) of the Indian Insurance Sector on the basis of
Input Oriented Model with variable returns to scale. The sample period chosen for the study is from 2009-10
to 2019-20 by employing two resources as inputs i.e operating expenses (X1) & Claims incurred (X2) and
Insurance premium (Y) as output. The findings of the study revealed the highest efficiency of specialized
insurer of non-life insurance sector throughout the sample period. As far as life insurance sector is concerned
LIC (public life insurer) has outperformed from private life insurer. However, efficiency of insurance sector
was not much affected by the Global Financial Crises of late 2007. The present article has also tried to throw
light on the way to improvement of inefficient units using the slack measurement which suggests that
inefficient units should cut their operating expenses with adequate amount to attain optimum efficiency
frontier.
Key Words: Indian Insurance Sector, Data Envelopment Analysis, Efficiency, Life Insurer, Non-life Insurer
INTRODUCTION
Insurance is the basic way to deal with unforeseen tragedies like death, illness, accident, fire, theft
etc which may affect human life physically, mentally as well as financially. With the proposal of
Malhotra Committee Report, the Government of India had incorporated the Insurance Regulatory
and Development Authority (IRDA) in 2000 to safeguard the interest of insurance policy holder. All
the life and non-life insurance companies whether private or public, are regulated through this
statutory body. According to annual report of 2019-20 of IRDAI, there are 59 registered Insurance
Companies out of which 24 are Life Insurers and remaining 35 deals with Non-life Insurance matters
including reinsurer (S.Ray et.al, 2020). At present India ranked at tenth position in life insurance
market and fifteenth in non-life business amongst the 88 countries of the World. The changing
economic conditions of India may affect the Insurance Industry directly or indirectly. As the
financial crises of late 2007 significantly lowered the growth of Indian Insurance Industry the issue
of efficiency analysis is the main concern to check the relative performance of the various units
operating under it.
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Contemporary Issues in Banking, Insurance and Financial Services
The main objective of this paper is to analyse the efficiency of Indian Insurance sector on the basis
of existing data of IRDAI during post financial crises period through Data Envelopment Analysis
(DEA). This paper aims to analyse the efficiency scores of all the life and non-life insurance
companies, identify the efficient and inefficient insurers and search out the reason of inefficiency. In
this article consolidated data of LIC (public player of life insurance), private companies of life
insurance, public and private insurer of non-life sector as well as standalone and specialized units of
non-life insurance is undertaken for the period of 2009-10 to 2019-20.
The findings of the study analysed the high efficiency on the part of specialized non-life insurer and
public life insurer. However the efficiency scores of insurance sector were not much affected by the
global financial crises of 2008. To improve efficiency of inefficient units it is suggested to cut the
operating expenses by the considerable amount.
The remaining paper is framed in the following manner Part 2 discusses the review of literature;
methodological framework is explained in Part 3, Part 4 covers the whole sample data and variables
undertake, Part 5 discusses the whole interpretation of results and conclusion of the paper is
provided in Part 6.
REVIEW OF LITERATURE
Extensive studies have been done for the insurance sector on various aspects and review of some is
explained below:
Using bootstrapped DEA and Malmquist Productivity index, Iiyas and Rajasekaran (2019)
assessed the efficiency and productivity analysis of Indian non-life Insurance sector from 20052016. The relative efficiency scores evaluated that public sector was highly cost efficient than
private non insurance sector. Also the efficiency scores were not affected by 2008 financial crises.
S.A Siddiqui and D.Das (2019) using DEA assessed the technical efficiency scores under constant
returns to scale of leading life insurance companies from 2012-13 to 2016-17. The comparative
study between private and public sector revealed the efficient performance of state operator (LIC)
throughout the selected sample study.
Q Iqbal and H Awan (2015) examined the efficiency of Pakistan’s Insurance sector on technical
and scale aspects using Data Envelopment Analysis during 2002-07. The results of the study
estimated the low efficiency scores for most of the insurance companies and recommended to reduce
the number of labour and claims settled amount should be increased.
A Dutta (2013) analysed the impact of privatization on life and non-life insurance business using
Malmquist Productivity Index of DEA for the year 2005-06 to 2009-10. The study revealed that nonlife insurance market was more productive than life insurance market in the sample period. To
increase efficiency level life insurers have to enhance technological level, impart skilled training to
employees etc. A.Dutta and P Sengupta (2011) investigated the efficiency of Indian Life Insurance
Industry during post reform period i.e. 2004-09 using Data Envelopment Analysis. The outcome of
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Contemporary Issues in Banking, Insurance and Financial Services
the study highlighted the increased technical efficiency score over the period however scale
efficiency was on decreasing trend.
METHODOLOGY
The paper examined the Technical Efficiency (TE) scores, Pure Technical Efficiency (PTE) scores
and Scale Efficiency (SE) scores for the Insurance Sector of India through Data Envelopment
Analysis. The DEA is a linear programming technique to assess the relative appearance of Decision
Making Units (DMUs) (R.Ramanathan, 2003). DMUs are the organizational units or firms whose
performance or efficiency is measured. The concept of DEA initiated by Farrel (1957) was further
modified by Charnes et al (1978) based on constant returns to scale and known as CCR model of
DEA. This was further investigated on variable returns to scale by Bankers et al (1984) termed as
BCC model.
The efficiency scores in present study have been calculated through input oriented BCC model.
Input orientation means the study intends to minimize the inputs for a satisfying level of output.
However DEA can employ output oriented model which maximizes the output for the given
resources.
As mentioned above the technical, pure technical and scale efficiency scores are calculated in the
study. By technical efficiency it intends how efficiently inputs converted into outputs. In BCC model
employment of variable returns to scale examined the pure technical efficiency and assessment of
how many DMUs have achieved the optimum frontier is best described by scale efficiency scores. (S
Diacon et al, 2002; C.A Taib et.al, 2018). Technical efficiency is the multiplicative result of pure
technical efficiency and scale efficiency (i.e. T.E = PTE * S.E).
The mathematical framework of slack based BCC input oriented model is described below. The
slack describes the potential scope of input reduction and output maximization to achieve the
efficient frontier (Tone, 2001). In input orientation model main focus is on input reduction of
inefficient DMUs.
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Contemporary Issues in Banking, Insurance and Financial Services
Where,
λj≥ 0, if constant returns to scale
if λj ≥ 1 implies the Variable returns to scale
xio= extent of input i utilised by DMU o,
yro= extent of output r constituted by DMU o,
m = no. of output produced,
r = no. of inputs utilized,
n = no. of DMUs
Si = input slack
Sr = output slack
The basic condition for DMUs to be efficient that its efficiency score should be equal to unity.
DATA AND VARIABLES
Based on Intermediation approach (Berger and Humphrey (1992)), the operating expenses (X1) and
claims incurred (X2) are selected as inputs while Insurance Premium (Y) is considered as outputs.
The values of variables are incorporated from the annual reports of IRDAI of the corresponding
years. The time period chosen for the study is from 2009-10 to 2019-20 to measure the relative
efficiency scores of insurers in the post financial crises period. The efficiency scores are calculated
for six DMUs including life as well as non-life insurer (K Chakraborty and R Harper; 2007), these
are represented as below:
Insurers
Non-life
Insurers
Life Insurers
Public Sector
(LIC)
Private Sector
Public Sector
Private Sector
175
Standalone
Health
Insurers
Specialised
Insurers
Contemporary Issues in Banking, Insurance and Financial Services
RESULTS AND INTERPRETATION
The results of efficiency scores are described in two sections in section 1; analysis of technical, pure
technical and scale efficiency score is evaluated and in section 2; improvement in efficiency analysis
through slacks is described.
Section-1- Technical Efficiency, Pure Technical Efficiency and Scale Efficiency:
By employing the input oriented model based on variable returns to scale efficiency scores for every
DMU and for each year are presented in Table 1.The results of table 1 highlighted that specialised
non-life insurer ranked first among all six DMUs, the average technical, pure technical and scale
efficiency scored one. As far as life insurance sector is concerned neither the public sector nor the
private sector is fully efficient. The average TE score of LIC is 0.814 which means to attain full
efficiency level the public sector of life insurance (LIC) has to reduce the input resources at least by
19.6 per cent (1-0.814)*100. In the non-life insurance sector the public sector has the poor efficiency
level amongst all that is TE for this sector 0.557 and it need to improve by at least 44.3 per cent.
The returns to scale are measured by the λ̽ value. If ∑𝑛𝑗=1 λ̽< 1 then scale inefficiency occurs because
of increasing returns to scale and if this value is less than one then scale inefficiency is because of
decreasing returns to scale. The optimum scale efficiency occurs at the constant returns to scale. In
the table 1 only specialised sector have achieved this scale others are either operating below the
efficient frontier because of increasing returns to scale or above the frontier that is they are facing
decreasing returns to scale. Overall if we see the calculated results for every year, decreasing returns
to scale is found to be seen as dominating form of scale inefficiency in the Indian Insurance Industry.
Table 1 : Technical Efficiency, Pure Technical Efficiency and Scale Efficiency
Life Insurer
Average
Efficiency
Average
Inefficie
ncy
1.000
0.749
0.251
1.000
0.382
1.000
1.000
0.866
0.874
0.134
0.126
irs
Irs
crs
0.573
0.701
0.707
1.000
0.830
0.170
1.000
0.575
0.704
1.000
1.000
0.880
0.120
1.000
1.000
0.997
0.995
0.707
1.000
0.950
0.050
crs
crs
irs
irs
Irs
crs
TE
0.810
1.000
0.639
0.753
0.717
1.000
0.820
0.180
PTE
1.000
1.000
0.679
0.757
1.000
1.000
0.906
0.094
SE
0.810
1.000
0.942
0.994
0.717
1.000
0.911
0.090
drs
crs
drs
drs
Irs
crs
Public
Sector
Private
Sector
Public
Sector
Private
Sector
TE
1.000
1.000
0.500
0.612
0.382
PTE
SE
1.000
1.000
1.000
1.000
0.528
0.948
0.668
0.916
crs
crs
irs
TE
1.000
1.000
PTE
1.000
SE
year
2009-10
2010-11
2011-12
Non-life Insurer
176
Standalon Specialise
e Health
d
Contemporary Issues in Banking, Insurance and Financial Services
TE
0.775
0.663
0.702
0.894
1.000
1.000
0.839
0.161
PTE
1.000
0.846
0.823
1.000
1.000
1.000
0.945
0.055
SE
0.775
0.784
0.852
0.894
1.000
1.000
0.884
0.116
drs
drs
drs
drs
Crs
crs
TE
PTE
0.753
1.000
0.626
0.752
0.620
0.642
1.000
1.000
0.686
0.773
1.000
1.000
0.781
0.861
0.219
0.139
SE
0.753
0.832
0.966
1.000
0.838
1.000
0.898
0.102
drs
drs
drs
crs
Irs
crs
TE
1.000
0.776
0.747
0.988
1.000
1.000
0.919
0.082
PTE
1.000
0.779
0.760
1.000
1.000
1.000
0.923
0.077
SE
1.000
0.997
0.984
0.988
1.000
1.000
0.995
0.005
crs
drs
drs
drs
Crs
crs
TE
PTE
1.000
1.000
0.845
0.875
0.623
0.654
0.880
0.949
1.000
1.000
1.000
1.000
0.891
0.913
0.109
0.087
SE
1.000
0.966
0.952
0.927
1.000
1.000
0.974
0.026
crs
drs
drs
drs
Crs
crs
TE
PTE
0.752
1.000
0.707
0.900
0.511
0.634
0.863
1.000
1.000
1.000
1.000
1.000
0.806
0.922
0.195
0.078
SE
0.752
0.786
0.807
0.863
1.000
1.000
0.868
0.132
drs
drs
drs
drs
Crs
crs
TE
0.524
0.560
0.438
0.726
0.796
1.000
0.674
0.326
PTE
1.000
0.972
0.717
1.000
0.874
1.000
0.927
0.073
SE
0.524
0.576
0.611
0.726
0.910
1.000
0.725
0.276
drs
drs
drs
drs
Irs
crs
TE
PTE
0.648
1.000
0.694
1.000
0.390
0.631
0.736
1.000
0.782
0.870
1.000
1.000
0.708
0.917
0.292
0.083
SE
0.648
0.694
0.618
0.736
0.899
1.000
0.766
0.234
drs
drs
drs
drs
drs
crs
TE
0.580
0.585
0.381
0.640
0.666
1.000
0.642
0.358
PTE
1.000
1.000
0.624
1.000
0.784
1.000
0.901
0.099
SE
0.580
0.585
0.611
0.640
0.849
1.000
0.711
0.289
drs
drs
drs
drs
drs
crs
TE
PTE
0.804
1.000
0.769
0.920
0.557
0.661
0.799
0.916
0.794
0.936
1.000
1.000
SE
0.723
0.738
0.553
0.785
0.819
1.000
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
Average
Source: Author’s Calculation
(crs = Constant Returns to Scale, irs = Increasing Returns to Scale, drs = Decreasing Returns to
Scale)
177
Contemporary Issues in Banking, Insurance and Financial Services
Another form of efficiency that is pure technical efficiency arises because of variable returns to
scale. Pure Technical Inefficiency leads to poor utilisation of resources or managerial inefficiency
(S.Kumar and R.Gulati). The findings of the present study investigate that LIC and specialised nonlife insurers have attained score equal to one in pure technical terms.
Table 2:- Descriptive Statistics for TE, PTE and SE scores
statistics
TE
PTE
SE
Average
0.779
0.898
0.863
Efficiency
S.D
0.09227
0.04678
0.09612
Maximum
0.919
0.945
0.995
Minimum
0.642
0.773
0.711
Interval
[0.686;0.871]
[0.851;0.944]
[0.767;0.959]
Source: - Author’s Calculation
The above statistics are calculated on the yearly data. For the whole years of sample study the
insurance sector is overall efficient at 77.9 per cent which means it has the scope of improvement by
22.1 per cent. The technical efficiency was fluctuating in the range of 0.686 to 0.871 i.e. “Average
Efficiency + S.D”. Similarly the pure technical and scale efficiency scores should be increased by at
least 10.2 per cent and 13.7 per cent respectively.
Section 2: Efficiency Improvement through Slack Analysis- Discussion in section 1 specified the
improvement in efficiency through radial movement. With the radial movement efficiency scores are
to be adjusted by slack variations. There can be input as well as output slacks. An input slack arises
when the actual output exceed the target inputs and falling short from target outputs yields the output
slacks. Input and output slack may arise for both the orientations whether input or output oriented.
However, employing the input oriented model the focus should be on reducing the input variables.
Slacks adjustment is done for inefficient units only. Table 3 shows the calculated value of slacks for
inefficient units.
Table 3: Input and Output Slacks
Life Insurer
Non-life Insurer
Public
Sector
Year
2009-10
2010-11
2011-12
Y
X1
X2
Y
X1
X2
Y
Private
Sector
0
0
0
0
0
0
0
Public
Sector
0
0
0
0
0
0
0
Private
Sector
0
0
0
0
0
0
0
178
Standalone
Health
0
0
0
0
0
0
0
Specialised
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Contemporary Issues in Banking, Insurance and Financial Services
2012-13
X1
X2
Y
0
0
0
0
0
0
X1
X2
0
0
3915.34
(-26.37%)
0
Y
0
2013-14
X1
X2
Y
2014-15
2015-16
2016-17
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
333.71
(-4.28%)
0
0
0
0
0
0
0
0
0
0
752.049
(-5.49%)
X1
X2
Y
0
0
0
0
0
0
X1
X2
Y
0
0
0
4858.72
(-30.19%)
0
0
X1
X2
0
0
0
0
0
0
0
0
0
0
0
0
0
4276.456
(-47.42%)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3260.017
(-26.02%)
0
0
0
0
0
X1
X2
Y
0
0
0
1238.061
(-6.63%)
0
0
0
0
0
0
0
0
X1
X2
Y
0
0
0
0
0
0
5.587
(-0.60%)
0
0
0
0
0
0
819.53
(+9.86%)
0
1647.979
(-71.90%)
0
0
0
0
0
0
0
0
0
0
1662.542
(-54.23%)
1479.85
X1
0
0
0
0
(-40.88%)
X2
0
0
0
0
0
Source: Author’s Calculation
(Y = Insurance Premium; X1 = Operating Expenses; X2 = Claims Incurred)
2019-20
0
0
0
423.57
(-3.79%)
15.681
(-0.09%)
2453.69
(+109.29%)
0
0
0
Y
2017-18
2018-19
0
0
0
0
0
As mentioned above to be on efficient envelop curve the DMUs of the Indian Insurance sector has to
adjust their input and output variables through slack values. The above table shows the potential
amount of reduction and progress in output in per cent age. The minus sign shows the significant
reduction in input where as plus sign shows the extent of increase in outputs. The whole analyses of
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Contemporary Issues in Banking, Insurance and Financial Services
table 3 indicated that most of the slacks value are occurring in input variable X2 i.e. operating
expenses which implies that to become fully efficient operating expenses should be reduced by the
considerable amount of input slack percentage [(input slacks/actual input)*100].
CONCLUSION
The present study is done to analyse the technical efficiency, scale efficiency and pure technical
efficiency for whole the insurance sector of India including life as well as non-life insurer during the
post financial crises i.e from 2009-10 to 2019-20. The result highlighted no influence of financial
crises on the efficiency of insurance sector. However worst performance was seen in the year 201920 with overall technical score of 0.642 and highest efficiency was in the year 2014-15 with
technical score of 0.919. Except specialised non-life insurer all other were inefficient and through
slack based measure the insurers has to reduce their operating expenses with adequate percentage to
attain full efficiency. The present study is limited to small number of variables there are many other
variables which may influence the efficiency scores of Indian insurance sector which can be
incorporated in future study. Also in this article efficiency analysisis done on aggregated basis and
the same can be done for individual insurance as well as non-individual companies.
REFRENCES


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Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for Estimating technical and Scale
inefficiencies
in
data
Envelopment
Analysis.
Management
Science,30(9),
1078-1092.
doi:10.1287/mnsc.30.9.1078
Berger, A., & Humphrey, D. B. (1997). Efficiency of financial Institutions: International survey and
directions for future research. SSRN Electronic Journal. doi:10.2139/ssrn.2140
Chakraborty, K., & Harper, R. K. (2017). Dynamic Productivity Analysis of Insurance Firms - The Effect of
Firm-Specific and Macroeconomic Characteristics. International Journal of Applied Economics,14(2), 37-55.
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units.
European Journal of Operational Research,2(4), 429-444. doi:10.1016/0377-2217(78)90138-8
Diacon, S., Starkey, K., & O'Brien, C. (2002). Size and efficiency in european long-term insurance
companies: An international comparison. Geneva Papers on Risk and Insurance - Issues and Practice,27(3),
444-466. doi:10.1111/1468-0440.00184
Dutta, A. (2013). Impact of Privatization on Productivity: A non-parametric analysis of Indian insurance
sector. Global Business Review,14(2), 297-314. doi:10.1177/0972150913477519
Dutta, A., & Sengupta, P. P. (2011). Efficiency measurement of indian life insurance industry in post-reforms
era. Global Business Review,12(3), 415-430. doi:10.1177/097215091101200305
Farell, M. J. (1957). The Measurement of Productive EfficiencyM. Journal of the Royal Statistical
Society,120(2), 253-290. doi:10.2037/2343100
Ilyas, A. M., & Rajasekaran, S. (2019). An empirical investigation of efficiency and productivity in the Indian
non-life insurance market. Benchmarking: An International Journal,26(7), 2343-2371. doi:10.1108/bij-012019-0039
Iqbal, Q., & Awan, H. M. (2015). Technical, Pure Technical and Scale Efficiency Analysis of Insurance
Companies of Pakistan. International Journal of Business and Management Review,3(4), 82-92.
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Kumar, S., & Gulati, R. (2008). An Examination of Technical, Pure Technical and Scale Efficiencies in
Indian Public Sector Banks using Data Envelopment Analysis. Eurasian Journal of Business and
Economics,1(2), 33-69
Ramanathan, R. (2003). Introduction to data envelopment analysis. London: SAGE.
Ray, S., Thakur, V., & Bandyopadhyay, K. (2009). India’s insurance sector: Challenges and opportunities.
Working Paper Series, Indian Council for Research on International Economic Relations.
Siddiqui, S. A., & Das, S. (2019). Evaluating the efficiency of Indian life insurance sector. Indian Journal of
Economics and Development,7(7), 72-80. doi:10.35716/ijed/19140
Taib, C. A., Ashraf, M. S., & Razimi, M. (2018). Technical, Pure Technical and Scale Efficiency: A Non
Parametric Approach of Pakistan's Insurance and Takaful Industry. Academy of Accounting and Financial
Studies Journal,22.
Tone, K. (2001). A slacks-based measure of efficiency in data envelopment analysis. European Journal of
Operational Research,130(3), 498-509. doi:10.1016/s0377-2217(99)00407-5
181
Contemporary Issues in Banking, Insurance and Financial Services
A Study of Farmers’ Awareness towards Pradhan Mantri Fasal Bima
Yojana
Rachna, Research Scholar, Dept. of commerce, and
Dr. Ajay Suneja, Professor, Dept. of commerce, K.U. Kurukshetra
Abstract
Universally risk and uncertainty prevail in agriculture as return in agriculture sector is affected by large
number of factors like unpredictable nature of biological process, variability in climatic conditions and
uncertain political economy of food and agriculture sector. Crop insurance is viable tool which assist the
farmers by ensuring stability in the farm income, reducing debt, protecting against yield loss and support them
to continue agriculture even after bad year. In addition, under it loss incurred by the few farmers is shared
among others by charging the premium. In case of crop failure, directly amount is disbursed into the account
of farmers by the insurance companies and therefore, it induces the credit flow among farmers which
encourages them to adopt innovative agriculture practices. Currently PMFBY (Pradhan Mantri Fasal Bima
Yojana) is in operation with the objective of providing protection to farmers by ensuring the farmers against
the multiple perils during the complete life cycle of crop insurance. The number of farmers availed Fasal
Bima is less and the study is an effort to examine the current scenario of crop insurance in India with specific
reference to Haryana district Karnal. The paper further empirically evaluates the awareness level regarding
the various dimensions of crop insurance policy among farmers who availed and not availed crop insurance
policy and having different educational qualification level. On the basis of data analysed feasible solutions
will be suggested so that maximum number of farmers and area insured is penetrated under this policy.
Key Words: Crop Insurance, Farmers’ Awareness, Agriculture, Pradhan Mantri Fasal Bima Yojana
INTRODUCTION
Crop insurance is in the existence since twentieth century. The unpredictable and unavoidable nature of peril
makes the agriculture highly risky. Crop insurance plays crucial role in creating financial stability in the
income of the farmers.
Pre-Independence Period: Shri J.S Chakravarthi introduced the Rain Insurance Scheme with the objective
of providing protection against the draught. Under this scheme loss valuation was done using area based
approach. In many of the research papers in Mysore economical journal, researchers articulated the concept of
rainfall insurance. In the year 1928 he also published the book title “Agriculture Insurance Practical Scheme
Suited to Indian Conditions” Madras, Dewas and Baroda initially took the initiative and launched crop
insurance policy in diverse forms but they were less successful.
Post-Independence Period: After independence, the quest of introduction of crop insurance scheme was
undertaken for examination. Minister of food and agriculture, Dr. Rajendra Parsad gave an assurance that the
government would examine the crop and cattle insurance and study was conducted for that specific purpose in
the year 1947-48. Model of crop insurance and crop insurance bill was decided by the government of the
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Contemporary Issues in Banking, Insurance and Financial Services
India to be introduced in the year 1965. Model scheme and draft bill were reviewed by committee headed by
expert Dr. Dharam Narain.
Crop insurance is an effective mechanism that provides safety to farmers against the crop failure and also
helps in managing both yield and price risk. By having stability in the income, farmers become capable to pay
their loans even during the year of crop loss. Insurance Company conducts varied types of campaigns to
generate awareness among farmers that assist them to safeguard against vagaries of natural hazards and
protect their risk. Crop insurance provides protection to farmers against damage for crop loss, if productivity
of crop yield is less than the threshold limit.
LITERATURE REVIEW
Ghyanshyam (2019) assessed their study with the objective of analyzing the awareness and perception about
livestock insurance in Nepal. It was observed that more proportion of insured farmers had access to credit in
comparison with farmers who don’t avail crop insurance and agriculture was the major source of revenue for
insured as well as non-insured. Saraswathi et al. (2018) analyzed the perception of beneficiaries as well as
non-beneficiaries regarding. It was determined that only 20% respondents were aware about crop insurance.
Researcher suggested that all crops should be covered under crop insurance scheme and amount of
compensation for damage should be increased.
Gaudappa et al. (2018) examined the awareness level in the Chincholi, Taluka (Kerala) and also evaluated
the satisfaction level among farmers It was inferenced from study that respondents whose age group was more
than 45 years were having low level of awareness as compared to individuals belong to the age group below
30 and between (31-45). Nature of family also impact awareness level and it was concluded that more number
of joint family respondents (54.5%) had low awareness level. Large numbers of respondents (88.33%) were
not satisfied. Thangjam et al. (2018) assessing the performance of NAIS in the Northern Eastern state of
India. The study directed that there was lack of awareness among respondents related to crop insurance and
high amount of premium lead to less coverage of farmers insured.
RESEARCH OBJECTIVES:
1. To analyze awareness level of farmers towards crop insurance in Karnal district.
2. To evaluate the satisfaction level of farmers regarding various dimensions of crop insurance scheme.
3. To recommend some feasible suggestions for increasing the penetration of crop insurance policy among
farmers.
RESEARCH METHODOLOGY
The present study was carried out in Karnal district (Haryana), to study the perception of farmer’s towards
crop insurance. Data was collected from 120 respondents and information about demographic characteristics
of farmers was obtained which includes information about experience in farming, size of land holding, nature
of family, qualification and age. Apart from that, study examines the level of awareness and satisfaction level
about crop insurance among farmers. Primary data collected through structured questionnaire. Questionnaire
contains information regarding age, size of land, experience in farming, level of awareness and satisfaction
level. T and ANOVA test has been applied to find out whether there is significant difference in awareness
level among farmers who availed and not availed crop insurance and farmers having different educational
qualification level respectively. The purpose of assimilating the data was explained to respondents and all the
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Contemporary Issues in Banking, Insurance and Financial Services
questions were administered systematically in the sequence to collect the information regarding the objectives
of the study.
Hypothesis: There is no significant difference in the awareness level about the dimensions of crop insurance
policy on the basis of who availed and not availed crop insurance policy and having different educational
qualification level.
DATA ANALYSIS AND INTERPRETATION
1. Descriptive analysis
Table 1 Socio- Economic characteristics of sample respondents
Soci-Economic
characteristics
Classification
No. of farmers
Percentage
Age
Less than 30 years
31-40 years
41-50 years
Above 50 years
Illiterate
11
37
35
37
11
09.2
30.8
29.2
30.8
09.2
Educational
Qualification
High School Level
89
74.2
College Level
20
16.7
Marginal Farmers (upto 2 acres)
10
08.3
Small Farmers (2-5 acres)
52
43.3
Large Farmers (above 5 acres)
58
48.3
Low (Below 10)
32
26.7
Moderate (11-20)
41
34.1
High (above 20)
47
39.8
Yes
54
45
No
66
55
Farm Size
Farming Experience
(Years)
Crop insurance
From the above table 1 it is manifested that majority of farmers are between 41-50 years, most of the farmers
are having high school education level, only 8.3% doing cultivation on land size less than 2 acres and
maximum no. of farmers having experience of farming above 20 years. Almost half of total respondents had
taken crop insurance policy that is 45%.
Awareness about Crop Insurance:
There are various schemes launched after regular interval by the government to ensure consistent and stable
income flows to farmers but level of awareness about the Fasal Bima is partial among farmers. The following
table depicts the level of awareness about crop insurance according to age, educational status and farm
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Contemporary Issues in Banking, Insurance and Financial Services
experience. Awareness is measured on three point scale 1= Not Aware, 2= Aware Partially and 3= Aware
Fully.
Table 2 Age group and Awareness Level
Age in years
Level of Awareness
Low
Below 30
1(9.1)
31-40
0(0.0)
41-50
0(0.0)
Above 50
1(2.7)
Total
2(1.7)
(Source: Primary Data)
Moderate
6(54.5)
28(75.7)
22(62.9)
29(78.4)
85(70.8)
Total
High
4(36.4)
9(24.3)
13(37.1)
7(18.9)
33(27.5)
11(100)
37(100)
35(100)
37(100)
120(100)
Age is most important variable that affects the level of awareness of farmers. The study tries to examine the
relationship among age and awareness level. The table 2 depicts the respondents on the basis of age and
awareness level. The table reflects that more number of old respondents having age more than 50 years are
more moderately aware about crop insurance whereas only 27.5% of total respondents are fully aware about
crop insurance.
Table 3 Educational Qualification and Awareness Level
Educational
Status
Illiterate
High School Level
College level
Total
Low
1(9.1)
1(1.1)
0(0.0)
2(1.7)
Level of Awareness
Moderate
10(90.9)
62(69.7)
13(65.0)
85(70.8)
Total
High
0(0.0)
26(29.2)
7(35.0)
33(27.5)
11(100)
89(100)
20(100)
120(100)
It is expected that awareness level varies according to education level. Study tries to examine the relationship
between educational qualification and awareness level and farmers are basically classified in three category
on the basis of education level that are illiterate, high school level and college level. The above table 3
exhibits the sample on the basis of educational qualification status and awareness level. The above table
manifest that high school level and college level are highly aware whereas, illiterate farmers are moderately
aware.
Table 4 Farm Experience and awareness level
Farm experience
Level
Low experience
Moderate
High
Total
Low
1(3.57)
0(0.0)
1(1.9)
2(1.7)
Level of Awareness
Moderate
19(67.8)
31(75.6)
35(68.6)
85(70.8)
185
Total
High
08(28.5)
10(24.4)
15(29.4)
33(27.5)
28(100)
41(100)
51(100)
120(100)
Contemporary Issues in Banking, Insurance and Financial Services
The above table 4 represents the level of farm experience and awareness level. It is clearly manifested from
the table that highest number of respondents having high farming experience is highly aware about crop
insurance in comparison to low and moderate level farm experience respondents.
Table 5 Descriptive Analysis on Awareness Regarding Crop Insurance Policy
Sr. No.
Statements
Mean
Standard Deviation
1.
2.
Clarity
About Crop Insurance
Features.
Premium Rate to be Charged.
3.
Policy
.57923
1.72
.72525
2.05
Last Date for Insuring Crops.
.68472
1.79
4.
Types of Risk to be Covered.
.75773
1.92
5.
Procedure of Loss Determination.
.69492
1.76
6.
Extent of Loss to be Covered.
.75147
1.70
Table.5 represents the extent of awareness about different aspects of crop insurance. The mean value of all the
aspects lies between1.70 to 2.05 which indicates that respondents are partially aware as responses are
measured on a three-point Likert scale where 1= Not Aware, 2= Partially Aware, and 3= Fully Aware. The
highest mean value is of the premium rate charged for insuring crops i.e. 2.05 which is further followed by
agrarian risk against which loss is paid by insurance co. to farmers that is 1.92 which indicates that the extent
of awareness about these two parameters is high in comparison to remaining other dimensions of awareness.
There is a marginal difference in the mean score of the statements regarding clarity about crop insurance
features (1.72), last date of crop insurance availing period (1.79), and procedure of loss evaluation and extent
of loss to be covered as indemnity (1.70) which manifests low level of awareness among respondents.
Overall, it is analyzed that farmers are not fully aware of crop insurance which is a measure constraint that
prevents the farmers from de-risking their agrarian risk. To increase penetration of crop insurance policy there
is a need to generate awareness among farmers regarding crop insurance policy features and its benefits.
To find out whether there is any significant difference among the mean score for each of the dimensions of
awareness of crop insurance between the farmers who availed and not availed crop insurance policy, t-test has
been applied. T-test has been used to determine whether the significant difference is there about level of
awareness regarding crop insurance between farmers adopted crop insurance and not at 5% availed farmers is
about the level of indemnity, the procedure of loss determination i.e. 1.81. The least mean score for farmers’
not availed crop insurance policy about the extent of lossis 1.60. The highest mean score is about premium
rate to be charged that is 2.31 for those who avail crop insurance and 1.84 for those who do not purchase crop
insurance so they are partially aware about premium rate to be charged. Whereas, the minimum mean score
reflects a partial level of awareness. The mean score of farmers regarding clarity about crop insurance features
among farmers availed crop insurance is 1.54 and not availed is 1.54 and difference between of them is found
to be significant at 5% level of significance. While, regarding each of the remaining awareness statements
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Contemporary Issues in Banking, Insurance and Financial Services
difference was found to be insignificant at 5% level significance between farmers who availed and not availed
crop insurance policy.
Table 6 Comparison of Awareness Level between Farmers’
Availed and not Availed Crop Insurance Policy
Availed Crop
Not Availed Crop
Insurance= 54
Insurance = 66
Statements
Mean Standard Mean Standard
Deviation
Deviation
Clarity about crop 1.94
.56357
1.54
.53152
insurance policy
features
Premium rate to be 2.31
.69565
1.84
.68483
charged
Last date for
1.88
.69137
1.71
.67403
insuringcrops
Different Risks to 2.18
.70240
1.71
.73934
becovered
Procedure of
1.81
.75421
1.72
.64559
loss determination
Extent of loss to
be covered
1.81
.75421
1.60
.74170
Overall
Mean
T
Value
P
Value
1.72
Standard
Deviation
.57923 -3.981
.005
2.05
.72525 -3.679
.321
1.79
.68472 -1.409
.430
1.92
.75773 -3.584
.280
1.76
.69492 -.674
.216
1.70
.75147 -1.520
.680
(Note: The responses are recorded on Likert scale minimum score 1 for “Not Aware” response and maximum
3 for “Partially Aware”)
To find out whether there is any significant difference among the mean score for each of the dimensions of
awareness of crop insurance across the farmers having different educational qualification levels, ANOVA test
has been applied.
Table 7 Summary of Means and ANOVA on Dimension of Awareness
Statements
Illiterate
=11
High SchoolLevel
=89
CollegeLevel
=20
Clarity
about insurance
policyfeatures.
Premium
rate
to
be
charged.
Last
date for insuring crop.
1.63
1.68
1.95
1.873
.158
1.45
2.10
2.20
4.613
.012
1.45
1.82
1.85
1.421
.228
Types
covered.
1.27
2.00
1.95
4.604
.010
of
risk
to
be
187
F
Value
P
Value
Contemporary Issues in Banking, Insurance and Financial Services
Procedure
of
determination.
Extent
of loss
covered.
to
loss
1.36
1.78
1.90
3.538
.104
be
0.36
0.44
0.30
0.811
.447
The responses are recorded on Likert scale minimum score 1for “Not Aware” responses 2 for “Partially
Aware” and 3 for “Fully Aware”). The table 7 depicts mean, F-statistic and significance level of various
dimensions of awareness towards crop insurance among farmers having different educational qualification.
As observed in the table, the calculated F-value (df = 2/117) of dimension regarding clarity about crop
insurance policy features, last date for insuring crop, procedure of loss determination, and extent of loss to
loss to be covered is too less to be significant at 5% level. The ANOVA results show that there is no
significant difference in the level of awareness among farmers about knowledge regarding crop insurance
features, last date for availing crop insurance, and extent of loss to be covered as p-value is greater than 0.05.
There is the significant difference among the farmers regarding premium rate to be charged and it is found out
that mean value of farmers who have educational qualification up to high school (2.10) and farmers who are
graduated and above have mean value is 2.20 whereas, illiterate farmers have mean 1.45 which manifest that
illiterate farmers have a low level of awareness in comparison to farmers who are qualified and the difference
in their mean value is also significant at 5% level of significance. Illiterate farmers are not aware of agrarian
risk againstwhichlossiscompensatedbytheinsurancecompanytotheinsuredasmeanvalueis 1.27 whereas farmers
who are qualified up to high school level and college level are partially aware as they have mean value 2 and
1.95 respectively.
Table 8 Descriptive statistics on level of satisfaction regarding various parameters of crop insurance
policy
Sr. No.
Statements
Mean
Standard
1.
Sufficient number of crops are notified under the insurance scheme
3.55
Deviation
0.95134
2.
Rate of premium is reasonable
3.31
1.08452
3.
Timely evaluation of loss
2.61
1.13895
4.
Loss evaluation approach is appropriate
2.85
1.09465
5.
Adequacy of claim amount
2.55
1.26222
6.
Timely settlement of claim
2.46
1.28947
7.
Cooperation/ responsiveness of staff
3.93
1.11320
(Note: The responses are recorded on five point Likert scale minimum score is 1for “Highly
Dissatisfied” and maximum 5 for “Highly Satisfied”.
In India, crop insurance prevails from a longer duration but still it is not widely accepted by farmers. PMFBY
(Pradhan Mantri Fasal Bima Yojana) was launched in the year, 2016 with the target of covering 50% of total
farmers under it. It is possible only, when awareness among farmers is increased. Although, the farmers who
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Contemporary Issues in Banking, Insurance and Financial Services
obtain loan from financial institutions obtain loan are compulsorily, covered under crop insurance but those
farmers who have no loan rarely avail crop insurance policy therefore government is required to take certain
steps to cover them under this scheme.
The table 1.8 reveals that the highest numbers of farmers are satisfied with the cooperativeness/
responsiveness of bank staff as providers of crop insurance with mean 3.93. the second highest is of the crop
notified in the list of notified crop number is adequate in the crop insurance policy as large number of crops
are covered in the list. The mean score of the premium rate is 3.31 it means farmers are neutral regarding
premium rate. Least value of mean score is regarding timely settlement of insurance claim that is 2.46 which
inference that large number of farmers are dissatisfied as amount of claim against crop damage is not settled
timely to farmers which is the root factor that is responsible for dissatisfaction among farmers and level of
indeminity is also not adequate having mean score 2.55. So it is concluded that if the amount of claim is
settled within a reasonable time period than the large number of farmers will be highly satisfied.
SUGGESTIONS





All crops should be covered under PMFBY.
Loss caused to crops due to frost, fire, wild animals and cold waves should be taken into consideration for
evaluating loss value at individual level.
Minimum sum insured should cover at least production cost and alongwith it, if possible sum insured should
be equal to expected crop yield.
Both central and state government should disburse the subsidy premium timely to insurance company so that
quickly or timely in case of calamity amount can be settled.
Level of indemnity should be increased to 80 and 90 percent so threshold yield can be increased. Regions
which are highly vulnerable to catastrophic risk value of potential yield should be considered for evaluating
threshold limit instead of taking average yield.
CONCLUSION
Crop insurance is vital mechanism for safeguarding the farmers via compensating the insured farmers timely,
when crop is damaged. Critical analysis disclosed that crop insurance is the robust solution for the risk
suffered by the farmers. Both the central and state should work in collaboration for formulating and effective
execution of crop insurance scheme. Apart from that, by paying the amount of claim timely and reducing
formality of availing crop insurance, it is possible to enhance trust of farmers in crop insurance scheme and
increasing penetration of crop insurance among large number of farmers, the real backbone of the nation.
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Agriculture”
190
Contemporary Issues in Banking, Insurance and Financial Services
Implementation of Ayushman Bharat: A Way towards Universal
Health Care in India
Ms Pooja Pandey Assistant Professor
Department: Economics; Affiliated College: S.A.Jain (PG) College, Ambala City(Haryna)
Email address: poojaeconomics88@gmail.com
Abstract
The present paper is an attempt to analyse the rationale and requirement of the implementation of Ayushman
Bharat-Pradhan Mantri Jan Arogya Yojana. It is India’s biggest health insurance Scheme sponsored by
mutually centre and state governments funding the scheme in to 60:40 ratio respectively as claimed by the
Government of India. It was first launched on 23rd September in Ranchi, Jharkhand. Prior to this scheme, 20
Indian States had their own health insurance schemes sponsored. This scheme is also said as the world’s
largest health insurance scheme. That is why it is also known as universal health coverage scheme. There
some gaps that needs to be filled so that stated goal of this scheme can be achieved. There are some states and
UTs like Delhi, West Bengal, Odisha and Telangana yet not implemented this scheme. This could be taken as
positive part of this scheme that there is flexibility or freedom to the states that from the side of government
whether they implement it or not. Timely Implementation can help this scheme to be more successful.
Key Words: Ayushman Bharat- PMJAY, Health Insurance, Universal health coverage, HWCs
INTRODUCTION
Health insurance sector in India has gained huge momentum since economic reforms. Due to emergence of
private health care providers there is an increase in health consciousness among all sections of the society,
increase in income of the households. The government sponsored health insurance schemes in India have
expanded largely over the years. This makes private health care providers a game changer. In India, private
healthcare providers like hospitals has a significant role in availability of health care for general public and
this make increase in OOP (out of pocket expenditure) manifold. The no of private hospitals has increases
many times but the exact no of these hospitals is unknown. It is expected that now a days that private
hospitals can play a key role in the implementation of GSHIS(Government sponsored health insurance
schemes) in India. There are many GSHIS which have been rely on the private healthcare providers to deliver
timely and efficiently benefit of these schemes patients and needy. Public spending on healthcare in India is
amongst the lowest in the world at just over 1% of gross domestic product (GDP), and the Indian health
system is characterized by substantial shortcomings relating to workforce, infrastructure, and the quality and
availability of services. One of India’s largest and most recent GSHIS is ‘Ayushman Bharat’ Scheme –PM
JAY. Which have been announced by Government of India. The Ayushman Bharat Pradhan Mantri Jan
Arogya Yojana (AB-PMJAY), approved by the Indian government in March 2018, is an ambitious reform to
the Indian health system that seeks to provide financial health protection for 500 million of the most
vulnerable Indians and halt the slide of the 50–60 million Indians who fall into poverty annually as a result of
medical-related expenditure. There is a need for wide reforms across public and private providers of care if
India is to meet its stated aims of providing universal health coverage (UHC) for its population. The success
of the program will rely on a reformed and adequately resourced public sector to lead implementation,
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Contemporary Issues in Banking, Insurance and Financial Services
delivery, and monitoring of the schemes. Health insurance is an arrangement that helps to delay, defer, reduce
or avoid payment related to medical expenses of an insured. Three options have been made available to the
state governments to implement the scheme – the trust model, the insurance model and combination of two
wherein a fixed amount is administered through insurance and any amount beyond that is administered
through trust. Government spending on healthcare in India is amongst the lowest in the world at just over 1%
of gross domestic product (GDP), and the Indian health system is known for substantial shortcomings weather
it is related to workforce, lack of infrastructure, and the poor quality and availability of service. There is a
need for wide reforms both public and private providers of care if India wants to meet its aims of providing
universal health coverage (UHC) for its population. The Indian health system comprises a complex mix of
various levels of government decision makers and providers, private companies, and other nongovernment
service providers. India has a chronic shortage of doctors and other healthcare providers, who tend to be
concentrated basically in the urban areas and leaving rural area at their own stake. Universal health coverage
has become a policy goal in most developing economies. As per the India Brand Equity Foundation (IBEF),
the Indian life insurance industry is expected to grow at a rate of 12–15%for the next 3–5 years.
OBJECTIVE OF THE STUDY
 To study the rationale of the implementation of Ayushman Bharat Scheme.
 To identify the areas of improvement or ways which is needed for its success
RESEARCH METHODOLOGY
The present paper is based on secondary data taken from different internet sources. Data have been extracted
from different sources like Economic Census, Insurance information Bureau, IRDA, PMJAY official
websites, Statista official website, Ayushman Bharat annual reports, different issues in National health
Authority and different research articles published on the topic. Sources of the data have been mentioned with
tables and figures.
Classification of the health Insurance Market in India:



Group Health Insurance(having 48% of health insurance market share)
Individual Health Insurance(having about 41% of health insurance market share)
Government sponsored health Insurance(having only 11% of total health insurance share)
With growing digitalization, health insurance schemes and policies have become even more viable. As on 23 rd
may 2020, 56% of empanelled hospitals were of public in nature and 44% is under private sector as per the
AB-PMJAY. With Individuals, Government of India is taking initiative to provide health insurance benefits to
common people. Health insurance these days in India, is most emerging Insurance sector after life and auto
insurance. Published by Statista Research Department, Mar 1, 2021 In the fiscal year of 2020,
nearly 500 million people across India were covered under health insurance schemes. Of these, the highest
numbers of people were insured under government-sponsored health insurance schemes, while individual
insurance plans had the lowest number of people.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 1: Different government sponsored health Insurance Schemes
Sr. No
Name of the
Policy
Aam Admi
Bima Yojna
State and year of Implementation
Coverage
Implemented in 2007.The Aam Aadmi
Bima Yojana is a security scheme that
provides benefits to low income
individuals in case of death or disability.
Only an earning member or
head of the family can be
insured under this scheme.
The scheme is targeted at
people working in 48
specific vocations like
carpentry, handloom
weaving, fishing, cobblers,
auto drivers etc
2.
Awaj Health
Insurance
Scheme
Implemented in the year of 2017.The
Awaz Health Insurance Scheme was
introduced in the state of Kerala and
targeted at migrant workers..
3.
Central
Government
Health
Insurance
Scheme
Implemented in the year 2009 in all India
4.
Bhamashah
Swasthya Bima
Yojna
Implemented in the year 2015.The
BSBY scheme is an insurance initiative
by the government of Rajasthan..
5.
Employees State
Insurance
Scheme
Chief Minister’s
Comprehensive
Insurance
Scheme
Implemented in the year 1952 in all India
The policy can be obtained
by labourers between 18
and 60 years of age, who
will be provided with a
Awaz Health Insurance
Card after proper
verification.
The CGHS scheme has
been around for more than
6 decades and covers
hospitalization expenses
for policyholders.
Alternative medicine like
ayurveda and homeopathy
are also covered under this
scheme. Only Central
Government employees are
eligible for this policy.
These include Supreme
Court judges, Central
Railway Board employees,
etc.
People of all ages are
eligible for this scheme and
it covers both in-patients as
well as out-patient
expenses.
It protected workers
financially in case of
illness, disability or death.
Many private as well as
government hospitals are a
part of this scheme. It is
basically a family floater
plan by the government, in
association with the United
India Insurance Company.
1.
6.
Implemented in the year 2012.This state
government scheme has been promoted
by the government of Tamil Nadu for
people residing in the state.
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Contemporary Issues in Banking, Insurance and Financial Services
7.
Karunya health
scheme
Implemented in the year 2020.The Kerala
Government launched this scheme. it
provides health insurance for certain
listed chronic conditions
8.
Mahatma Jyoiba
Phule Jan
Arogya Yojna
Implemented in the year 2015.The
Government of Maharashtra was the one
to initiate this health insurance policy for
the benefit of Maharashtrian people.
9.
Mukhyamantri
Amrutam Yojna
Implemented in the year 2012.The
Gujarat government initiated the
Mukhyamantri Amrutam Yojana.
10.
Pradhan mantra
Suraksha Bima
Yojna
Implemented in the year 2015 in all India
11.
Telangana State
government
Employees and
Journalist health
Scheme
Implemted in the year 2020.This
particular scheme has been made
available by the Telangana government.
12.
Rashtriya
Swasthya Bima
Yojna
Implemented in the year
2008.The Rashtriya Swasthya Bima
Yojana was introduced by the Indian
government
13.
Universal health
Insurance
Scheme
Implemted in the year 2012.This scheme
was initiated by the Indian government.
194
it provides health insurance
for certain listed chronic
conditions. It is basically a
critical illness policy for
the poor that aims to cover
kidney disorders, heart
disorders, cancer, etc.
It was targeted mainly at
farmers in Maharashtra.
The policy offers a family
cover of up to Rs. 1.5 lakh
for treatment of listed
diseases
People under the poverty
line and lower middle class
families are eligible for the
scheme. The insured can
avail treatment from
government hospitals,
private hospitals as well as
trust-run hospitals.
The assured sum offered in
this scheme is Rs. 1 lakh
for partial disability and
Rs. 2 lakh for total
disability and death due to
accident. The premium for
this scheme is Rs. 12 per
year with the facility of
auto-debit from the bank
account.
The health scheme is a
cashless insurance scheme
that can be used by current
employees of the
government as well as
retirees and pensioners.
Ensure that people working
in the unorganized sector,
like workers and laborers,
had access to a good
healthcare plan. Most of
them don’t have any
insurance and in case of
hospitalization they have to
pay the expenses out of
their pocket.
The scheme covers
hospitalization, accident as
well as disability for
Contemporary Issues in Banking, Insurance and Financial Services
14.
Yeshaswini
Health
Insurance
Scheme
Implemted in the year 2013.This Scheme
is devised by the Karnataka government.
15.
West Bengal
Health
Insurance
Scheme
The scheme was announced by the
government of West Bengal in 2008
16.
Ayushman
Bharat Scheme
This scheme is launched by Government
of India in 2018.
eligible persons between 5
to 70 years of age. Both
individual and group
insurance policies can be
availed using this scheme.
Provide healthcare to
farmers and peasants
associated with cooperative societies. As
many as 800 medical
procedures are covered
under this policy and that
includes Orthopedics,
Angioplasty, Neurology
etc.
t covers individuals as well
as their families with an
insured sum of Rs. 1 lakh.
Coverage is offered for
OPD and surgeries but
excludes cosmetic
surgeries and nonemergency procedures.
It Covers up to 40% of
Indian population who
belongs to low and lower
middle class background.
Component of AB-PMJAY
Health
and
wellness
centre
National
health
Protection
Scheme
Primary
health
care
Secondary
and Tertiary
health care
Health and Wellness Centre: Established Sub Centers serving a population of 3000 -5000 people will be
transformed to Health and Wellness Centers to ensure delivery of Comprehensive Primary Health Care
(CPHC) services, with the principle of "time to care" being no more than 30 minutes.
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Contemporary Issues in Banking, Insurance and Financial Services
Primary Health Care: In February 2018, the Indian government announced that 1,50,000 Health & Wellness
Centers (HWCs) will be developed by converting existing Sub Health Centers and Primary Health Centers to
provide Comprehensive Primary Health Care, as one of Ayushman Bharat's two components.
National Health Protection Scheme: Ayushman Bharat is a National Health Insurance Scheme that will
provide coverage up to 5 lakh rupees per family per year for secondary and tertiary care hospitalization to
over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries).
Secondary and Tertiary Health Care: For listed secondary and tertiary care conditions, PM-JAY offers
cashless coverage of up to INR5,00,000 per year to each qualifying family.
Health Coverage in India
600
Individual Business(in 000')
500
400
Group Business (excluding
state owned)(in 000')
300
200
Government sponsored
Scheme including RSBY,(in
000')
100
0
FY16
FY17
FY18
FY19
FY20
Source: Statista 2020
Above Chart shows that as compared to individual business and group business government sponsored health
insurance schemes’ share is higher. This shows that in terms of health security people rely more in
government sector scheme because of affordability.
Changes in Health Coverage after Launch of Ayushman Bharat
Percentage Change
Pre AB (2017-18) 40%
After AB (2018-19)
80%
Source: KPMG Analysis, IRDA 2017-18, AB-PMJAY Website.
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Contemporary Issues in Banking, Insurance and Financial Services
Source: Published in Mint on 17th March 2021
Phase wise Implementation Plan of AB-HWCs
50
40
30
in lakhs
20
10
0
2018-19
2019-20
2020-21
2021-22
2022-23
Source: No of HWCs ( Health and wellness Centers), AB-HWCs Portal 2019
Benefits of the Implementation of Ayushman Bharat Scheme
Coverage
AB provide coverage for secondary, tertiary and day care procedures through a network of empanelled health
care providers (EHCP). AB covered nearly 40% of poor and vulnerable population. In the sense of absolute
numbers it covers up to 10.74cr households. The inclusion of the household based on the criterion of SocioEconomic caste census 2011(SECC 2011) both for rural and urban areas. This scheme also covered those wo
were the part of Rashtriya swasthya Bima Yojna (RSBY) and not covered under SECC 2011.
Quality of services
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Contemporary Issues in Banking, Insurance and Financial Services
The scheme rolled out using health benefit package master of 1393 packages out of which 1083 are surgical
,309 are medical and 01 unspecified. Within two years of scheme 1.23 crore patients have received treatment
amounting to 15.57 crore in 23311 hospitals. There is no Cap on age for entry and exit and also there is no
need to check eligibility health wise.
Technology Integration
With the help of technology reimbursement can be made in cashless form. This helps in timely treatment and
more convenient to the patients. It Increases options of healthcare providers and it also Increases ease of
services from any location that the beneficiaries require. It Could ensure a truly one-healthcare ecosystem. A
connected ecosystem calls for digitisation of records in a format accepted across all platforms for different
health insurance ecosystem stakeholders (hospitals, insurance companies, third-party administrators [TPAs]
and the government).
Cashless and Paperless Treatment
This is the only national health insurance scheme in India in which there is no need of any premium to deposit
by the benefiaries. Treatment upto 5 lakh is assured. A patient needs only a registered card of Ayushman
Bharat Scheme. All the expanses bear by the government itself. 3 days before and 15 days after the treatment
of patient all the types of expanses whether related with medicine, Follow up Consultation and diagnostics
bear by the government between centre and state in to 60:40 ratio.
Requirements for the success of the scheme ‘Ayushman Bharat’
In order to successful implantation of the scheme Centre government needs to allow some flexibility to
the states:
Technique of implementation: States can choose the implementation of the scheme through Trust, Insurance
Company or Mixed model.
Handling beneficiary data: PM-JAY uses SECC data for targeting the beneficiaries. However, States have
been provided the flexibility to decide on the dataset for this purpose, if they are covering more beneficiaries
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Contemporary Issues in Banking, Insurance and Financial Services
than SECC defined numbers. However, the State will need to ensure that all beneficiaries eligible as per
SECC data are covered.
Enlargement to cover more people: States can cover a greater number of families than those defined as per
SECC data. For these additional families, full cost will need to be borne by the States.
Marketing Strategy: States can co-brand their existing health insurance/assurance schemes with Ayushman
Bharat (AB)scheme as per marketing guidelines of the scheme.
Increasing benefit cover to higher value: If the States want, they can even expand the benefit cover beyond
Rs. 5 lakh per family per year. However, in this case, cost of additional cover will need to be completely
borne by the State.
Numbers and pricing of the packages can be revised: AB-PMJAY provides coverage about 1,394
packages and their prices have been fixed by the NHA. However, keeping in view the different disease types
and changes in cost of services across the States, flexibility has been provided, within a limit, to the State to
revise the package prices.
Some special packages should be reserved for public hospital: To ensure that services that can be provided
well by Government health facilities are not misused by private providers, NHA has defined a set of medical
conditions that can be treated only in public healthcare facilities. States can revise the list of such conditions
that are reserved for public hospitals.
Timely payment to public hospitals: States have also been provided flexibility to deduct a certain
percentage of claims amounts that is paid to public hospitals.
Availability of Information Technology: Prior to the launch of AB-PMJAY some of the States were
implementing their own health insurance schemes and were using their own IT systems. AB-PMJAY
provides flexibility to the States that they can continue using their own IT system and share data with NHA
on a real-time basis in specified format.
Areas that needs attention
Requirement of specialist:
Success of the scheme depends mainly on the timely fulfillment of the requirement of specialists in case of
actuaries, claim processing specialists, fraud investigators etc.
Quality of service:
Multi specialist hospital denies becoming the empanelled hospital. There is a need to look after this matter so
that patients can avail good quality hospitalization and better services.
Infrastructure Support:
Government’s goal to cover 40% population under AB can only met when the health infrastructure
availability in a sufficient manner. This Infrastructure includes manpower, healthcare provider and good
quality hospitals.
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Contemporary Issues in Banking, Insurance and Financial Services
High demand for healthcare services:
It is expected that India will surpasses the Chine in terms of most populous country by 2027. It is also
expected that the population of age above 60 years will increase from 6.176 in 2018 to about 19% in 2050.
Increase in this segment of population will ultimately pressure the healthcare from demand side.
Changing Disease Profile:
As the years passes different chronic and unexpected diseases outbreaking.Covid-19 is one of examples of
unexpected disease which harm not only any particular segment or part of the economy but the whole world
nevertheless they are developed or underdeveloped.
Technology has its price:
According to Global Medical Trend Survey Report, 2020, 70% of insures identified that as new technology
being responsible for increase in cost of treatment or treatment become more expensive.
Catastrophic increase in out of pocket expenditure (OOP):
About 5.5crore people were pushed into below poverty line every year due to high OOP in India. Total health
expenditure incurred by Indian about 63% is OOP. Effective and timely Implantation of AB can help to
reduce this upto some extent.
Disparities among Indian States in terms of Health Care Services:
It is also found that the trend of empanelment of the hospital is more in urban as compared t rural area and in
big cities to small cities and rich states to marginal states.
CONCLUSION:
In this paper it is clear that without addressing existing deficiencies in health care system, mere introduction
of a new comprehensive scheme might fail to achieve its objectives. The present paper clearly reveals that
there is a large proportion of population that still uncovered from any type of health insurance. No doubt over
a period of last years, this sector has witnessed a great expansion. There is a need to address gaps prevailing
in the system first to get the expected results and improve health outcomes in country. Implementation and
ongoing operation of the program need to be carefully monitored to ensure that it is meeting its aims in a
sustainable manner and that negative unintended consequences are avoided. There is quite a high scope that
this AB- PMJAY scheme could become torch bearer in Indian health system only when its implementation
would be timely and effectively, patient can timely avail the claim and inconvenient should be less.
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Contemporary Issues in Banking, Insurance and Financial Services
Appendix 1: State/UT-wise number. of hospitalization under AB-PMJAY scheme
State/UT wise authorized hospitalisations under Ayushman Bharat-Pradhan Mantri Jan Arogya
Yojana (As on 30.01.2020)
State/UT
No of Hospital Admissions
Andaman And Nicobar Islands
123
Andhra Pradesh
6,07,275
Arunachal Pradesh
1,614
Assam
1,11,372
Bihar
1,55,240
Chandigarh
3,169
Chhattisgarh
7,90,096
27,208
Dadra and Nagar Haveli and
Daman and Diu
9,747
Goa
10,082
Gujarat
12,58,303
Haryana
86,416
Himachal Pradesh
50,338
UT of Jammu & Kashmir
and UT of Ladakh
Jharkhand
60,434
4,48,040
Karnataka
5,15,645
Kerala
8,11,463
Lakshadweep
1
Madhya Pradesh
2,69,479
Maharashtra
2,88,676
Manipur
11,525
Meghalaya
1,04,196
Mizoram
31,043
Nagaland
8,075
Puducherry
636
Punjab
1,30,651
Rajasthan
7,04,401
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Contemporary Issues in Banking, Insurance and Financial Services
Sikkim
948
Tamil Nadu
9,91,571
Tripura
51,124
Uttar Pradesh
3,01,416
Uttarakhand
1,28,868
West Bengal
17,636
GRAND TOTAL
79,86,811
th
Source: Government of India, Ministry of Health and Family welfare.04 February,2020.
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Dutta, M. M. (2020). Health insurance sector in India: an analysis of its performance. Vilakshan - XIMB
Journal of Management, 17(1/2), 97–109. https://doi.org/10.1108/xjm-07-2020-002
203
Contemporary Issues in Banking, Insurance and Financial Services
The Progress of Micro Insurance Business during Covid-19 Pandemic
in India
Dr. Rajesh Kumar, Associate Professor
Department of Commerce, DAV College Pundri
Email: rajesh_turan2706@yahoo.com
Abstract
Micro-insurance came to the fore as a mechanism to protect low-income individuals and families from risks
such as illness, accidents, death or loss of assets due to natural calamities and riots in return for premium
payments tailored to their needs, income and level of risk. To facilitate insurance penetration low-income
segments of the population, IRDA had notified the microinsurance regulation in 2005. The present study is an
attempt to analyze the progress of Micro Insurance Business in Life, General and Health Insurance. For this
purpose, the secondary data has been used and the same has been collected from annual report of IRDAI for
the year 2019-2020. The data has been presented and analyzed through tables and suitable figures using excel
tools and graphical analysis. The study revealed that total individual new business under the micro insurance
segment is 10.28 lakh new policies out of which LIC alone has 8.59 lakh policies with a premium of ₹222.09
crore that shows LIC has a significant share in the individual new business. Micro Insurance agents of life
insurance industry, Other MI agents forms the highest number with 91.80% followed by NGOs with 7.30%,
whereas Business Correspondents forms only 0.15% of the micro insurance agents of Life insurance industry.
In the group micro insurance, the private sector has dominated around 96% lives covered with approximately
99% premium. The private sector apparently holds most of the business in terms of the lives covered and the
premium received in case of the group micro insurance. The study also indicates that the private sector has
contributed the significant share in total premium whereas specialized Insurer has the least contribution.
Keywords: Micro-insurance, Public Sector, Private Sector, Life insurance, General Insurance, Premium
INTRODUCTION
Microinsurance came to the fore as a mechanism to protect low-income individuals and families from risks
such as illness, accidents, death or loss of assets due to natural calamities and riots in return for premium
payments tailored to their needs, income and level of risk. The strongest motivation to learn more about the
microinsurance comes from the realization that insurance is an essential tool to improve the protection of lowincome people against financial exposure due to the life cycle events, economic activity, environmental and
political issues. Insurance cannot solve any of the main underlying problem; however, it can provide the tools
that delimit the financial exposure of single people incase unfavorable cost generating events occur. To
facilitate insurance penetration low-income segments of the population, IRDA had notified the
microinsurance regulation in 2005. These insurance regulations allow Non-Government Organizations
(NGOs) and Self-Help Groups (SHGs) to act as agents to insurance companies in marketing the micro
insurance products and also allow both life and non-life insurers to promote combi-micro insurance products
(combination of different lines of business). They provided a platform to distribute insurance products, which
are affordable for rural and urban poor people and to enable microinsurance to play its role in financial
inclusion. After review of the Micro Insurance Regulations,2005 comprehensively the Authority has notified
the Amended Regulations on March 13,2015 in which it has permitted several more entities in addition to the
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Contemporary Issues in Banking, Insurance and Financial Services
existing micro insurance agents like Micro-Finance Institution (MFI), District Co-operative Banks, Regional
Rural Banks (RRBs), Business Correspondents (BCs) of Scheduled Commercial Banks etc. to be appointed as
Micro Insurance agents. General microinsurance products cover health insurance, coverage of personal
effects, such as, cabin, livestock or personal tools or implements, personal accident, individual or collective
insurance with a maximum amount of coverage of rupees one lakh (2.5 lakh for the health of the family /
group) and for a period of one year.
Various types of microinsurance products offered by registered general insurance companies are; Cattle
Microinsurance Policy, Kisan Agriculture Pumpset Microinsurance Policy, Janata Personal Accident
Sukshma Bima Policy, Silkworm Sukshma Bima Policy, Sheep and Goat microinsurance Policy, Sampoorna
Griha Suraksha Policy etc. These products are intended for low-income people segment of the population.
The Authority has authorised Pradhan Mantri Fasal Bima Yojana (PMFBY) covering non-loanee farmers, to
be solicited and marketed by micro insurance agents under IRDAI (Micro Insurance) Regulations, 2015. As
per IRDAI report 2019-20 there are 90574 micro insurance agents of life insurers out of which 20907 are of
LIC and the rest are of private sector. As at 31st march 2020, 32 micro insurance products of 16 life insurers
were available in the market for sale out of which 11 are individual products whereas remaining 21 are group
products. In the year 2020, in view of the global COVID 19 pandemic, in order to meet the financial
protection needs related to the COVID 19 treatment costs, the Authority has designed the two specific
COVID products with common benefits and policy wording across industry i.e. Individual COVID Standard
Health Policy called Corona Kavach Policy – an indemnity-based health policy and Individual COVID
Standard benefit-based Health Insurance policy called Corona Rakshak Policy.
This is under the above background, the present study was performed. The paper is divided into five parts:
Introduction, Review of Literature, Objectives and Research Methodology, Results of the study and
Conclusion.
REVIEW OF LITERATURE
Vinayagamoorthy et al. (2012) concluded in their study titled “A Study on microinsurance in India” that
microinsurance has remained the second choice in financial inclusion after credit products by micro finance
institutions,which was the first choice in India. The significance of microinsurance as social security and
business opportunity was hardly emphasized.
Varshini and Suresh (2013) in their paper entitled “A study on performance of life micro insurance in
Mysore City” found that the majority of the policyholders were women who were more aware of life
microinsurance than men. They explained that it was due to the establishment of Self-Help Groups which
constitutes only women. Income is not a barrier in paying a premium because 50 percent of the premium is
borne by the nodal agency. They also found that married people were more responsible than the unmarried
and major reason for buying life micro insurance was to avail death benefit.
Farooqui F. (2013) in his paper titled “Role of micro finance institutions” analyzed the role of
microfinance institution in the micro insurance in Allahabad district using a purposives ampling technique to
collect the primary data through questionnaire and personal interviews of two leading MFI, Sonata and
Utkarsh 140 beneficiaryinwhich78respondentsweremaleand62werefemales. The study found that awareness
of microinsurance products was low especially in female respondents. The role of MFIs was not significant in
creating awareness among respondents and respondents were not satisfied with the insurance services
provided byMFIs.
Geetha and Vijayalakshmi (2014) in their study conducted a study in Coimbatore in 2013 with a sample
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Contemporary Issues in Banking, Insurance and Financial Services
of 100 Microinsurance (life) insured to analyze socio economic determinants of MI (life) demand and the
level of satisfaction of insured.The study used both primary and secondary data. The study found that the
majority of the respondents were aware of all important features.
Paramasivam and Rajaram (2016) in their paper titled “Micro analysis a conceptual analysis” found that
microinsurance is affordable to poor people. It mitigates the risk caused by nature or any other events. There
is a need to create more awareness so that it is more accessible for unreached.
Priti Bakshi (2016) conducted a study on “Review of Progress and Potential of Micro Insurance in India”
and found that micro insurance is important in supporting the sustainable development of the poor and
reducing the inequality in developing countries like India. Micro insurance is like a magic treatment for the
main disease (poverty) prevailing in the economy. The study also state that the development of micro
insurance is both a moral and an economic imperative, not only for achieving the inclusive financial systems
but also for the equitable mitigation of risks.
Subhabaha Pal at el. (2017) conducted a study titled “Forecasting performance of Indian non-life
insurance industry – an analysis of underwriting experience of public and private insurance companies”. They
found
that
the
public
non-life
insurance
companies
will
touch
earning
1
Lakh Crore INR premium revenue by 2022-2023. The non-life insurance sector (both public and
private together) will be fetching 1 Lakh Crore INR premium revenue by 2019 and 2 Lakh Crore
INR as premium revenue from 2024 FY giving huge boost to the economy. As revealed from the
forecasted results, the public insurance companies will become more economic in terms of
operations and will maintain around 110 is combined ratio value in the coming years which will be a very
good achievement for them. Private non-life insurance companies will maintain the combined
ratio at around 102 due to their optimized operational capabilities.
Jayakumar A. and Almeida S. M. (2018) conducted a study on “Erudition and role of Micro Insurance in
India”. They found that risk mitigation becomes an important aspect to the poor people as their income is
limited and their livelihood is equally dependent on their health as well as their future life being the recipients
of majority of risk in life. If large insurance companies can adapt to the regional sensitivities and also provide
awareness through the various schemes introduced by the government to the poor section and also educate
them about the benefits and premium payment, microinsurance will thus, aid and offer a huge opportunity for
the insurers to penetrate into the new markets and also build a more flexible and better economy.
Bodla, Sumit at el. (2017) find that the life insurance industry has made a remarkable growth of premium
after the entry of private players. The CAGR of net premium has been worked out at 8.89 % for the last 10
year. The highest CAGR in net premium was found in case of Max Life followed, very closely, by HDFC
Standard, PNB MetLife and SBI Life. IDBI Federal Life has a CAGR of 20.42% during 2007-2011, 10.98%
during 2012-16 and 14.47% during 2007-2016. CAGR of net premium gives a worrisome position for Aviva,
Tata AIA, Bajaj Allianz, Birla Sunlife and Reliance Nippon as the growth rate was found negative during
2012-16 for these companies.
Renu Bala (2019)in her study titled “Micro-insurance in India: Role of public and private insurers” found
that publicsectorisleadinginbothpoliciesissued,anumberoflives covered in both individual and group business.
However, their claims services need to be improved. The private insurers are relying on other micro insurance
agents for business, and have a less significant share in the group insurance business.
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Contemporary Issues in Banking, Insurance and Financial Services
OBJECTIVES AND RESEARCH METHODOLOGY
The present study aims to achieve the following objectives:
1) To analyze the progress of Micro Insurance Business in Life, General and Health sectors;
2) To Study the role of the Micro Insurance Agents of Life as well as Non-life Insurers.
The achieve the above-mentioned objectives, secondary data was collected from IRDAI's Annual Report of
the year 2019-2020. For literature review, previous studies were accessed from various journals available on
internet. The nature of the study is descriptive cum analytical where the data has been presented through
tables and has been analyzed with the help of percentage and graphical analysis.
ANALYSIS AND INTERPRETATION
Table 1 depicts name of the various life insurers and the products issued by them. There are 32 total micro
insurance products of 16 life insurers available in the market for sale out of which 11 are individual products
whereas remaining 21 are group products.
TABLE 1: MICRO INSURANCE PRODUCTS OF LIFE INSURERS (As at March 31, 2020)
Name of the Product
S. No.
1
2
3
4
5
Insurer
Individual Category
Group category
-
ABSLI Group Bima Yojana
Aditya Birla Sun Life
Insurance Co. Ltd.
Bajaj Allianz Life
Insurance Co. Ltd.
Edelweiss Tokio Life Raksha Kavach
Bajaj Allianz Life Group
Sampoorn Suraksha Kavach
Canara HSBC Oriental Bank Of
Commerce Life Insurance
Sampoorna Kavach Plan
Edelweiss Tokio Life - Jan
Suraksha
-
Group Micro Term Insurance
-
Canara HSBC OBC
Life Insurance Co. Ltd.
Edleweiss Tokio Life
Insurance Co. Ltd.
Exide Life Insurance
Co. Ltd.
-
IndiaFirst Life Micro Bachat
Plan
Kotak Sampoorn Bima MicroInsurance Plan
HDFC Life Group Suraksha
HDFC Life Group Jeevan
Suraksha
ICICI Pru Shubh Raksha Credit
ICICI Pru Shubh Raksha One
ICICI Pru Shubh Raksha Life
Group Microsurance Insurance
Plan
IndiaFirst Life Group
Micro Insurance Plan
Kotak Raksha Group
Micro-Insurance Plan
-
PNB MetLife Bima Yojana
-
Pramerica Life Sarv Suraksha
Pramerica Life
6
HDFC Life Insurance
Co. Ltd.
-
7
ICICI Prudential
Life Insurance Co. Ltd.
ICICI Pru Sarv Jana Suraksh
ICICI Pru Anmol Bachat
8
9
10
11
12
IDBI Federal Life
Insurance Co. Ltd.
India First Life
Insurance Co. Ltd.
Kotak Mahindra
Life Insurance Co. Ltd.
PNB Met Life India
Insurance Co. Ltd.
Pramerica Life
Insurance Co. Ltd.
-
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Contemporary Issues in Banking, Insurance and Financial Services
13
SBI Life Insurance Co. Ltd.
Shriram Life
Insurance Co. Ltd.
TATA AIA Life
Insurance Co. Ltd.
14
15
Life Insurance
Corporation of India
16
Sampoorna Suraksha
SBI Life Shakti
SBI Life Grameen Super
Suraksha
Shriram Jana Sahay
Shriram Life Sujana
SBI Life - Grameen Bima
Shriram Grameena Suraksha
Micro Insurance Saat Saath
-
LIC'S BHAGYA LAKSHMI
LIC'S New Jeevan Mangal
LIC'S MICRO BACHAT
LIC's One Year Renewable Group
Micro Term Assurance Plan
Source: IRDAI Annual Report 2019-20
TABLE 2: MICROINSURANCE BUSINESS IN LIFE INSURANCE SECTOR (2019-20)
Individual New Business
Insurer
LIC
Group New Business
Policies
(lakh)
Premium
(₹ Crore)
Lives Covered
(Lakh)
Premium (₹Crore)
8.59
222.09
57.96
34.55
Private Sector
1.69
4.57
1349.33
Total
10.28
226.66
1407.29
Note: New business premium includes first year premium and single premium.
Source: IRDAI, Annual Report 2019-20
4391.90
4426.45
Table 2 shows the state of individual new business and group new business in the life insurance sector. It
indicates that the total individual new business under the micro insurance segment is 10.28 lakh new policies
out of which LIC alone has 8.59 lakh policies with a premium of ₹222.09 crore premium and the remaining
1.69 lakh policies with ₹ 4.57 crore premium belongs to the private sector. It shows LIC has a significant
share in the individual new business. Under the group new business LIC covered 57.96 lakh lives with a
premium of ₹34.55 crore, whereas private sector contributed a premium of ₹4391.90 crore with 1349.33 lakh
lives covered. The analysis shows that in the group new business private sector contributed a lot.
TABLE 3: MICRO INSURANCE AGENTS OF LIFE INSURERS
Agents
LIC
Private sector
Number
%
Number
%
NGO’s
6,504
31.11
111
SHG’s
336
1.61
MFI’s
295
BC’s
Total
Number
%
0.16
6,615
7.30
17
0.02
353
0.39
1.41
27
0.04
322
0.36
101
0.48
32
.05
133
0.15
Other MI Agents
13,671
65.39
69,480
99.73
83,151
91.80
Total
20,907
100
69,667
100
90,574
100
Source: IRDAI Annual Report 2019-20
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Contemporary Issues in Banking, Insurance and Financial Services
Table 3 presents the status of the micro insurance agents of life insurer. This table indicates that out of total
90,574 agents LIC pertains 20,907 (23.08%) agents while the private sector has 69,667 (76.92%) agents as on
31st March 2020. Within LIC Other MI agents having the highest number of agents i.e., 13,671 (65.39%)
followed by NGOs with 6,504 (31.11%) and Business Correspondents is at the bottom with 101 (.48%)
agents. With regard to the highest number of agents Other MI agents also dominate in private sector with
69,480 (99.73%) agents followed by NGOs with 111 (.16%) agents and Self-Help Groups having with only
17 (.02%) agents which is the lowest number in the private sector. Micro Insurance agents of life insurance
industry, Other MI agents forms the highest number with 91.80% followed by NGOs with 7.30%, whereas
Business Correspondents forms only 0.15% of the micro insurance agents of Life Insurance industry. The
Micro Insurance Agents of Life Insurers are further depicted by the following figure 1 and 2 of LIC and
Private sector respectively.
LIC
65.39
70
60
50
31.11
40
30
20
1.61
10
1.41
0.48
0
NGO’s
SHG’s
MFI’s
BC’s
Other MI Agents
Figure 1
Private Sector
99.73
100
80
60
40
20
0.16
0.02
0.04
0.05
0
NGO’s
SHG’s
MFI’s
209
BC’s
Other MI Agents
Contemporary Issues in Banking, Insurance and Financial Services
Figure 2
TABLE 4: NEW BUSINESS UNDER MICRO INSURANCE PORTFOLIO IN LIFE INSURANCE
Sector-wise New Business
Individual
Insurer
Group
No. of Schemes
Premium
(₹Crore)
Live
Covered
(Lakh)
222.09
(97.98)
1
(0.13)
34.55
(0.78)
57.96
(4.12)
1.69
(16.44)
4.57
(2.02)
762
(99.87)
4391.9
(99.22)
1349.33
(95.88)
10.28
(100.00)
226.66
(100.0)
763
(100.0)
4426.45
(100.0)
1407.29
(100.0)
No. of Policies
(Lakh)
Premium
(₹Crore)
LIC
8.59
(83.56)
Private Sector
Total
Source: IRDAI Annual Report 2019-20
Note. Figures in brackets are percentage to total
Table 4 indicates that in terms of individual micro insurance policies issued, public sector is leading with a
significant amount with 8.59 lakh policies and ₹222.09 crore premium whereas private sector has only 1.69
lakh policies with ₹4.57 crore premium. The private sector has just 16.44 % of the total individual policies
issued with .02% premium of individual micro insurance policies. In case of the group micro insurance the
private sector has covered 1349.33 lakh lives with a premium of ₹ 4391.90 crore as compared to public sector
(LIC) which has covered only 57.96 (4.12%) lakh lives with ₹ 34.55 crore (0.78%) premium. In micro
individual insurance LIC has issued 83.56 % of the policies with 98 % premium. But in the group micro
insurance the private sector has dominated around 96% lives covered with approximately 99% premium. The
private sector apparently holds most of the business in terms of the lives covered and the premium received in
case of the group micro insurance.
TABLE: 5 GENERAL INSURANCE POLICIES ISSUED BY MICRO INSURANCE AGENTS
Private
Public
58,980
74,424
Note: Does not include Micro Insurance Policies issued by SAHI insurers.
Source: IRDAI Annual Report 2019-20
Total
1,33,404
Table 5 depicts number of general insurance policies issued by micro insurance agents in the year 2019-20.
The table shows that out of total 1,33,404 policies the public sector insurers issued 74,424 policies whereas
private sector contributed the rest.
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Contemporary Issues in Banking, Insurance and Financial Services
TABLE 6: MICRO INSURANCE BUSINESS IN GENERAL INSURANCE SECTOR
Policies
Gross Direct Premium
Insurer
Number
3,07,592
Public Sector
Private Sector
1,10,737
(excluding SAHI)
Specialized Insurer
18,080
Total
4,36,409
Source: IRDAI Annual Report 2019-20
%
70.48
(₹ crore)
1.35
%
06.35
25.38
19.62
92.24
4.14
100
0.30
21.27
1.41
100
The table 6 shows the number of policies issued and gross direct premium of the public, private sector and
specialized insurer in the general insurance sector. The table indicates that the public sector insurer has issued
3,07,592 policies followed by private sector insurer. The above table also indicates that the gross direct
premium of the private sector insurer is ₹19.62 (92.24%) crore out of total premium of ₹ 21.27 crore premium
which is the highest among the insurers. The private sector has shown the significant share in total premium
whereas specialized Insurer has the gross direct premium of ₹ .30 crore. While public sector insurers have
issued about 70.48% of insurance policies and collected only 06.35% premium in the micro-insurance sector
in 2019-20, private sector insurers excluding SAHI collected 92.24 % of the total premium on 25.38%
policies under micro insurance segment. Policies issued and gross direct premium in micro insurance business
by the various insurers is further shown by the following figure 3 and 4 respectively.
Policies
Gross Direct Premium
4.14
1.416.35
25.38
70.48
92.24
Public Sector
Public Sector
Private Sector (excluding SAHI)
Private Sector (excluding SAHI)
Specialized Insurer
Specialized Insurer
Figure 3Figure 4
CONCLUSION
The above analysis has revealed that total individual new business under the micro insurance segment is
10.28 lakh new policies out of which LIC alone has 8.59 lakh policies with a premium of ₹222.09 crore that
shows LIC has a significant share in the individual new business. Micro Insurance agents of life insurance
industry, Other MI agents forms the highest number with 91.80% followed by NGOs with 7.30%, whereas
Business Correspondents forms only 0.15% of the micro insurance agents of Life insurance industry. In the
group micro insurance, the private sector has dominated around 96% lives covered with approximately 99%
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Contemporary Issues in Banking, Insurance and Financial Services
premium. The private sector apparently holds most of the business in terms of the lives covered and the
premium received in case of the group micro insurance. The study also indicates that the private sector has
contributed the significant share in total premium whereas specialized Insurer has the least contribution.
LIC apparently owns most of the new individual business both in terms of policies and premiums. However,
in terms of lives covered, the private sector dominated. With regard to the distribution of the micro insurance
products, private sector insurers depend entirely on other micro insurance agents to market their micro
insurance products. While the public sector also follows the same path with other leading micro insurance
agents, furthermore, NGOs hold a significant stake in the business i.e. public as well as private sector.
Pal Subhabaha at el. (2017) found that the public non-life insurance companies will touch earning 1Lakh
Crore INR premium revenue by 2022-2023. The non-life insurance sector (both public and private together)
will be fetching 2 Lakh Crore INR as premium revenue from 2024 FY giving huge boost to the economy. As
revealed from the forecasted results, the public insurance companies will become more economic in terms of
operations and will maintain around 110 is combined ratio value in the coming years which will be a very
good achievement for them. Private non-life insurance companies will maintain the combined ratio at around
102 due to their optimized operational capabilities.
The impact of COVID-19 has been felt both at the individual and organizational level. The pandemic has
triggered a psychosis of fear that prompts people to buy life insurance products. This conscious shift in
consumer mindset has put in place the building blocks for better insurance penetration. While the
insurance industry, like all other industries, has suffered a severe blow during this pandemic, the future
outlook for the industry looks bright. The sector as a whole is believed to improve as the global economy
stabilizes.
REFERENCES








Bodla Sumit; Deepak Tandon and Bodla, B. S. (2017). Profitability Performance of Life Insurance
Companies – A Study in Indian Context. International Journal of Computing and Business Research
(IJCBR), Volume 7, Issue 3, pp. 1-28.
Farooqui, F. (2013). Role of micro finance institutions in micro insurance. Global Journal of Management and
Business Studies, 3(5), 535-540.
Geetha, D., & Vijayalakshmi, S. (2014). A study on the behavior of micro (life) insurance policy holders with
reference to Coimbatore. India Research Journal of Recent Sciences, 3, 87-94.
IRDAI Annual Report 2019-20.
Jayakumar A. and Almeida S. M. (2018). Erudition and Role of Micro Insurance in India. International
Journal of Research and Analytical Review, Vol. 5, Issue 4, pp 893-897.
Paramasivan, C., & Rajaram, S. (2016). Micro insurance a conceptual analysis. International Journal of
Recent Scientific Research, 7(5), 1-3.
Subhabaha Pal; Kaushik Bhattacharjee and Satyabrata Pal (2017). Forecasting performance of Indian non-life
insurance industry – an analysis of underwriting experience of public and private insurance companies. Asian
Journal of Empirical Research, Vol 7, Issue 1, pp. 10-18.
Priti Bakshi (2016). Review of Progress and Potential of Micro insurance in India. International Journal of
Advanced Research, Vol 4, Issue 4, pp 1669-1675.
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Contemporary Issues in Banking, Insurance and Financial Services



Renu Bala (2019). Micro-insurance in India: Role of public and private insurers. IAHRW International
Journal of Social Sciences Review, 7(4), pp 795-798.
Varshini, A.V., & Suresh, B.H. (2013). A study on performance of life micro insurance in Mysore City.
Indian Journal of Commerce and Management Studies, 4(3), 40-45.
Vinayagamoorthy, A., Sankar, C., & Sangeetha, M. (2012). A study on micro insurance in India.
Contemporary Commerce Review, 1(1), 56-63.
213
Contemporary Issues in Banking, Insurance and Financial Services
A Study on Employee Attrition and Retention Strategies of Sales
Departments of Indian Private Life Insurance Companies
Dr ANIL CHANDHOK, Professor, University School of Business,
Chandigarh University; E-mail: anilchandhok@rediffmail.com
ABSTRACT
Insurance sector is a human intensive industry and the role of human resource is very crucial in the overall
growth of an insurance industry. In today’s cut throat competition, a consistent increase in the rate of
employee attrition is identified as a growing critical issue among the Indian life insurance service providers.
The present paper is the outcome of a descriptive study that was conducted in the city of Chandigarh to find
out the causes of attrition and suggests the useful measures for employee retention. A survey was done on 85
employees of Sales department of private Life Insurance Companies in Chandigarh city. A problem of
employee turnover mounting particularly at the lower level, most of the employees are satisfied with the
company policies, work-culture but still improvement is required in some of the HR domain like performance
appraisal, Job design, perks and benefits, The paper concludes that human resource is the most valuable asset
and success of any organization ultimately depends on how efficient and effective its manpower is.
--------------------------------------------------------------------------------------------------------------------INTRODUCTION
Many Indian companies are facing challenges in attracting and retaining talent with a high attrition rate. It is
a fact that employer will prefer to continue the employment of an employee if the employee is contributing
more to the company than his individual CTC. In case of Private Life Insurance, the companies are employing
people so that the policies can be sold by the employees to their respective reference group may be because of
their family relations or because of social relations. The terms of employment is based on achieving the
quarterly targets. As the employers have wide choice for the selection of their employees in the Sales
Department, there is high attrition rate as Management gives more preference to the productivity and
performance of business.
Employee attrition is the reduction in the number of employees through retirement, resignation or death. The
high attrition rates significantly increase the investments that are made on the employees. Attrition rate can be
defined as the rate of shrinkage in size or number of the workforce of an organization. Attrition rates can be
calculated using a simple formula: Attrition = (No. of employees who left during the year /average employees
in the year) x 100
MAJOR CAUSES OF EMPLOYEE ATTRITION:
Job Satisfaction- The problem of attrition or job quitting is high among dissatisfied employee and
dissatisfaction may be due to either intrinsic or extrinsic factors or both.
Work Environment: A good working environment has a more favorable impact and thus brings reduction in
the number of employee turnover whereas poor working condition declines employee productivity and
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Contemporary Issues in Banking, Insurance and Financial Services
satisfaction level which in turn become the cause for attrition. Job security is an important factor in employee
retention. The rate of attrition is high generally in less secured job.
Work Pressure: High work pressure and higher expectations of the employers compel many employees to
look for other option. Hence, high level of work stress may cause a high rate of attrition.
Nature of Job: The extent to which the job provides an individual with the interesting task or opportunities for
learning and the chance of accepting the responsibilities. Many studies reveal that less interesting- repetitive
and monotonous job, results serious job dissatisfaction and force employees to look for other opportunities.
Career Growth Opportunity: Growth and development are the integral part of every individual’s career. If an
employee can not foresee his path of career development in his current organization, there are chances that
he/she’ll leave the organization as soon as he/she gets better opportunity.
Following are some of the strategies to mitigate attrition rate: Hiring individuals who are truly fit to succeed in the position for hire will dramatically increase the chances
of that employee being satisfied with his or her work, and will continue with the company for longer duration
of time. Employees should not only be selected on the basis of communication skills and educational
qualifications.
Communication of employee’s roles, job description and the responsibilities within the organization, new
policies will help to retain employees.
Participative Decision Making- It is incredibly important to include employees in the decision making
process, especially when decisions are related to employees. This can help to generate new ideas and
perspectives that top management might never have thought of.
Sharing of Knowledge with Others- Allow the members to share their knowledge with others. This helps in
retention of information. This also lets a team member know that he is a valuable member of the organization.
Similarly, facilitating knowledge sharing through an employee mentoring program can be equally beneficial.
Pay Package- Any employee wants to be appropriately paid and fairly for the work he or she does. For this,
conduct a research to find out the pay package in other similar type of organizations at regional as well as at
national levels.
Balance Work & Personal Life- No doubt family is exceptionally important to employees. When work begins
to put pressure on one family, no pay package will keep an employee in the organization. Therefore, there
should be a balance between work and personal life. Small gestures like allowing an employee to take an
extended lunch once a week to watch his son’s cricket game will result in loyalty and helps to retain the
employee.
Organizational Culture- Try to select the candidates who believe in the organization culture and adopt with
ease to organization culture.
Exit Interview with the employees who are leaving the organization will help the organization to find out the
reasons why the employees are leaving the organization. This will also help to find out any drawbacks in the
organization.
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Contemporary Issues in Banking, Insurance and Financial Services
Socio-Economic Profile of the respondents:
Out of 85 respondents, 76 respondents were male and 09 respondents were female.
36 respondents belonged to the age group of 21-30 years, 21 respondents belonged to 31-40 years age group,
17 respondents belonged to 41-50 years age group,11 respondents belonged to above 50 years age group.
Regarding the educational qualifications 34 of the respondents had Grade 12 or lower, 22 were certificate or
diploma, 29 were graduates and post graduates. Only 22 of the respondents had monthly income of below
Rs.20,000, 26 were in the income category of Rs.20,001-30,000, 20 were in the income category of Rs.3
0,001-40,000, 17 were in the income category of above Rs.4 0,000.
17 respondents were Below 5 years of experience, 31 respondents were 5-10 years of experience, 25
respondents were 11-15 years of experience and 14 respondents were above 15 years of experience. Out of
the respondents 50 were in lower level category, 22 were in middle management and the remaining 13 were in
top management cadre level in their respective organisations.
Retention Practices Followed by Leading Private Life Insurance Companies:
Employee retention is a process in which the employees are encouraged to remain with the organization for
the maximum period of time. Some suggestions have given below to deal with employees’ attrition
particularly at the lower level are:
Appreciating and recognizing the performing employees
Providing adequate salary and other perks to keep employee motivated and satisfied
Occupational stress relives through implementing WLB strategy
Employee support, greater work autonomy and encouragement to participate in decisionmaking.
Maintain interaction; never stop listening
Hire the right employee from the beginning.
An Employee Stock Option Scheme is being introduced as a part of retention strategy etc.
In-house induction training system to be practiced to train the new employees
Suggestions:
Proper communication within the organization
By offering attractive and competitive pay to the potential workforce.
By offering excellent career opportunities within the organization
By harmonious Industrial relationship between employer & employee.
Top management should made efforts for strengthening HR department.
To facilitate healthy work culture in order to prevent job satisfaction.
Proper implementation of stress coping measures within the organization like counseling, meditation
HR manager should give more attention to retain star performer employee
Right recruitment and selection of employees for consistent growth of the company
CONCLUSION:
As the growth trends firm up in job market, India is set to witness highest attrition rate in the world. Human
Resource is the most important resource and mounting rate of attrition is a biggest challenge particularly in
216
Contemporary Issues in Banking, Insurance and Financial Services
life insurance companies. Employee turnover has far reaching negative impacts on an organization in terms of
its goodwill, competency, profit and level of performance. Quality manpower and its retention is one of the
major determining factors in the organization success. Therefore private insurance service providers need to
implement effective employee retention strategies which can successfully retain the employees for longer
duration. Hiring from each other is a common practice amongst insurance companies. Employees, especially
in middle and junior levels of the sales function, tend to move amongst insurance companies. The high
attrition rate affects the productivity of the organisation if more employees will leave the organisation, the
more it is a drain on the company’s resources like recruitment expenses, training and orientation resources
and also the time factor. The high attrition impacts the company’s resource negatively. The organisations
must provide better career opportunities and suitable work environment to retain the talents in their
organisation.
REFERENCES:




Ashwathapa K (2014). Human Resource Management, Tata Mc Graw Hill Publication Company Ltd., Fifth
edition.
Shilpa Jain and Deepika Arora (2015). Attrition among life insurance advisors of selected life insurance
companies in Ludhiana. International Journal of Research in Commerce & Management, Vol. 1 (7), pp. 142143.
Subhash C. Kundu & Divya Malhan (2016). HRM Practices in Insurance Companies. Mmanaging global
transition Journal, Vol. 7 (2), pp. 192-195.
Singh Anita (2017). Job Satisfaction in Insurance Sector: An Empirical Investigation. International Journal of
Engineering and Management Science, I.J.E.M.S., VOL.3 (4) 2017: 425-432 ISSN 2229-600X, p. 425-432.
217
Contemporary Issues in Banking, Insurance and Financial Services
Insurance Repository System in Insurance : A Step Towards
Digitalization
Dr. Sunil Kadyan, Assistant Professor
Amity School of Insurance, Banking and Actuarial Science (ASIBAS),
Amity University, Uttar Pradesh, Noida, UP India
E mail: drsunilkadyan@gmail.com
Abstract
The growth of insurance sector is crucial for the country’s economic development. India serves as a huge
market due to its significant untapped potential. The focus on the customer oriented business model will drive
Insurance companies in embracing the emerging technologies. Due to the data-intensive nature of the
industry, primarily because it involves collection, processing and maintaining of information relating to
insurance policies, IT will continue to act as a critical enabler. With over 370 million policyholders, in terms
of spread, insurance products perhaps come second only to banking accounts. The Insurance Repository
system was formally launched on 16th September 2013 for providing a facility to keep insurance policies in
electronic form and dematerialising the existing policies into electronic form. The repository service has the
potential to touch and elevate the experience of the widely spread, divergent population of policyholders.
Repository licenses were awarded to four entities with a national presence in public service. Policyholders can
buy, hold and maintain insurance policies electronically in a single e-insurance account with any one of the
repositories. This facilitates many advantages to both policy holders and insurers.
The present paper focuses on the benefits of electronic insurance Account (eIA) and Insurance Repository for
customers and Indian Insurers. It will further highlight the issues and challenges for Insurance Repositories in
India.
Keywords: Insurance Repository, Insurance Sector, Electronic Insurance Account (eIA), Dematerialise,
Technology.
INTRODUCTION
Previously, insurance policies were issued in physical mode only, irrespective of whether a policyholder
submits a proposal in physical form or online. Further, the policyholder was required to go to the respective
Insurer’s office for all the policy servicing needs. Owing to this, the entire process was cumbersome, time
consuming and involving incidental expenses. Since all the policies were issued in physical form and not
usually collated at a single location, the matter got even more complicated on untimely demise of the
policyholder. The dependents normally had hard time in identifying all the insurance policies and making
claims with various insurance companies. In order to overcome this difficulty and to collate and keep a safe
custody of all the insurance policies of an individual at a single location, dematerialization of insurance
policies is conceived. The insurance policies including the existing ones can be converted in an electronic
form and held with an ‘Insurance Repository’.
OBJECTIVES AND RESEARCH METHODOLOGY OF THE STUDY
The study is based on secondary data which is collected from the published reports of Insurance Regulatory
Development Authority (IRDA), Insurance Repositories, journals, websites, etc. The study was planned with
the following objectives:
218
Contemporary Issues in Banking, Insurance and Financial Services
1) To present the current insurance scenario in India
2) To highlight the Insurance Repository Eco System
3) To highlight the benefits and challenges of Insurance Repository in India
INSURANCE SECTOR IN INDIA
As indicated in table 1, India was ranked 10th among the 88 countries with a market share of 2.73 per cent in
the global life insurance market during 2019, for which data is published by Swiss Re. India was ranked 15 th
in global non-life insurance markets with a share of 0.79 per cent.
TABLE 1: RANK AND MARKET SHARE OF INDIA IN INSURANCE IN 2019
India
Life
Non-Life
Rank
10
15
Market Share
2.73 %
0.79 %
Source: Swiss Re, Sigma No. 4/2020
During 2019, the life insurance premium in India increased by 9.63 per cent (7.30 per cent inflation adjusted
real growth) when global life insurance premium increased by 1.18 per cent (2.20 per cent inflation adjusted
real growth).
TABLE 2: TOTAL REAL PREMIUM GROWTH RATE IN 2019 (in per cent)
Regions/Countries
Life
Non-Life
Total
Advanced countries
1.3
2.7
2.1
Emerging markets
Asia
India
World
Source: Swiss Re, Sigma No. 4/2020
5,6
2.6
7.3
2.2
7.7
7.6
5.7
3.5
6.6
4.4
6.9
2.9
The measure of insurance penetration and density reflects the level of development of insurance sector in a
country. While insurance penetration is measured as the percentage of insurance premium to GDP, insurance
density is calculated as the ratio of premium to population (per capita premium).
TABLE 3: INSURANCE PENETRATION AND DENSITY IN INDIA
Year
Life
Non-Life
Total
Density
Penetration
Density
Penetration
Density
(USD)
(percentage)
(USD)
(percentage)
(USD)
2016
46.50
2.72
13.20
0.77
59.70
2017
55
2.76
18
0.93
73
2018
55
2.74
19
0.97
74
2019
58
2.82
19
0.94
78
Note: 1. Insurance density is measured as ratio of premium (in USD) to total population.
2. Insurance penetration is measured as ratio of premium (in USD) to GDP (in USD).
Source: Swiss Re, Sigma, Various Issues.
219
Penetration
(percentage)
3.49
3.69
3.70
3.76
Contemporary Issues in Banking, Insurance and Financial Services
Table 3 indicates that the insurance density of life insurance business had gone up from USD 9.1 in 2001 to
reach the peak at USD 58 in 2019. Density in non-life has gone up from USD 2.4 in 2001 to USD 78 in 2019.
During the first decade of insurance sector liberalization, the sector has reported increase in insurance
penetration from 2.71 per cent in 2001 to 5.20 per cent in 2009. Since then the level of penetration was
declining and reached 3.30 per cent in 2014. However, the insurance penetration started again increasing from
2015 and in 2019, penetration was 3.76 per cent. The level of insurance density has reported consistent
increase from USD 11.5 in 2001 to USD 64.4 in the year 2010. Since then the level of density was declining
up to 2016. But, it started increasing from 2017 and in the year 2019, the insurance density was USD 78. The
penetration of non-life insurance sector in the country has gone up from 0.56 per cent in 2001 to 0.94 per cent
in 2019. Non-life insurance density has gone up from USD 2.4 in 2001 to USD 19 in 2019.
At the end of March 2020, there are 68 insurers operating in India; of which 24 are life insurers, 27 are
general insurers, 6 are standalone health insurers and 11 are re-insurers including foreign reinsurers branches
and Lloyd’s India. Of the 68 insurers presently in operation, eight are in the public sector and the remaining
60 are in the private sector. Two specialized insurers, namely ECGC and AIC, one life insurer namely LIC of
India (LIC), four in general insurance and one in reinsurance namely GIC Re are in public sector. In private
sector, there are 23 life insurers, 21 general insurers, six standalone health insurers and 10 reinsurers including
foreign reinsurers’ branches and Lloyd’s India.
TABLE 4: REGISTERED INSURERS IN INDIA (As on 31st March 2020)
Type of business
Public Sector
Private Sector
Total
Life Insurance
1
23
24
Non-life Insurance
6*
21+6*
27+6**
Reinsurance
1
10
11
Total
8
60
68
* Includes Specialised insurance companies – ECGC and AIC.
** Includes six Standalone Health Insurance Companies - Star Health & Allied Insurance Co., Apollo Munich
Health Insurance Co., Max Bupa Health Insurance Co., Religare Health Insurance Co. and Cigna TTK Health
Insurance Co., Aditya Birla health Insurance
Source: IRDAI Website
During 2019-20, life insurers issued 288.47 lakh new policies as compared to 286.48 lakh in the previous year
2018-19. The non-life insurers underwrote 24.15.09 lakh policies in financial year 2019-20 against 1911.78
lakh policies underwritten in financial year 2018-19 (table 5).
TABLE 5: NEW POLICIES ISSUED: LIFE & NON-LIFE INSURERS(₹ lakh)
Type of business
2018-19
2019-20
Life Insurance
286.48
288.47
Non-life Insurance
1911.78
2415.09
Total
2198.26
Source: IRDAI Annual Report 2019-20
2703.56
INSURANCE REPOSITORY (IR)
220
Contemporary Issues in Banking, Insurance and Financial Services
As per Insurance Regulatory Development Authority of India (IRDAI), “Insurance Repository” or “IR”
means a company formed and registered under the Companies Act, 2013 or other entity and which has been
granted a certificate of registration by IRDAI.
The Insurance Repository System is an initiative of the IRDAI to de-materialise insurance policies. To
achieve this objective, IRDAI issued the guidelines on Insurance Repositories and electronic issuance of
insurance policies in April, 2011. The Authority granted certificates of registration to five entities to act as
Insurance Repositories. The Insurance Repository system was formally launched on 16th September 2013.
However, due to various reasons, the full benefit of this electronic platform was not realized. In order to
leverage this electronic platform to the benefit of all stakeholders, Pilot implementation Scheme was launched
on June 2014. Subsequently in May, 2015, the Authority has issued the “Revised Guidelines on Insurance
Repositories and electronic issuance of Insurance policies”. As per the Annual Report 2019-20, there are total
56.78 lakh eIA accounts and a total of 56.39 lakh policies were already converted into electronic mode. Right
now, there are four insurance repository working in India.
TABLE 6: INSURANCE REPOSITORIES APPROVED BY THE AUTHORITY
(As on March, 2020)
S.no Number
Name of the Insurance Repository
1
NSDL National Insurance Repository
2
CDSL Insurance Repository Limited
3
Karvi Insurance Repository Limited
4
CAMS Repository Services Limited
Source: IRDAI Website
OBJECTIVE AND UTILIZATION OF INSURANCE REPOSITORY SYSTEM
The objective of creating an insurance repository is to provide policyholders a facility to keep insurance
policies in electronic form and to undertake changes, modifications and revisions in the insurance policy with
speed and accuracy in order to bring about efficiency, transparency and cost reduction in the issuance and
maintenance of insurance policies.
A policy holder can buy and keep all the policies under an electronic Insurance Account (eIA) with any one of
the Insurance Repository of his/ her choice. The existing policies in physical mode too can be dematerialized
and held in the eIA. The access to all the policies is then available at a click of a button. The Insurance
Repository System not only provides policyholders a facility to keep insurance policies in electronic form but
also enables them to undertake changes, modifications and revisions in the insurance policies with speed and
accuracy. In addition, the Repository acts as a ‘single stop shop’ for policy servicing.
ELIGIBILITY NORMS FOR SETTING UP AN INSURANCE REPOSITORY
(a) The Authority shall not consider an application for insurance repository, unless the applicant belongs to one of
the following categories, namely:221
Contemporary Issues in Banking, Insurance and Financial Services
i)
ii)
iii)
iv)
v)
vi)
vii)
(b)
(c)
(d)
(e)
(f)
(g)
a public limited company registered under the Companies Act, 2013with a minimum share capital of Rs 5
lakhs;
a public financial institution as defined in section 4A of the Companies Act, 2013;
a wholly owned subsidiary of an existing depository registered with Securities and Exchange Board of India
under the Depositories Act, 1996
a company fully promoted by either life insurance council or general insurance council or by both together or
jointly with any of the above.
A Strategic Business Unit (SBU) of the eligible institutions listed (i) to (iv)above shall also be eligible to
make an application for registration. However, within a period of two months from the grant of registration,
the applicant shall convert itself into a company registered under Companies Act, 2013.
Further, an Insurance Repository that is granted “Certificate of Registration” and is still an SBU at the time of
notification of these guidelinesshall be required to convert itself into a Company registered under Companies
Act, 2013within two months from the date of these guidelines to continue as an “Insurance Repository”.
The applicants above shall have the words “insurance repository” in its name to reflect the line of activity it
shall undertake.
Further, an Insurance Repository that is granted “Certificate of Registration” and still does not have the words
“insurance repository” in its name shall be required to incorporate them within two months from the date of
these guidelines to continue as an “Insurance Repository”.
any other institution as may be permitted by the Authority
One of the main objects of the company shall be to act as an insurance repository of “e-insurance policies”
issued by insurers and to undertake changes, modifications and revisions in such e-insurance policies as may
be authorised by the Insurers based on requests by the policyholders.
The Net Worth of the applicant, on grant of in-principle approval by the Authority, shall be at least Rs 25
Crores.
The applicant or its promoters shall have demonstrable competence and experience of similar activities,
volumes and technology.
The applicant or its promoters shall have proven financial and organizational strength to undertake and
execute the project.
The applicant shall have no foreign direct investment.
The applicant or its promoters shall have no conflict of interest with insurance business at the time of the
registration and at all times thereafter. No insurance company shall hold more than 10% of the paid-up capital
of the applicant company/IR or hold managerial, executive, directorial, advisory or any other position whether
permanent or temporary in the IR.
TABLE 6: FEE STRUCTURE & PERIODICITY OF RENEWAL FOR INSURANCE
REPOSITORIES
₹ 10000
Processing Fee
₹ 100000
Registration Fee
₹ 50000
Renewal Fee
3 Years
Periodicity of Renewal
Note: In addition service tax as per prevailing rate will be levied on the applicable fee amount.
Source: IRDAI Annual report 2019-20
ELECTRONIC ISSUANCE OF INSURANCE POLICIES:
222
Contemporary Issues in Banking, Insurance and Financial Services
(i) Every insurer shall issue electronic insurance policies that fulfill the criteria given in Table 7 in terms of Sum
Assured or Premium.
(ii) Electronic insurance policies may be issued by the Insurers either directly to the policyholders or through the
registered Insurance Repositories.
(iii) All policies issued in electronic form by the Insurer directly to the policyholder shall also be issued in
physical form. In all such cases, copies of the proposal form, etc shall also be sent in physical form : Provided
that the Authority, on being satisfied that it is in the interests of policyholders and for orderly growth of
Insurance Industry, exempts such issuance in physical form:
Provided further that such exemptions may stipulate conditions specified to be fulfilled by the Insurer.
(iv) Physical version of the electronic insurance policies need not be issued when electronic insurance policies are
issued through the platform of registered Insurance Repositories. Similarly, copies of the proposal form etc
may also be sent in electronic form to the insured along-with electronic insurance policies.
TABLE 7: CRITERIA FOR ISSUANCE OF E POLICY
Line of Business
Sum Insured* (equal to
Single/Annual
or
Premium*
exceeding) (in Rs.)
(equal to or exceeding)
Pure term (excluding term with ROP)**
10,00,000/10,000/Other than Pure term (including term with
1,00,000/10,000/ROP)**
Pension policies
NA
10,000/Immediate Annuities
(Pension p.a.)
All retail General Insurance policies except
Motor
Individual Health
NA
10,000/-
10,00,000/-
5,000/-
5,00,000/-
10,000/-
Motor Retail
All policies
All policies
Individual Personal Accident
10,00,000/5,000/& Domestic Travel
Miscellaneous
Individual Travel Insurance
All Policies
(Overseas)
* Electronic policy shall be issued if either the Sum Insured or Annual Premium criteria is met
** Micro-insurance policies are exempted
Source: IRDAI (Issuance of e-Insurance Policies) Regulations, 2016
(v) The electronic insurance policies not exempt by the Authority as stipulated at (iii) above shall, if issued only
in electronic form, be only through the registered Insurance repositories.
(vi) Electronic Insurance Policies shall be deemed compliant only when issued with digital signature in
accordance with applicable provisions prescribed by law.
(vii)
The physical form of the electronic Insurance Policy referred in (iii) above shall be a replica of the
electronic form.
(viii)
For the issue of electronic insurance policies, the operational framework would be as specified by the
Authority under the guidelines on Insurance repositories and electronic issuance of insurance policies issued
in this behalf.
223
Contemporary Issues in Banking, Insurance and Financial Services
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
BENEFITS OF INSURANCE REPOSITORY
Promoting efficiency in the conduct of insurance business: There will be less use of paper and the records
will be maintained in electronic forms which will reduce the cost of issuing and maintaining insurance
policies.
Less Paper work and savings in time: An e-Insurance Account holder is free from the trouble of submitting
KYC details each time a new policy is taken. Further, any changes in personal details like address or contact
number can be affected through a single request thus saving on paper and time.
Potentially Reduced Premium: An insurer may offer discount in the premium rates to the policyholders for
electronic insurance policies in accordance with the rates filed under the Product Approval guidelines.
Convenience: All Insurance policies, be it life, pension, health or general, can be electronically held under a
single e-Insurance Account. This means all details of all policies are available in a single account (place). The
details of any of the policies can be accessed at any time by logging on to the online portal of Insurance
Repository.
Single Point of Service: Service requests in respect of e-Insurance Account or any of the electronic policy
can be submitted at any of Insurance Repository’s service points. A single request can sometimes cater to the
requirements of several Insurers. As an illustration, a single change of address request made to the Insurance
Repository can update the policies issued by multiple Insurers. There would be no need to go to several
offices of individual Insurers for service.
Safety: There is no risk of loss or damage of a policy as is common with paper policies; the electronic form
ensures that the policies are in safe custody and can be easily accessed whenever and wherever needed. A
copy of the policy can be downloaded at any time by accessing the e-Insurance Account.
Online payment of Premiums: The Insurance Repositories provide facility for online payment of premiums
by the policyholders’ and payouts (claims) by the Insurers and handle several other servicing needs
Statement of Account: At least once every year, the Insurance Repository would send a statement of account
to the e-Insurance Account holder with the details of the policies of the account holder.
Increased number of service touch points: Since, the Insurance Repositories function in addition to the
Insurers, the policyholders will have increased number of touch points for having their servicing needs
attended.
Single view to an authorized person: The dependents in case of a death normally had hard time in
identifying all the insurance policies and making claims with various insurance companies. Single view of all
policies will be made available to an authorized person in case of death of the e-Insurance Account holder.
Mandatory issuance of e-insurance policies in disaster prone and other vulnerable areas: Every insurer
shall mandatorily issue e-insurance policies in disaster prone and vulnerable areas so specified by the
Authority.
CHALLENGES FOR INSURANCE REPOSITORY IN INDIA
Every new business concept faces some challenges which need to be to converted into opportunities for
having a competitive edge in the market. Some of the challenges for implementation of Insurance
Repositories in India are:
1. No regulation for mandatory eIA: A regulation is required to promote insurance repositories in India which
will make it mandatory for the insurance companies to issue eIA and dematerialise insurance policies.
Another challenge for the acceptability of this regulation is the huge infrastructure requirement in terms of
availability of electronic infrastructure in rural and semi urban areas along with the digital literacy of the
224
Contemporary Issues in Banking, Insurance and Financial Services
2.
3.
4.
5.
customers. SEBI had made it mandatory for keeping the shares in Demat form for all the customers; same can
be done for Insurance policies by IRDAI.
Willingness of Insurance companies for full-fledged dematerialization of policies: Concept of Insurance
repository would not be successful without the support of Insurance companies in India. They shall come
forward and make efforts in support of insurance repository by spreading awareness to customers. Insurers
need to partner with all repositories for the success of this concept in Insurance.
Conversion of old policy holders into e-Insurance account: The challenge for insurance companies is to
convert these policies into electronic form. There is no compulsion on the policy holder to convert the policies
into e policies which make it difficult to convert these policies into e policies.
Data security: iTrex (Central Index Server) is the digital platform for insurers and insurance repositories to
look up e-Insurance Account details and e-KYC and Policy data between Insurance Repositories and
Insurance companies. Any leakage of information from the system may create new threats for the insurers as
the important information of their customers will be available to the unauthorized person.
Customers’ Awareness & Acceptability: The awareness is the biggest concern in India about Insurance
Products as well as the Insurance Repository. Customers are not accepting this concept of policy in electronic
form in some rural and semi urban area as they still believe in agency distribution channel and a hard copy of
a policy for their records. Awareness is required for clearing the myths about insurance repository.
CONCLUSION
The dematerialisation of insurance policies is certainly the future and will benefit insurance customers in
managing their policies at their convenience. It will help insurance companies in addressing issues around
contactibility, delivery of documents, managing policies and KYC norms. It will also help in checking frauds
and mis-selling cases, and increase transparency. Over time, this will also allow companies have improved
access to a wider consumer base within India and reduce operational costs significantly.
REFERENCES







Development and Maintenance of iTrex (Insurance Transaction Exchange) (August 21, 2015).Retrieved from
https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo2592&flag=1
Guidelines on Indian Owned and Controlled for Insurance Intermediaries (November 20, 2015). Retrieved from
https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo2684&flag=1
Handbook
of
Insurance
Repository
(September
20,
2013).
Retrieved
from
https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo2073&mid=9.7.5
Insurance Repository System may launch health, motor insurance by December ( August 17, 2014). Retrieved from
http://www.dnaindia.com/money/report-insurance-repository-system-may-launch-health-motor-insurance-by-december2011362
List
of
Insurance
Repositories
(September
09,
2016)
Retrieved
from
https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo2054&mid=9.7.1
Making digitized policies mandatory will give e-insurance a boost: Subbarao Mukkavilli, Karvy Insurance Repository
(November 03, 2015). Retrieved from http://economictimes.indiatimes.com/your-money/making-digitized-policiesmandatory-will-give-e-insurance-a-boost-subbarao-mukkavilli-karvy-insurancerepository/tomorrowmakersshow/49643177.cms
Revised Guidelines on Insurance Repositories and electronic issuance of Insurance policies (May 29, 2015). Retrieved
from
https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo2534&flag=1
225
Contemporary Issues in Banking, Insurance and Financial Services
Pradhan Mantri Fasal Bima Yojana (PMFBY): Analysis of Issues,
Challenges and the Way Forward
Dr. Niti Pandeya, Assistant Professor
Department: Economics, S.A. Jain (PG) College, Ambala City, Haryana
Email: niti201186@gmail.com
Abstract
Crop insurance is emerged as an indispensable aspect of farming in India and the government has been time
and again rolling out different crop insurance schemes to safeguard the farmers against crop failure and other
risks. The latest initiative in this respect is the PMFBY which was a strong and bold initiative to infuse faith
and sense of security among farmers across all the states. Though the scheme has been partially successful in
its coverage and impact, it has several issues related to structural, technical, administrative and infrastructural
dimensions. As Indian agricultural sector is dynamic in nature, there are several challenges which need to be
faced by the government in order to make this scheme a complete success. The present paper briefly discusses
the previous schemes, the coverage of PMFBY and dwells into a detailed analysis of the multidimensional
issues and challenges of PMFBY.
Key words: Crop insurance, issues, agriculture, farmers, government
Introduction
Indian agriculture is extremely sensitive to climate changes and has strong vulnerability to natural calamities
such as drought, unseasonal rains, cyclone, floods, and hailstorms. Climate extremes lead to huge losses for
the farmers and unexpected changes in climate over the period of time have led to increase in the frequency of
risks in farming. These risks and uncertainties in agriculture are further aggravated, as there is a lag between
decision-making and realising returns. Several factors are unpredictable and farmers have a little control over
them. (Shashikiran & Umesh 2015). Usually, farmers have major losses due to yield risk and price risk. A
major deviation in either the price or the output can jeopardize the interests of the farmer and can lead to
income volatility. This further leads to huge losses for the farmers and inability to recover debts as well as
problem of inadequate coverage of costs. Frequent exposure to risks makes farmer’s income less predictable
and affects their livelihood security (Birthal et al. 2015) In the absence of reliable risk coping mechanisms
farmers try to hedge/cover risks. A genuine solution to the problem of risks and uncertainties in agriculture is
“crop insurance”. It is one of the key elements to stabilise farmers by compensating for crop losses arising out
of drought, flood and other causes. It has great potential to provide value to low-income farmers and their
communities, both by protecting farmers when shocks occur and by encouraging greater investment in crops.
Policy makers have unrolled various forms of crop insurance with different policy regimes. The objective of
these schemes has been to provide insurance coverage and financial support to the farmers in the event of
failure of any of the notified crop as a result of natural calamities, pests & diseases. The crops which are
covered under the schemes has varied from time to time and from one state to the other. Indian crop insurance
schemes, to its credit, are the largest in the world in terms of farmers covered. At the same time, India also has
the largest number of uninsured farmers in the world (Singh, 2010). However, due to the unique nature of
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Contemporary Issues in Banking, Insurance and Financial Services
Indian agriculture and inequitable socio-economic status of Indian farmers, crop insurance has not delivered
as satisfactory results as expected with respect to payment of premium, farmers coverage and state wise
penetration. It has been observed that there has been abysmally low uptake of insurance products by farmers.
The latest government initiative in this regard is the introduction of PMFBY, which was launched in 2016 and
replaces all the prevailing yield insurance schemes in India. The scheme has been launched with focus on
crop sector. It has extended coverage under local agricultural risks, post-harvest damages etc. and aims at
adoption of technology for the purpose of estimation of yield. The scheme seeks to increase the crop
insurance penetration in India through increased farmer awareness and low premium rates.
Objective: The objective of this paper is to briefly analyse the coverage and impact of PMFBY in India and
to discern the different issues related to PMFBY and identify the challenges of the same.
Data and methodology
The paper is based on secondary data sources. The data for the previous insurance schemes has been obtained
from Department of Agriculture, Cooperation and Farmers Welfare, Ministry of Agriculture, India. Data
regarding the number of claims, beneficiaries, gross premium and reported claims has been obtained from the
official website of PMFBY. Some figures and tables have also been obtained from published papers of other
researchers (respective sources have been mentioned with the figures and tables.) The state-wise tentative
number of farmers insured under PMFBY is given in appendix 1.
Crop insurance in India: The journey so far
Though the risk covering aspect was initiated in 1971 with the individual approach scheme, a full-fledged
crop insurance scheme was started from 1985 with the comprehensive crop insurance scheme (CCIS).
Table 1: Crop insurance initiatives/schemes in India
S.No.
1
2
3
4
Time Frame
Initiative/Scheme
1971-1978
First individual Approach Scheme
1979-1984
Pilot Crop Insurance Scheme (PCIS)
1985-1999
Comprehensive Crop Insurance Scheme (CCIS)
Rabi 1999- 2000 to Rabi National Agricultural Insurance Scheme (NAIS)
2013-14
5
Rabi 2010-11 season
Modified National Agricultural Insurance Scheme (MNAIS)
6
2007-2008
Weather Based Crop Insurance Scheme (WBCIS)
7
2009-2010
Coconut Palm Insurance Scheme (CPIS)
8
2016
Pradhan Mantri Fasal Bima Yojana (PMFBY)
Source: Department of Agriculture, Cooperation and Farmers Welfare
Crop insurance schemes were found to be extremely tilted in favour of just few states and only the rich
farmers. Coverage of farmers by crop insurance is greater in states like Maharashtra, Madhya Pradesh and
Andhra Pradesh. Within these states too, it was mostly the large farmers who enjoyed the benefits of the
insurance schemes. Interestingly, Uttar Pradesh which has the highest farmers, has the minimum numbers of
farmer coverage by crop insurance.
Although agricultural insurance has been present in the country since more than three decades, it suffers from
operational weaknesses and it has not been able to adequately protect farmers against yield and price
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Contemporary Issues in Banking, Insurance and Financial Services
volatility. A major feature of the crop insurance programmes in India is that while it has done comparatively
well on equity grounds, the coverage and indemnity payments aspects are biased. The schemes have selective
in approach with reference to regions, states and crops. And while the emergence of weather-based insurance
as an alternative has addressed several limitations of traditional insurance, it is faced by challenges such as
low and imperfect knowledge among farmers about the technology related to it.
PMFBY: A major step for revival of crop insurance in India
PMFBY is focussed at reinforcing sustainable form of farming. This objective is aimed to be achieved by
provision of monetary support to farmers who have experienced loss or damage to crops as an outcome of
unforeseen events. The scheme also aims to focus on their continuance in farming, encouraging farmers to
adopt innovative and modern agricultural practices, enhanced knowledge of technologies related to Indian
agricultural practises and ensuring flow of credit to the agriculture sector.
Figure 1: A synoptic view of PMFBY
Source: https://vikaspedia.in/agriculture/agri-insurance/pradhan-mantri-fasal-bima-yojana
The scheme covers loanee farmers, non-loanee farmers, tenant farmers, and sharecroppers.
Regarding the coverage of crops, every state has notified crops for the Rabi and Kharif seasons. The
premium rates differ across seasons. The scheme fixes a uniform premium of 2 percent of the sum
insured, to be paid by farmers for all Kharif crops, 1.5 percent of the sum insured for all Rabi crops,
and five percent of sum insured for annual commercial and horticultural crops. This scheme operates
on an area approach and all farmers in a particular area must pay the same premium and have the
same claim payments. As for the coverage of risks, it aims to prevent sowing/planting risks, loss to
standing crop, post-harvest losses and localised calamities. The sum insured is equal to the cost of
cultivation per hectare, multiplied by the area of the notified crop proposed by the farmer for
insurance.
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Contemporary Issues in Banking, Insurance and Financial Services
Latest modifications in PMFBY: It has been decided to make enrolment 100% voluntary for all farmers
from 2020 Kharif. This entails that noy insurance companies will have to make sincere efforts to generate
awareness amount the farmers so as to attract them to enrol for this scheme. Flexibility has also been provided
to states to apply PMFBY and choose other additional risk covers such as local natural calamities, mid-season
problems and post-harvest damages. If any state fails to release their share before 31 st March for the Kharif
season and 30th September for rabi, they will not be allowed to take part in the scheme in the ensuing seasons.
PMFBY in the last five years: Progress and assessment
The scheme was allocated an initial central-government budget of INR 5,500 crore for 2016–17. It
has increased by 154 percent, as announced in the Interim Budget of 2019. This massive increase in
the outlay for the scheme shows that it is important for the government to insure all farmers and
guarantee financial support and flow of credit to them in the event of crop-yield loss.
Figure 2: Premiums received, reported and paid claims under PMFBY
During its first year, 58 million farmers were enrolled in the PMFBY, a quantum jump from the 30
million insured in the previous year under the MNAIS. However, a decrease has been noticed in the
number of total applicant farmers. The applicant farmers have reduced from 58 million in 2016 –17
to 47 million in 2017–18. While the positive effects are significant, it is important to also discuss the
negative changes. The number of insured farmers has declined by 14 percent from Kharif 2016 to
Kharif 2017, and the total area insured has decreased by 1 percent over the span of one year.
The PMFBY has therefore failed to achieve its main tar gets of increasing the area and the
number of farmers insured.
Issues with PMFBY: A multidimensional affair
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Contemporary Issues in Banking, Insurance and Financial Services
While the vision of PMFBY was to be a transformative scheme, its implementation has been weak,
with various loopholes in its execution at the state/district level. The issues related to the different
aspects of this scheme as discussed as under:
Fundamental Issues: Structural defects in the scheme









As the states chose to voluntarily implement the PMFBY, it is their responsibility to notify crops.
However, it is unclear how states should choose the major crops during a season for different
districts, which results in the exclusion from insurance coverage of farmers who grow non -notified
crops. Further, state governments use their discretionary powers to decide how much land will be
insured and the sum insured, to reduce their burden of subsidy premiums. Thus, farmers often find it
pointless to buy the insurance if the sum insured is less than their cost of cultivation.
Farmers are apprehensive about the scheme because of a trust deficit, which is a result of the
mandatory credit-linked insurance. Deduction of premium without consent of the farmer is another
issue. Loanee farmers do not have the option of opting out of this scheme and find it unjust to pa y
the premium each season receiving compensation for the damages in the previous year.
Delayed payment of premiums on the part of a bank to the insurance companies, leaving the farmer
in a lurch and inability to claim payments has emerged as another serio us problem. Farmers in many
states had to start cultivation for the next season without receiving claims of the previous season.
Lack of required documents such as an Aadhaar card has led to non -participation of non-loanee
farmers. The reason was that Maharashtra changed the rules of compulsory credit-linked insurance,
giving farmers the choice to opt out of the PMFBY. Therefore, there has been a substantial decline
in the number of farmers who have enrolled for this scheme.
Exclusion of tenants is another issue with this scheme. Leasing of agricultural land is not allowed in
Kerala and J&K, while in Bihar, Madhya Pradesh, Uttar Pradesh and Telangana have conditions on
who can lease out land, which prevents many tenant farmers from buying insurance.
With yield-protection being a top priority in this insurance scheme, it is not holistic in its approach
and fails to maintain revenue protection. Without revenue protection, farmers do not derive gains
from this scheme since, irrespective of the harvest at the e nd of the season, an unfavourable
Wholesale Price Index (WPI) for primary food articles will leave farmers under -compensated. Low
WPI of food articles will render farmers unable to even cover the investment for crop production.
There is a lack of skilled professionals to handle the CCEs, and the current technology is not that
dependable. This has led to delays in assessment and settlement of claims, further weakening the
trust in the scheme.
The PMFBY guidelines contain provisions on bidding/notification of the PMFBY by states for three
years, to allow the concerned insurance companies to create infrastructure and manpower in the
respective states. Therefore, absence of competition is also a disincentive for insurers to improve
their products and pricing.
Fiscal Issues: Problems related to claim settlements
Failure on the part of many state governments to pay the premiums on time has been a major issue
with this scheme. The claims or premiums form a dominant part of the budget of the states and are
thus seen as a liability for them. The states find it convenient to choose direct transfers or loan
waivers as better options rather than spending huge amounts on premiums.
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Contemporary Issues in Banking, Insurance and Financial Services








Nearly 80–85 percent of the premium is paid by the government, which puts pressure on the
exchequer, leading to delays in paying premiums and, in turn, delays in the claims -benefit process.
There is a lack of strong system of trust and investment to provide credit and insurance.
Around 41 percent of farmers have been covered under the scheme, since its implementation.
However, the target of coverage of at least 50 percent of farmers is still not met. Due to problems at
different levels of this scheme, the target has not been achieved and coverage of farmers is still at a
moderate level.
The assessment of damage or loss at farm level is a huge challenge which is an onerous task. It is also time
consuming and cost ineffective.
Implementation of the scheme: Issues related to administration and governance
Multiplicity of crop insurance portals such as GOI portal vs state portals and multiple tendering / delayed
tendering/ delayed notification by states leads to the problem of multiplicity.
The previous schemes were based on a model wherein the government created a fund that would
collect premiums and then use it to pay off the remaining overhead claim settlements. However, in
this model, the private sector is required to pool in large amounts of money. However, the
government can play the role of corrector of market failure under the PMFBY scheme and can later
pull back from the market as and when the condition allows so. Therefore, government has to
eventually take a backseat in the long run.
It is crucial to increase the penetration of crop insurance. Programmes for imperative awareness
related to the advantage of crop insurance should be structured and made accessible to farmers
through various sources of communication.
Issues related to technology and infrastructure
While GPS and mobile-phones help verify the integrity of CCEs, specific programmes to develop
human resources must be identified. It is of utmost importance to have an all -inclusive plan of action
which includes concerned officers, functionaries of the state government, insurance companies and
agencies of the centre government associated with crop insurance schemes. The scheme requires
technical and actuarial expertise for product design, evaluation and cost -effective risk financing.
The lack of electricity and affordable internet connections are serious concerns in rural areas an d
must be factored in when discussing the use of technology and innovation in these areas.
Suggestions to implement PMFBY
 A big task is expanding the outreach of this scheme overcoming the fact that coverage of this scheme has
remained limited. Further, there is an urgent need to provide financial and technical support from government.
There is a pressing need to improve this scheme that should be voluntarily purchased by the farmers.
 standardization, longer-term contracts, and farmers’ awareness and protection.
 Agriculture is exposed to a variety of pure, idiosyncratic catastrophic and non-catastrophic risks. The scheme
should cover all types of risks such as price risk, supply chain risk, institutional and political risk, etc. The
multiple risk coverage will even persuade farmers to pay a slightly higher price.
 The existing model, however, has failed to reduce the burden of debt -repayment in the event of crop
loss, neither helping to meet the consumption needs nor augmenting income.
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Contemporary Issues in Banking, Insurance and Financial Services
 Finally, insurance companies and regulators need to take a hard look at the efficacy of the PMFBY
scheme. The claims are not paid even if genuine. Insurers are making huge gains at the cost of the
farming community. Left unchecked, this will erode the credibility of the finan cial sector.
 A regulatory framework that unifies the insurance system covering yield and price risk will ensure increased
participation and stability. To encourage farmer participation, a revenue-protection insurance must be
implemented, which will allow farmers to protect their income in times of harvest loss. The legal framework
for insurance companies—both private and rural—must be strengthened to improve resilience against
agricultural shocks.
 A grievance-redressal system will help distressed farmers resolve issues regarding the scheme and the
provisions for insurance and claim payments.
 Awareness Generation: The changes made in the scheme are welcome but there are some challenges too.
Awareness generation will be one of the major challenges in the smooth implementation of the scheme.
CONCLUSION
An effective crop insurance arrangement is crucial in safeguarding income losses for farmers,
financing factors of production for agricultural production, and improving faith of
farmers/cultivators against the crop failure. With the revitalization of PMFBY, the whole endeavour of
the government is to enhance clarity and proper assessment of the output, and proper calculation of claims to
the needy farmers. This will ensure that the goals of the government, namely, Atmanirbhar Krishi is achieved
and the condition of farming community improves in the country. Though the scheme has experienced an
impressive coverage and has fared better than the previous schemes rolled out for crop insurance, it
has several limitations also. The scheme has several fundamental flaws which need to be removed
and there is an urgent need to structure the policy in a manner so that the distressed agrarian sector
heaves a sign of relief. If crop insurance must reach the last farmer, the curr ent issues have to be
addressed. Also, the insurance policy must be dynamic and should include private and public
partnership along with technological advancements.
REFERENCES
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Shashikiran.,& Umesh, K. B. (2015). Willingness to pay for crop insurance premium: a study on maize farmers in India.
Conference of International Association of Agricultural Economists, Milan, Italy, August 9-14.
Nair, R. (2010). Crop insurance in India: changes and challenges. Economic and Political Weekly, 45(6), 19– 22.
Birthal, P. S., Negi, D. S., Khan, M. T., & Agarwal, S. (2015). Is Indian agriculture becoming resilient to droughts?
Evidence from rice production systems. Food Policy, 56, 1-12.
Pradhan Mantri Fasal Bima Yojana: An Assessment, Centre for Science and Environment, July 2017.
Ministry of Agriculture and Farmers Welfare, “Decline in number of beneficiaries of PMFBY”, Press
Information Bureau, 3rd August 2018.
“Pradhan Mantri Fasal Bima Yojana: An Assessment ”, Centre for Science and Environment, July 2017.
Singh, G. (2010). Crop insurance in India - A brief review. IIMA Working Paper No. 2010-06-01., Indian Institute of
Management, Ahmedabad, India
Adoption of crop insurance and impact: insights from India Aditya K S, Md. Tajuddin Khanbc* and Avinash Kishore,
Agricultural Economics Research Review 2018, 31 (2), 163-174 DOI: 10.5958/0974-0279.2018.00034.
https://vikaspedia.in/agriculture/agri-insurance/pradhan-mantri-fasal-bima-yojana
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Contemporary Issues in Banking, Insurance and Financial Services




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Ruchbah Rai, “Pradhan Mantri Fasal Bima Yojana: An Assessment of India’s Crop Insurance Scheme”, ORF Issue Brief
No. 296, May 2019, Observer Research Foundation.
Working Paper No. 352 Crop Insurance in India: Key Issues and Way Forward Ashok Gulati Prerna Terway Siraj
Hussain February 2018, Indian Council for Research on International Economic Relations
Department of Agriculture and Cooperation, Ministry of Agriculture, GoI “Operational guidelines: Pradhan Mantri Fasal
Bima Yojana (PMFBY)”
Agriculture Finance Corporation Ltd., Head Office Mumbai (2012) “A study on National Agriculture Insurance Scheme”
Final Report submitted to Agriculture Insurance Company of India Ltd.
Rajaram and Chetana B.S. (2016), A study on current crop insurance schemes with a special reference to Pradhan Mantri
Fasal Bhima Yojana (PMFBY) and restructured Weather Based Crop Insurance Scheme, International Journal of
Combined Research & Development (IJCRD), Volume: 5; Issue: 7; July -2016.
Niranjan, H. K., Chouhan, R. S., Sharma, H. O., Kuri, A., & Thaku, S. S. (2019). Insurance Behaviour of Insured
Farmers under Pradhan Mantri Fasal Bima Yojna (PMFBY) in Central India. Asian Journal of Agricultural Extension,
Economics & Sociology, 37(2), 1-6. https://doi.org/10.9734/ajaees/2019/v37i230266
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Appendix 1: State-wise number of farmers insured under PMFBY
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Contemporary Issues in Banking, Insurance and Financial Services
Government of India's Initiatives for Wider Penetration of Insurance
during Covid-19 and Growth of Insurance Industry
Dr. Jitender Singh, Assistant Professor
MLN College, Yamuna Nagar, Email: singhjjittu@gmail.com
Dr. Saloni Pawan Diwan, Assistant Professor, USM, Kurukshetra University
Dr. Rajesh Kumar, Associate Professor, DAV College, Pundri
Abstract
This paper is aimed to measure growth and trend of India's Insurance Industry. In order to show growth of life
insurance a period of twenty years from 2001 to 2020 was taken and for total premium undertaken last ten
year data was analyzed. Simple tools like percentage and growth rate were compiled to achieve the objective
of the study. The study shows that India's life insurance companies clocked 13.41 per cent growth in their
total premium income at Rs 5.72 lakh crore during the fiscal ended March 2020. Life Insurance Corporation
of India (LIC of India)’s New Business performance reported a 25.17 % growth in its first year premium by
posting a highest-ever figure of Rs 177977.07 Crore for the year ended March 2020, the company has said in
statement as indicated by Annual Report of IRDA.
Key words: Life insurance, general Insurance, Covid-19, Insurance penetration, and IRDA
INTRODUCTION
Now there is no disagreement on the fact that Life insurance protects potential future earnings and livelihoods
of individuals, and general insurance safeguards the GDP by protecting assets, businesses, health and
organisational reputation against damage through pooling and through the effective transfer of risk using
reinsurance. At the end of March 2019, there were 70 insurers operating in India, of which 24 were life
insurers, 27 were general insurers, 7 were standalone health insurers and 12 were reinsurers, including
branches operated by foreign reinsurers and Lloyd’s India.1 Now is a good time to check the progress of the
insurance sector in India and Government initiatives over the years to spread penetration in the scenario of
Novel Coronavirus (i.e. Covid-19). The insurance industry has also undergone several regulatory changes in
the past decade, from relaxations by the IRDAI to ensure wider distribution and easier fundraising to
initiatives by the Government leading to increased foreign direct investment (FDI) and better resolution of
customer grievances. Additionally, new and better regulatory standards such as risk-based capital (RBC) and
Ind AS 117 are going to be implemented in the coming years. These modifications have transformed the
insurance industry in India by ensuring better disclosure, transparency and policyholder protection.
REVIEW OF LITERATURE
Bodla, Sumit at el. (2017) find that the life insurance industry has made a remarkable growth of premium
after the entry of private players. The CAGR of net premium has been worked out at 8.89 % for the last 10
year. The highest CAGR in net premium was found in case of Max Life followed, very closely, by HDFC
Standard, PNB MetLife and SBI Life. IDBI Federal Life has a CAGR of 20.42% during 2007-2011, 10.98%
during 2012-16 and 14.47% during 2007-2016. CAGR of net premium gives a worrisome position for Aviva,
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Contemporary Issues in Banking, Insurance and Financial Services
Tata AIA, Bajaj Allianz, Birla Sunlife and Reliance Nippon as the growth rate was found negative during
2012-16 for these companies.
The data published by Statista Research Department (Mar 4, 2021) reveals that, in 2019, the life insurance
density in India amounted to about 58 U.S. dollars, while the non-life insurance density was at 19 U.S.
dollars. Insurance density is measured as insurance premium (in U.S. dollars) to total population. Similar to
the insurance penetration in India, the density also surged until fiscal year 2010, after which it saw a gradual
decline. The numbers inched back up around fiscal year 2017 indicating a resurgence in the country's
insurance density. Health insurance alone covers approximately 60% of the Indian population. The social
health insurance scheme, Ayushman Bharat-PMJAY, covers approximately 500 million people or 40% of the
Indian population. Commercial health insurance covers approximately 10% of the Indian population. The
Employee State Insurance Scheme covers approximately 10% of the population (IRDAI Annual Report
2018–19).
The insurance impact study by PwC indicates that in 2009–10, the life insurance industry recorded a premium
income of INR 2.65 lakh crore, which increased to INR 5.1 lakh crore in 2018–19. The non-life insurance
industry collected direct premiums worth INR 39,300 crore in 2009–10, which grew to INR 1.7 lakh crore in
2018–19. During the decade of 2009–2019, the life insurance industry collected a total of INR 35.26 lakh
crore in premiums, while the non-life insurance industry collected INR 9.4 lakh crore as gross direct
premiums. The history of India’s insurance industry reflects the country’s economy since the preindependence era. Insurance companies were nationalized after independence and the industry was opened-up
to private players only after the post-liberalization measures in 1991. Today, the value of gross premiums
collected by life insurance companies is over five trillion Indian rupees with insurance penetration levels as
well as the density showing an upward trend. Even then, India has a far lower insurance penetration rate
compared to the global average, leaving much room for growth (Sandhya Keelery, March 5, 2021).
OBJECTIVES AND RESEARCH METHODOLOGY
This study aims to analyse the growth and trend of insurance. First of all, the magnitude of insurance
premium underwritten by life and non-life insurers in India in recent years was studies. In order to show
growth of life insurance a period of twenty years from 2001 to 2020 was taken and for total premium
undertaken last ten year (2009-10 to 2019-20) data are analyzed. Percentages and growth rates were compiled
to achieve the main objective of the study. The results are shown through tables and graphs.
DATA ANALYSIS AND INTERPRETATION
To begin with, let us glance through the magnitude of insurance premium underwritten by life and non-life
insurers in India in recent years (Tables 1, 2 and diagram 1). At end-September 2010, there were forty-eight
insurance companies operating in India; of which twenty three were in the life insurance business and the
remaining twenty-four were in general insurance business. In addition, GIC is the national reinsurer (Annual
report, IRDA- 2009-10). On the basis of total premium income, the market share of LIC declined marginally
from 70.92 per cent in 2008-09 to 70.10 per cent in 2009-10. Accordingly, the market share of private
insurers had gone up marginally from 29.08 per cent in 2008-09 to 29.90 per cent in 2009-10. During 200910, life insurers had issued 532 lakh new policies, out of which, LIC issued 389 lakh policies (73.02 per cent
of total policies issued) and the private life insurers issued 144 lakh policies (26.98 per cent).
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Contemporary Issues in Banking, Insurance and Financial Services
Table 1 reveals premium underwritten along with their market share by the Life Insurance Corporation and
the Private sector life insurers. The table shows that the life insurance industry registered a total premium of
458809.44 crore in the year 2017-18 while these touched 508132.03 in the year 2018-19 with a growth rate of
10.75% as compared to the growth rate of 9.64% in the year 2017-18. The table indicates that there is a
significant increase in the premium received by the private sector insurers. The market share of private sector
insurers was 33.58% in the year 2018-19 whereas the same was 30.64% in the year 2017-18. However the
market share of LIC has declined to 66.42% from 69.36% in the year 2017-18.
Table 1: Life Insurers' Premium Underwritten during 2015-16 and 2019-20 and Market Share
Insurer Total Premium (Rs Crore)
Market Share (%)
2009-10
20152016-17 201720182019-20 2017-18 2018-19 2019-20
16
18
19
LIC
186077.31 266444
(18.30)
(11.17)
300487
(12.78)
318223
(5.90)
337505
(6.06)
379062
(12.42)
69.36
66.42
66.20
Private
Sector
79373.06
(23.06)
100499
(13.64)
117989
(17.40)
140586
(19.15)
170627
(21.37)
193500
(13.41)
30.64
33.58
33.80
Total
2.65,450
(19.69)
366943
(11.84)
418477
(14.04)
458809
(9.64)
508132
(10.75)
572562
(12.68)
100.00
100.00
100.00
Source: Compiled from data available in IRDAI Annual Reports of the concerned years
Table 1 further indicates that India's life insurance companies clocked 13.41 per cent growth in their total
premium income at Rs 5.72 lakh crore during the fiscal ended March 2020. Life Insurance Corporation of
India (LIC of India)’s New Business performance reported a 25.17 % growth in its first year premium by
posting a highest-ever figure of Rs 1,77,977.07 crore for the year ended March 2020, the company has said in
statement as indicated by Annual Report of IRDA. A growth of 12.42 % in the country’s largest life insurer’s
total premium income netted LIC Rs 3,79,062.56 crore of Total Premium Income as at March end 2020
compared to Rs 3,37,185.40 crore collected during the corresponding period last year. The market share of
LIC has declined to 66.20 per cent in FY 2020 from 66.42 per cent in FY 2019. As per report of IRDA, LIC
took every possible step to ensure that people stay covered through insurance during pandemic. For collection
of premium all Digital channels were available 24X7 during the lockdown period.
In 2009–10, the life insurance industry recorded a premium income of INR 2.65 lakh crore, which increased
to INR 5.1 lakh crore in 2018–19. The non-life insurance industry collected direct premiums worth INR
39,300 crore in 2009–10, which grew to INR 1.7 lakh crore in 2018–19. During the decade of 2009–2019, the
life insurance industry collected a total of INR 35.26 lakh crore in premiums, while the non-life insurance
industry collected INR 9.4 lakh crore as gross direct premiums.
The position of the Value of total life insurance premiums written by Indian insurers, from financial year
2002 to 2020, is displayed by Diagram 1. It is obvious from this diagram that total value of life insurance
premium written in India has increased to INR 5.73 trillion from 0.05 trillion in year 2002 and INR 2.65
trillion in year 2010. Thus, the growth in the first decade of current century has been significantly higher as
compared to the second decade i.e. from year 2010 and onwards. Diagram 1 indicates that the life insurance
industry recorded a premium income of Rs 5.71 lakh crore during 2018-19.
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Contemporary Issues in Banking, Insurance and Financial Services
Diagram 1- Value of total life insurance premiums written by Indian insurers from financial year 2002 to
2020(in trillion Indian rupees)
Source: Publication of Statista Research Department (Mar 4, 2021). Retrieved on March 10, 2021
fromhttps://www.statista.com/statistics/1075254/india-insurance-claims-ratio-by-insurer-type/
According IRDA's Annual Report 2009-10, there were 23 general insurance companies, which have been
granted registration for carrying out non-life insurance business in the country as on 31st March, 2010. Of
these, six were in public sector and the rest in private sector. Among the public sector companies, there were
two specialised insurance companies: one for credit insurance (ECGC) and the other for crop insurance
(AIC). The non-life insurance industry underwrote a total premium of Rs 34,620 crore in 2009-10 as against
Rs 30,352 crore in 2008-09 registering a growth of 14.06 per cent as against an increase of 9.09 per cent
recorded in the previous year.
The public sector insurers exhibited an impressive growth in 2009-10 at 14.49 per cent; more than twice the
previous year’s growth rate of 7.12 per cent. In contrast, the private non-life insurers registered a growth of
13.44 per cent, which is only marginally higher than 12.09 per cent achieved during the previous year. The
figures reflect a comparative hardening of rates in the industry.
From table 2 it can be observed that the general insurance industry registered a growth rate of 12.47% with
total direct premium of 169448.46 in FY 2019 as against 17.59% growth rate in the Financial Year 2018. The
table reveals that private general insurers registered a growth of 24.25% with market share of 47.97% during
the year 2018-19 as against 21.59% growth rate during the year 2017-18. The standalone Health insurers
exhibited growth of 36.56% with market share of 6.70% during the year over the previous year growth rate of
41.93%.
Public sector insurer registered growth rate of 1.28% whereas specialized insurers recorded negative growth
rate of 10.79%. The table also reveals that market share of public sector insurers and specialized insurers have
decreased during the year 2018-19. The gross direct premium underwritten by the non-life insurers grew
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Contemporary Issues in Banking, Insurance and Financial Services
11.67 per cent in the financial year ended March 31, 2020. According to Insurance Regulatory and
Development Authority of India (IRDAI) data, the total premium increased to ₹1,89,215 crores in 2019-20
compared with ₹1,69,448 crores in the previous financial year.
Table 2: Gross Direct Premium Income in India with Market Share: General and Health Insurers
Insurer
Total Premium (₹ crore) with growth rate over Market Share (%)
previous year
2014-15 205-16
2017-18 2018-19 2019-20
2017-18 2018-19 2019-20
Public
Sector
Insurers
Private
Sector
Insurers
Standalone
Health
Insurers
Specialized
Insurers
42551
(10.24)
47691
(12.01)
73045.24
67794.23 68658.85
(6.9%)
(12.58%) (1.28%)
45.00
40.52
35090
(9.62)
39694
(13.120
91146.76
65419.82 81287.15
(10.82%)
(21.59%) (24.25%)
43.42
47.97
2943
(31.07)
4153
(41.12)
14,410
8314.28 11354.03
(27%)
(41.93%) (36.56%)
5.52
6.70
6.06
4.81
100.00
100.00
4102
4842
9133.81 8148.42 10612
(-12.7)
(18.04)
(10.75%) (-10.79%) (30.0%)
84686
96380
150662.13 169448.46 1,89,215
Total
(9.20)
(13.81)
(17.59%) (12.47%) (11.67%)
Source: Self Compiled from IRDAI Annual Reports
Note: Figures in brackets indicate growth over previous year
38.60
48.17
7.62
5.61
100.00
The total premium underwritten by 25 private and public insurers had increased by 9.5 per cent at ₹1,64,192
crores (₹1,49,946 crore) while seven standalone private health insures had witnessed higher growth in
premium at 27 per cent with a total premium of ₹14,410 crore as against ₹11,354 crore in the year-ago period.
The specialized public sector insurers — Agricultural Insurance Company Ltd and ECGC, have posted 30 per
cent increase at ₹10,612 crore (₹8,148 crore).
G Naga Sridhar (April 14, 2020) said that the non-life insurance business is hit by the Covid-19 pandemic
threat and subsequent lockdown in March 2020. The gross premium underwritten in March 2020 was ₹15,784
crore showing a steep decline compared to ₹17,672 registered the same month last year. The Economic
Survey, further states that the gross direct premium of non-life insurers registered a growth of 11.45 per cent
at Rs 1.89 lakh crore in 2019-20 from Rs 1.69 lakh crore in 2018-19. According to the survey, within non-life
category, motor and health segments primarily are the main contributors to industry to report this growth. Life
insurance industry recorded a premium income of Rs 5.73 lakh crore in 2019-20, as against Rs 5.08 lakh crore
in the previous financial year, registering a growth of 12.75 per cent. "While renewal premium accounted for
54.75 per cent of the total premium received by the life insurers, new business contributed the remaining
45.25 per cent," the Economic Survey of India 2020-21 highlights.
GOVERNMENT INITIATIVES FOR WIDER PENETRATION OF INSURANCE
The Government of India (GoI) has launched several insurance schemes such as Ayushman Bharat, Aam
Aadmi Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Aarogya Sanjeevani. These schemes are
providing pension, term insurance, medical insurance (including cashless hospitalisation and cash benefits),
accidental death or disability insurance, and loan cover, among other benefits, to the rural population of the
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Contemporary Issues in Banking, Insurance and Financial Services
country. Some states offer additional insurance incentives apart from the benefits offered by the Central
Government. These schemes have offered highly affordable risk cover to the rural population and increased
accessibility of medical treatments. The premiums of several of these initiatives are borne by the Central
Government and various state governments. Government initiatives for wider penetration The regulator
(IRDAI) is also trying to push innovation through a regulatory sandbox. It provides an environment for
testing new business models, products, processes and applications that may not necessarily be covered fully
by or are not fully compliant with existing regulations. The products will be continuously monitored for a
period of 6–12 months. According to an IRDAI press release, the regulator has approved more than 65
products via the sandbox route in the period starting from 1 February 2020. Some of the innovations that have
come through are multi-vehicle coverage, vehicle usage based floater policy, insurance as a gift, livelihood
protection during pandemics and some outpatient coverage.
CONCLUSION
This study has revealed a linear rise in insurance premiums over the past five years. In financial year 2020,
private insurers overtook the public insurers in India's general insurance sector in terms of the market share
with more than 48 percent compared to around 39 percent share held by public insurers. IRDAI, ever since
the onset of the COVID-19 pandemic, has been leaving no stone unturned to make insurance products and
services within the maximum reach of the consumers in the most convenient way possible. As per Union
Budget 2019-20, 100% foreign direct investment (FDI) was permitted for insurance intermediaries. The future
looks promising for the life insurance industry with several changes in regulatory framework which will lead
to further change in the way the industry conducts its business and engages with its customers. Life insurance
industry in the country is expected to increase by 14-15% annually for the next three to five years.
REFERENCES







Annual
Report
IRDAI2018-19
and
2019-20:
https://www.irdai.gov.in/admincms/
cms/uploadedfiles/annual%20reports/IRDAI%20English%20Annual%20Report%202018-19.pdf
Annual
Report
IRDAI2009-10:
The
report
is
Available
athttps://www.policyholder.gov.in/uploads/cedocuments/annual%20repot%202009-10.pdf
Aprajita Sharma (March 10, 2021).Insurance penetration is 'extremely low' at 3.76%. Available at
https://www.businesstoday.in/current/economy-politics/economic-survey-2020-21-insurance-penetration-extremely-low-at-376/story/429507.html
Bodla Sumit; Deepak Tandon, and Bodla, B. S. (2017). Profitability Performance of Life Insurance
Companies – A Study in Indian Context. International Journal of Computing and Business Research
(IJCBR),Volume 7, Issue 3, pp. 1-28.
G Naga Sridhar (April 14, 2020). Non-life insurance premium up 11.67% in FY20. Available at:
https://www.thehindubusinessline.com/premium/non-life-insurance-premium-up-1167-infy20/article31340903.ece
Publication of Statista Research Department (Mar 4, 2021). Retrieved on March 10, 2021
fromhttps://www.statista.com/statistics/1075254/india-insurance-claims-ratio-by-insurer-type/
Kelly, A. (2011) “Can microinsurance protect the poor?”, The Guardian, 21 February.
240
Contemporary Issues in Banking, Insurance and Financial Services
Scientometric Analysis of Research on Digital Finance
Manjinder Singh
Associate Professor, P.G. Department of Commerce, Sri Guru Gobind Singh College
Sector-26, Chandigarh-160019, India, Email: mssaini77@yahoo.co.in
Deepinder Kaur
Assistant Professor, P.G. Department of Commerce, Mata Gujri College,
Fatehgarh Sahib-140407, India. Email: deepinderkr91@gmail.com
Abstract
Digital finance is the term used to describe the impact of new technologies on the financial services industry.
Researchers from all over the world have carried out studies covering different aspects of digital finance and
produced a number of scientific publications. Present study presented scientometric analysis of research on
digital finance. Publications related to digital finance were retrieved from Dimensions database accessed on
March 17th, 2021. Dimensions database was searched using the keyword “Digital Finance”. No restriction on
language or publication types was applied. The methodology involved the application of three types of
analysis: a bibliometric analysis, citation analysis and altmetric analysis. The number of publications related
to digital finance registered a fluctuating trend till 2013, after that there was a consecutive increase in the
number of publications. Most of the documents have been published in the form of articles and the highest
number of documents was found to be published in SSRN Electronic Journal. Likewise, Douglas W. Arner
was identified as the most productive author. In addition to this, there were marginal overlaps between the
top-cited and top altmetric articles. The top-cited articles were published in 23 high-impact journals.These
articles were published from 2001-2019. The majority of the articles (60%) originated from five countries
(United Kingdom, China, the United States, Germany and Italy). Compared to top-cited articles, altmetric
attention scores of top 25 publications ranged from 36 to 996. These articles were published in 18 journals
with high impact factors. Top 25 altmetric articles originated from 10 different countries. Twitter and
Mendeley were the most popular altmetric data resources. This study contributes to scientific productivity on
digital finance by analyzing the yearly trend of publications, the contribution of authors and sources as well as
the citation and altmetric analysis of worldwide publications on digital finance. This study differs from prior
studies as it offers a distinctive approach – a combination of bibliometric, citation and altmetric review.
Keywords- Digital finance Dimensions, bibliometric, citation, altmetric.
INTRODUCTION
Digitalisation is changing the ways in which the economies and different sectors of economy operate. The
financial markets are moving towards automation and offering customised products and services as per the
needs and wants of the users of those financial products and services. The concept is making strides with
continuous developments that are occurring in the technology world. In this sense, it has contributed in the
financial sector industry also. Financial technology companies have been developing digital products to cater
to the financial services industry. But not only development, its access to the users of those products and
services is also necessary. For digitalisation to be strong weapon for achieving the advancements in
technology must combine with comprehensive policies that help the financial system of a country to meet
exigent challenges of investment that are required to be conquered to have a better future. Digital finance
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Contemporary Issues in Banking, Insurance and Financial Services
represents provision of financial services through digital processes and technologies. It is defined as the
financial services delivered through mobile phones, personal computers, the internet or cards linked to a
reliable digital payment system (Ozili, 2018). Much of the population residing in developing countries is still
striving for adequate access to financial products and services. In this instance, digital finance can act as a
strong weapon to overcome such barriers of access to financial services. Even the unprecedented covid-19
crisis has made the countries realized the benefits and importance of digital finance. It has brought into light
the importance of digital technology in providing relief for a number of lives, assisting businesses, protecting
jobs and securing necessities of those lives around the world. The extent of positive impact of digitalization
seen in times of covid-19 crisis can act as a startling boon for the economies in the near future. A number of
challenges have also been recognized in the literature. These include lenient and ill-timed laws (Hu and
Zheng, 2016; Ketterer, 2017), increased financial risk (Ozili, 2020a) and low quality and expensive access to
digital technologies (Ketterer, 2017; Ozili, 2018).
Different kinds of scholarly articles have been published to date on the topic of digital finance (Conole et al.
2008, Au and Kauffman 2008, Lucas and Goh 2009, Sabatier et al. 2012, Boccardi et al. 2014, Nguyen 2016,
Shim and Shin 2016, Puschmann 2017, Gabor and Brooks 2017, Gomber et al. 2017, Lee and Shin 2018,
Gai et al 2018). Some studies presented bibliometric survey on the current state of research on digital finance
(Liang and Wang 2016, Fatima et al. 2017, Wu 2017, Cai 2018, Holand et al. 2019, Junior and Cherobim
2020, Liu et al. 2020, Li et al. 2020, Ahmi et al. 2020, Caciatori and Cherobim 2020, Pan et al. 2020).
However, none of these studies presented a bibliometric work aiming at identifying and characterizing the
top-cited and top altmetric publications in the field of digital finance, which is the scope of this study. This
study aimed at scientifically studying the subject digital finance from a broad bibliometric angle. Thus, it is
intended to contribute to filling a gap currently existing in the field of digital finance.
The remainder of this paper begins with the description of research methodology used in the bibliometric
research. In Section 3, results and discussion is carried out and, finally, in Section 4, concluding remarks are
given.
RESEARCH METHODOLOGY
The methodology involved the application of three types of analysis: a bibliometric analysis, citation analysis
and altmetric analysis. Publications related to digital finance were retrieved from Dimensions database
accessed on March 17th, 2021. Dimensions database was searched using the keyword ‘Digital Finance' in title
and abstract.No restriction on language or publication types was applied. A summarised view of data source
and sample selection procedure is presented in Table 1.
Searching period
Searching keywords
Searching criteria
Sample size
Table 1: Summary of data source and sample selection procedure
Database
Dimensions
1960 - 2020(Accessed on 17th March,2021)
Digital Finance
Title and abstract
1694
For bibliometric analysis, documents were taxonomized to study the trend of publications over years, the
extent of the author’s contribution, fields of research under which studies on digital finance were carried out
and the major sources in which the documents were published. Citation analysis and altmetric analysis have
242
Contemporary Issues in Banking, Insurance and Financial Services
been carried out to identify and characterize the top-cited and top altmetric publications in the field of digital
finance.
RESULTS AND DISCUSSION
Descriptive statistics: Table 2 presented descriptive statistics regarding scientific literature available on
digital finance. As shown, the data set comprised of 1694 publications by 3682 authors affiliated with 961
organizations in 73 countries, which were published in 1038 journals and received 8624 citations.Based on
total documents of the period (1694 documents), 63 percent were of collaborative authorship (more than one
author) and 37 percent of the publications were of individual authorship. These findings indicate the
researchers' increasing interest in the field.
Table 2: Descriptive statistics
Criteria
Quantity
Publications
1694
Authors
3682
Authors per publication
2.17
Publications per author
0.46
Single-authored publications
622
Multi-authored publications
1072
Organizations
961
Countries
73
Citations
8624
Cited references
77265
500
400
300
200
100
0
1960
1965
1970
1980
1984
1989
1991
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
No. of publications
Bibliometric Analysis
Pattern of publications: Table 3 revealed the pattern of documents produced in the field of digital finance
during 1960 - 2020. As shown, there were 27 publications on digital finance before 2000. The number of
publications registered a fluctuating trend till 2013(see Figure 1). After 2013, there was a consecutive increase
in the number of publications and the number of publications increased from 41 publications in 2014 to 461
publications in 2020.
Years
No. of Publications
Figure 1: Pattern of publications
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Contemporary Issues in Banking, Insurance and Financial Services
Table 3: Pattern of publications
Year
Before 2000 (1960-1999)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Publications
27
6
12
13
4
8
10
13
22
16
15
30
23
37
32
41
61
94
123
214
325
461
Document type: Document type refers to the types of documents based on the originality of the documents
such as conference proceedings, journal article, or book series (Sweileh et al., 2017). The study found 6 types
of documents in the field of digital finance. Of these, the most common document type was article,
contributing about 54 percent of the total documents available on digital finance in Dimensions, followed by
chapters (16.35%), preprints (13.34%), proceedings (9.86%), edited books (3.48%) and monographs (3.19%).
Table 4: Document type
Percentage
Document type
Publications
53.78
Article
911
16.35
Chapter
277
13.34
Preprint
226
9.86
Proceeding
167
3.48
Edited book
59
3.19
Monograph
54
Total
1694
100.00
244
Contemporary Issues in Banking, Insurance and Financial Services
4% 3%
10%
Article
Chapter
13%
54%
Preprint
Proceeding
Edited book
Monograph
16%
Figure 2: Type of documents
Most Frequent researchers: The distribution of scholarly work in the field of digital finance can also be
shown by the productivity analysis of 3682 authors present in the sample. Table 5 presented the 10 most
frequent researchers with a minimum of 4 publications. As shown, Douglas W. Arner, Ross P. Buckley and
Dirk Andreas Zetzsche were amongst the most frequent researchers, having more than 10 publications on
digital finance.
Table 5: Most Frequent researchers
Publications
Citations
Citations Mean
Name
15
32
2.13
Douglas W. Arner
14
32
2.29
Ross P. Buckley
12
26
2.17
Dirk Andreas Zetzsche
7
106
15.14
Peterson Kitakogelu Ozili
5
163
32.60
Christian O. Fisch
5
55
11.00
Øyvind Ryan
5
55
11.00
Mérouane Debbah
4
7
1.75
Shay Blanchette
4
7
1.75
Julia Kokina
4
3
0.75
Michele Meoli
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Contemporary Issues in Banking, Insurance and Financial Services
Julia Kokina
Mérouane Debbah
Christian O Fisch
Dirk Andreas Zetzsche
Douglas W Arner
0
2
4
6
8
10
12
14
16
Publications
Figure 3: Most frequent authors
Most productive sources: The research work on digital finance can be published in a variety of sources like
journals, conference proceedings, pre-print servers and books.Table 6 showed the 10 most productive sources
publishing documents on digital finance. It can be seen from the table that 182 documents were published in
SSRN Electronic Journal, distantly followed by arXiv, a pre-print server (28 documents).
Table 6: Most productive sources
Publication
Citations
Source title
Citations
s
Mean
182
433
2.38
SSRN Electronic Journal
28
0
arXiv
23
15
0.65
Advances in Intelligent Systems and Computing
19
8
0.42
Lecture Notes in Networks and Systems
18
55
3.06
Lecture Notes in Computer Science
13
35
2.69
M/C Journal
8
0
E3S Web of Conferences
Proceedings of the 2nd International Scientific and Practical
Conference “Modern Management Trends and the Digital
8
10
1.25
Economy: from Regional Development to Global Economic
Growth” (MTDE 2020)
7
20
2.86
Procedia Computer Science
7
4
0.57
Communications in Computer and Information Science
246
Contemporary Issues in Banking, Insurance and Financial Services
Vestnik of the Plekhanov Russian University of Economics
Communications in Computer and Information Science
Procedia Computer Science
Proceedings of the 2nd International Scientific and…
E3S Web of Conferences
M/C Journal
7
7
7
8
8
13
18
19
23
28
Lecture Notes in Computer Science
Lecture Notes in Networks and Systems
Advances in Intelligent Systems and Computing
arXiv
SSRN Electronic Journal
182
0
20
40
60
80 100 120 140 160 180 200
Publications
Figure 4: Most productive sources
Most productive fields of research: This study categorized the documents based on fields of research as
summarised in Table 7. As the concept of digital finance is more concerned with utilisation of information
technology in the field of commerce, finance and management, majority of the publications belonged to the
field of information and computing sciences (456 publications), commerce, management, tourism and
services (417 publications), economics (310 publications) and information systems (300 publications). Other
significant contributing fields of research included applied economics, banking, finance and investment,
studies in human society, business and management, artificial intelligence and image processing and law and
legal studies.
Table 7: Most productive fields of research
Research Categories
Publications Citations Citations Mean
456
2436
5.34
Information and Computing Sciences
417
1694
4.06
Commerce, Management, Tourism and Services
310
793
2.56
Economics
300
1513
5.04
Information Systems
280
602
2.15
Applied Economics
228
996
4.37
Banking, Finance and Investment
227
2589
11.41
Studies in Human Society
182
699
3.84
Business and Management
150
1028
6.85
Artificial Intelligence and Image Processing
99
121
1.22
Law and Legal Studies
247
Contemporary Issues in Banking, Insurance and Financial Services
99
Law and Legal Studies
Artificial Intelligence and Image Processing
Business and Management
Studies in Human Society
Banking, Finance and Investment
Applied Economics
Information Systems
Economics
Commerce, Management, Tourism and Services
Information and Computing Sciences
150
182
227
228
280
300
310
417
456
0
50 100 150 200 250 300 350 400 450 500
Publications
Figure 5: Most productive fields of research
Citation analysis:
Citation analysis is one of the most extensively used methods in evaluating the research performance of
scholars (Lewison, 2001; Thomas and Watkins, 1998). Table 8 presented 25 highly cited articles as per the
dimensions database. In case of a tie in the number of citations, the most recent publication appeared first.
Citations have been counted from the reference list in all publications that have been indexed by the
Dimensions database. As shown in table, citation counts of 25 highly cited articles ranged from 52 to 1442.
The top-cited articles were published in 23 high-impact journals. These articles were published from 20012019. The majority of the articles (60%) originated from five countries (United Kingdom, China, the United
States, Germany and Italy). The document titled “The new science of management decision” by Herbert A.
Simon (1960) received highest number of citations. This publication in the form of Monograph has been cited
1442 times. 6 percent of its citations have been received in the past two years, suggesting that it is currently
receiving a lot of interest. This research work has been cited recently in the article “Addressing complex
challenges in transformations and planning: A fuzzy spatial multi criteria analysis for identifying suitable
locations for urban infrastructures” published in Land Use Policy journal in March 2021.
248
Contemporary Issues in Banking, Insurance and Financial Services
Table 8: Top 25 highly-cited publications
S.No.
Title
1 The new science of management decision.
2 Essentials of the self-organizing map
3 When Mobile Blockchain Meets Edge Computing
Negative bubbles and shocks in cryptocurrency
4
markets
5 Blockchain Technology Innovations
Overview of business innovations and research
6 opportunities in blockchain and introduction to the
special issue
Digital Media in the Obama Campaigns of 2008 and
7 2012: Adaptation to the Personalized Political
Communication Environment
The walkthrough method: An approach to the study
8
of apps
9 Initial coin offerings (ICOs) to finance new ventures
Digital Finance and FinTech: current research and
10
future research directions
Why Quasi-Monte Carlo is Better than Monte Carlo
11 or Latin Hypercube Sampling for Statistical Circuit
Analysis
The digital revolution in financial inclusion:
12
international development in the fintech era
Block chain in Logistics and Supply Chain: A Lean
13
Approach for Designing Real-World Use Cases
Impact of digital finance on financial inclusion and
14
stability
15 The Governmental Topologies of Database Devices
Quasi-Monte Carlo methods with applications in
16
finance
Enterprise across the digital divide: information
17
systems and rural microenterprise in Botswana
Why Crowdfunding Projects Can Succeed: The Role
18 of Proponents’ Individual and Territorial Social
Capital
19 Social signals and algorithmic trading of Bitcoin
Blockchain-Based Solutions to Security and Privacy
20
Issues in the Internet of Things
Blockchain entrepreneurship opportunity in the
21
practices of the unbanked
249
Recent
Field Relative
Times cited citations citation citation
ratio
ratio
1442
90
n/a
n/a
585
233
199
6.11
177
165
117
n/a
176
146
104
n/a
148
132
68
n/a
145
122
57
n/a
133
44
79
n/a
133
114
159
n/a
131
123
203
n/a
120
103
86
n/a
108
19
29
n/a
107
86
60
n/a
106
106
66
n/a
104
99
100
n/a
80
21
37
n/a
77
11
22
n/a
69
15
19
n/a
68
28
25
n/a
64
47
23
0.76
63
53
50
n/a
59
63
32
n/a
Contemporary Issues in Banking, Insurance and Financial Services
A new business model? The capital market and the
new economy
Initial Coin Offerings and the Value of Crypto
23
Tokens
Transforming the communication between citizens
24
and government through AI-guided chatbots
How Does Social Media Impact Bitcoin Value? A
25
Test of the Silent Majority Hypothesis
22
57
6
15
n/a
56
45
53
n/a
54
54
55
n/a
52
48
35
n/a
Altmetric analysis:
Altmetrics are metrics and qualitative data that are complementary to traditional, citation-based metrics. They
can include (but are not limited to) citations on Wikipedia and in public policy documents, discussions on
research blogs, mainstream media coverage, bookmarks on reference managers like Mendeley, and mentions
on social networks such as Twitter.
Table 9: Top 25 highly attention scoring documents
S.No.
Title
Motor neuroprosthesis implanted with neurointerventional surgery improves capacity for
1
activities of daily living tasks in severe paralysis: first in-human experience
AI writing bots are about to revolutionise science journalism: we must shape how this is
2
done
3 Journalism as a public good: A Scandinavian perspective
4 Financing the Green New Deal, A Plan of Action and Renewal
5 The Finance Franchise
6 Administering Money: Coinage, Debt Crises, and the Future of Fiscal Policy
7 Government at a Glance 2019
Factors affecting implementation of digital health interventions for people with psychosis
8
or bipolar disorder, and their family and friends: a systematic review
9 The Enchantment of the Archaeological Record
Ancient Artifacts vs. Digital Artifacts: New Tools for Unmasking the Sale of Illicit
10
Antiquities on the Dark Web
11 The digital revolution in financial inclusion: international development in the fintech era
The problem of innovation in technoscientific capitalism: data rentiership and the policy
12
implications of turning personal digital data into a private asset
13 New Tech v. New Deal: Fintech As A Systemic Phenomenon
14 The walkthrough method: An approach to the study of apps
15 Exclusion and inclusion in identification: regulation, displacement and data justice
16 Development of High-speed Networks and the Role of Municipal Networks
17 Social signals and algorithmic trading of Bitcoin
Why Your ZIP Code Matters More Than Your Genetic Code: Promoting Healthy
18
Outcomes from Mother to Child
19 Nowcasting Gentrification: Using Yelp Data to Quantify Neighborhood Change
20 The Rise of Digital Financialisation: The Case of India
250
AAS
996
158
156
138
121
121
116
115
86
84
83
77
67
64
58
58
57
56
55
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Contemporary Issues in Banking, Insurance and Financial Services
21
Government at a Glance Southeast Asia 2019
Discipline and Power in the Digital Age: The Case of the US Consumer Data Broker
22
Industry
23 Progress or pinkwashing: who benefits from digital women-focused capital funds?
News Sentiment with Web Browsing Data Improves Prediction of Intra-Day Price
24
Dynamics
25 Initial coin offerings (ICOs) to finance new ventures
Abbreviation: AAS: Altmetric Attention Score
51
47
47
36
36
Table 9 presented 25 highly attention scoring documents in the field of digital finance. The altmetric attention
scores (AAS) of top 25 publications ranged from 36 to 996. The highest scoring altmetric article was one
written by Alt et al. in 2018. Top 25 altmetric articles originated from 10 different countries and were
published in 18 journals with high impact factors.Twitter and Mendeley were the most popular altmetric data
resources.
Altmetric attention score in context shows the score in some different contexts to help you understand if the
level of attention is typical compared to similar articles. The research output “Motor neuroprosthesis
implanted with neurointerventional surgery improves capacity for activities of daily living tasks in severe
paralysis: first in-human experience” received a high attention score compared to outputs of similar age from
Journal of Neurointerventional Surgery (99th percentile) and all outputs from Journal of Neurointerventional
Surgery (#1 of 1,821). Comparing altmetric attention score of this research output to the 280720 tracked
outputs that were published within six weeks on either side of this one in any source, this has done
particularly well, scoring higher than 99 percent of its contemporaries.
CONCLUSION
Digital finance represents provision of financial services through digital processes and technologies. A good
amount of scholarly publications are available in the field of digital finance. Present study presented
scientometric analysis of global research on digital finance. The study found that the number of publications
related to digital finance registered a fluctuating trend till 2013, after that there was a consecutive increase in
the number of publications. Most of the documents have been published in the form of articles and the highest
number of documents was found to be published in SSRN Electronic Journal. In addition to this, our results
found marginal overlapping between top-cited and top altmetric articles. Substantial differences were found
between the characteristics of top-cited and top altmetric publications. This finding may be understood by the
differences between what is perceived influential in academia and what is considered interesting on social
media.
The present study has some limitations. First, search was limited to Dimensions citation database. Other
citation databases like Scopus, Web of Science and Google Scholar were not searched to retrieve publication
on digital finance. Second, Altmetric.com platform was used to access data regarding altmetric attention score
of publications. Other altmetric data providers such as Plum Analytics, ImpactStory, Crossref Event Data and
ALM-PLoS were not included. The inclusion of these platforms may lead to different results. Third, some
well-known social media outlets, such as LinkedIn and Pinterest mentions, Research Gate and Instagram, are
not covered by Altmetric.com.
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Bibliometric Analysis. International Journal of Advanced Science and Technology, 29(8), 379-392.
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Bibliometric Analysis. International Journal of Advanced Science and Technology. 29, 379 - 392.
Ardianto, A. and Anridho, N. (2018). Bibliometric Analysis of Digital Accounting Research. The
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Au, Y. A. and Kauffman, R. J. (2008). The economics of mobile payments: Understanding stakeholder issues
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directions for 5G. IEEE Communications Magazine, 52, 74–80
Caciatori, J.I. and Cherobim, A.P.M.S. (2020). Academic production and technological emergence in finance:
Bibliometric study on FinTechs. Innovation & Management Review, 17(2), 115-131.
Cai, C. W. (2018). Disruption of financial intermediation by FinTech: A review on crowdfunding and
blockchain. Accounting & Finance, 58, 965–992.
Conole, G., Laat, M. D., Dillon, T. and Darby, J. (2008). ‘Disruptive technologies’, ‘pedagogical innovation’:
What’s new? Findings from an in-depth study of students’ use and perception of technology. Computers and
Education, 50, 511–524.
Daniela, G. and Sally, B. (2016). The digital revolution in financial inclusion: international development in
the fintech era. New Political Economy, 1–14.
Durai, T. and Stella, G. (2019). Digital finance and its impact on financial inclusion. JETIR, 6(1), 122-127.
Fatima, A., Abbas, A., Ming, W., Zaheer, A.N. and Akhtar, M.-H. (2017). Analyzing the Academic Research
Trends by Using University Digital Resources: A Bibliometric Study of Electronic Commerce in China.
Universal Journal of Educational Research 5(9), 1606-1613.
Gabor, D. and Brooks, S. (2017). The Digital Revolution in Financial Inclusion: International development in
the fintech era. New Political Economy. 22(4), 423-436.
Gai, K., Qiu, M. and Sun, X. (2018). A survey on FinTech. Journal of Network and Computer Applications,
103, 262–273
Gálvez-Sánchez, F. J., Lara-Rubio, J., Verdú-Jóver, A.J. and Meseguer-Sánchez, V. (2021). Research
Advances on Financial Inclusion: A Bibliometric Analysis. Sustainability, 13(6), 1-19.
Gomber, P., Koch, J.-A. and Siering, M. (2017). Digital Finance and FinTech: current research and future
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Holand, A., Svadberg, S. and Breunig, K.J.(2019). Beyond the Hype: A Bibliometric Analysis Deconstructing
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17th International Conference on Electronic Business, ICEB, Dubai, UAE, 99–105.
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DIGITAL MARKETING FOR NEW AGE BANKS
Dr. Devesh Gupta
Associate Professor, Pt. Deen Dayal Upadhyay Management College, Meerut, UP;
Email –icfe.devesh@gmail.com
Mr. Samarth Singh
Assistant Professor, Dewan Institute of Management Studies, Meerut, UP
Email -samarth26.singh@gmail.com
Abstract
Digitalization is the best tool to advance the customer service in the banking sector. In 1988, the Reserve
Bank of India established a Committee which was headed by Dr. C. Rangarajan on computerization in
banking institutions. The banks have introduced Core Banking Solution (CBS) using Core Banking platforms
such as BaNCS by TCS, FLEXCUBE by i-flex, Finacle designed by Infosys etc. When it comes to customer
engagement, marketing is the bank’s primary advocate, and its role is to drive engagement across all channels
by leveraging insights from big data analytics and developing interactive marketing strategies based on those
insights. New age digital technologies and models are now driving the rapid transformation of banking
marketing function into a true revenue center. The digitization of banking sector embodied in its services
which can enhance productivity, reliability, efficiency, transparency and accountability. For example digital
payment system provides flexibility, mobility and transparency. The transformation was heightened by rising
competition among private sector, public sector, and foreign banks. Commercial banks started shift towards
digital marketing to hold on to their customers. This paper focuses on the importance of digital marketing in
the banking sector.
Key words: Digital service,Digitization, Digital Marketing, Technology, banking sector, customer service,
social media, digital banking.
INTRODUCTION
Innovation takes business to flourish, cultivate & transform both internal and external, with the changes in the
environment. The Banking sector is no exception to this; this sector has witnessed a thorough transformation
and introduced innovations in products, services, processes, technology, business models, systems,
governance and regulation. A globalized financial system has enabled an additional momentum to this
immense effort. Banking has become digital sounded sector with a 24×7 technology driven model with lesser
limitations. Banking sector have benefitted by adopting newer and advanced technologies in several ways. EBanking reduces costs extensively and has helped to create revenue through various modes. The cost per
transaction is expected to be in a range of Rs.50 to Rs.150 on Branch Banking while on ATM it is around
Rs.8 to Rs.20 depending on the type of transaction, While NEFT and RTGS will no longer carry a charge,
IMPS (Immediate Payment Service) transactions are still chargeable. The charge depends largely on the
amount being transferred and the policy of the bank carrying out the transfer it’s usually in the range of ₹1
to ₹25, and on Online Banking Rs.2 plus GST (vary for different banks) depending upon type of transaction.
The convenience of ‘Any Time, Anywhere Banking' has also improved the number of customer and enhance
the customer service quality. Customer-oriented has become a new moto; a competent combination of various
advertising and promotional strategies which is needed to make the customers aware about the products and
services offered by the banking sector. In recent past banking sector is facing tough competition, to beat the
competition; the various digital channels are being used to communicate the customers about the products and
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services offered by them. The information relating to products and Service enables the customers making his
purchase decision easier. As innovatory transformation has taken place in the banking sector with the
development of Information Technology. Digital Marketing deliver and transmit the precise information to
the customers.
OBJECTIVES OF THE STUDY
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Banking sector perform an important part in the economic development of the nation. The banking sector is
highly benefited by the digital transformation. The detailed objectives of this study are the following:
To emphasize the marketing plan of the bankingsector
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To study the role of social media in banking sector
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To study the Digital Marketing inBanking sector
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To emphasize the Marketing strategy of AxisBank
INTERNET PENETRATION IN INDIA
There is no specific moto for success, but in the digitalization era, going digital could be an endearing method
for success. Since digital technologies bring the immense productivity surplus and competitive edge,
companies across different sectors are aiming to ride the digitalwheels.
Table: 1 - INTERNET USERS IN INDIA
Source: Internet and Mobile Association of India (IAMAI)
India has 504 Million active Internet users who are five years & above, as of November 2019. With the
growth of 12% over March 2019, around 53 Millions new users added in November 2019 compared to March
2019. Of the overall Internet population, 433 Million are 12+ years old & 71 Million are 5-11 years old1 who
access Internet on the devices of family members. Even though the Internet penetration in urban is higher,
Rural penetration is growing at faster rate at 18% in November 2019 compared to March 2019. As of
November 2019, For the first time we see that with touching to 227 Million internet users in rural India,
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Contemporary Issues in Banking, Insurance and Financial Services
which is approximately 10% more than those in urban, the digitalization which existed between rural and
urban India is no longer there. Although the Internet users in rural areas are more than those in urban areas,
there is huge hi-fi in rural areas for escalation which will further contribute to boost in the overall Internet
population over the next few years. Overall, there has been an increase in penetration of Internet users across
town classes with top 8 metros having an Internet penetration of 65% as of November 2019.
As per state rank, NCT of Delhi has recorded the utmost Internet penetration followed by Haryana, Kerala,
J&K, Himachal Pradesh and Punjab. Eastern states collectively shown 24% growth in the Internet population
in November 2019 compared to March 2019. Bihar and Jharkhand observed 48% and 36% growth in internet
population respectively, which is superior compared to any other Indian States. In Metros, with a increase of
12%, Mumbai has the utmost Internet population of 13 Million.
Source: Internet and Mobile Association of India (IAMAI)
Figure: 1
The gender segregate the internet population is increasing and the expansion rate is more rapidly among
Female. 26 Million New Female Internet users added in November 2019 which is 21% add to compared to
that of 9% growth in Male. While the ratio of Male internet users in Rural areas is more than twice the Female
internet users, we observed Female internet users growing rapid in Rural with 31% growth in internet
population in Nov 2019 compared to Mar 2019. The divide of Male and Female is 58:42 in Metro.
The close observation of Table – 2 reveals that e-commerce growth is directly related to the number of
Internet users. According to the report published by datareoprt.com, 624 million + internet users in India by
March 2021, the overall Internet penetration is 35 percent of the total population. The number of Internet
users is expected to reach 700 Million by the end of year 2021.
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Table: 2 - INTERNET PENETRATION IN INDIA
YEAR
2006
2009
2010
2015
2016
2017
2018
2019
2020
2021
INTERNET PENETRATION
2% (40 Million Users)
4% (80 Million Users)
7% (100 Million Users)
22% (277 Million Users)
27% (405 Million Users)
32% (475 Million Users)
35% (500 Million Users)
504 Million Users
620 Million Users
700 Million Users
MARKETING PLAN AND STRATEGY OF BANKING SECTOR
i.
ii.
iii.
iv.
v.
Broad marketing strategy is essential to beat completion, to retain old customers and to attract new customer
in the changing environment. The application of a marketing strategy in banks will therefore involve –
Finding out customers‟ financial needs andwants
Developing innovative products and services to satisfy the needs of the customer
Fixation of price for the products and services sodeveloped
Establishing appropriate bank branches andoutsells
Research for predicting future marketneeds’
Digital Marketing in banking sector
To strike the current competition and to reach the potential customers with top brand visibility, digital
marketing is the gate that keeps your brand minty fresh and visibility. So, by employing digital marketing,
banks can–
1. Socialoccurrence
Uninterrupted communication with the customer can assist to lift up the customer experience. Online presence
helps to target new customer, hold old customers and easy to build a strong image full of trust and faith.
Social media is the best mode to connect with customers in new, educational and personalized ways. Social
media helps the banking sector to listen to their customers and engage them in meaningful twowayconversations.
2. Target prospective Customers
Social Media avoids the impersonal feel and helps the banking sector to have a friendlier connect with their
customers always. The potential customers are available in online than anywhere else. Social media forums or
network attracts bunch of customers. Banks can make use of digital statistics to look at customers and market
inclination to give value-driven, personalized and custom-made customer services to every individual
customer.
3. Track Competitors Activities
Digitization is easy to watch the competitors‟move and key strategy. Continuous touch with a customer helps
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to capture customer’s interest through digital marketing.
4. Analyzing the Customer Behavior
There is a paradigm shift in the customer pattern and behaviour. The customers have huge expectations now
days, behind every successful business, there are thousands of customers. Studying customer behavior and
activity helps to enhance existing products and services for better customer satisfaction.
5. Market Performance Self Investigation
Measuring self-performance is essential for a better tomorrow. SWOT analyses enable the business to stand
strong and go long.
6. Mobile Application
According to IAMAI, greater part of the internet population use internet through mobile phones. So,
optimization of Mobile Application will enhance customerbase.
Technology facilitates better penetration of the banking system, improved cost effectiveness and makes small
amount of transactions feasible. Further making banking products and services reasonably priced and
available, it concurrently ensures feasibility and success ofproviders.
Marketing strategy of Axis Bank in India
Axis Bank Limited is an Indian private sector bank headquartered in Mumbai, Maharashtra It sells financial
services to large and medium-size companies, Small Medium Enterprises and retail businesses. The bank use
social media to engage their clients and employing number of channels to attract and retain the customers.
Social Media Strategies
Following are the social media strategies adopted by AXIS Bank to beat competition and increase customer
base.
a) AXIS bank Facebook Page
Receiving feedback from the customers helps to understand their view on products and services. The
Facebook page of AXIS generates admirable feedback and the bank design the product accordingly. There is
another money matters part to deliver appealing recent financial news of interest.
b) AXIS bankTwitter
The AXIS bank Twitter is designed to share the relevant and interesting information with their followers and
asking them interesting sharing new deals, puzzle, products etc. The idea behind is to attract more customers.
c) Axis Bank WhatsApp Service
Presenting Axis Bank WhatsApp Banking, a simple avenue to help address your banking needs. Just initiate a
chat with our designated Axis Bank number and ask for details about your regular banking transactions,
account balance, mini statement, credit card details, cheque book order or even apply for a new product. All
your queries are just a click away. This service is available to customers of Axis Bank and other banks.
Axis Bank WhatsApp Banking is available 24x7 (even on Holidays). This service will be available for both
customers and non-customers of the bank. It is extremely secure and safe as it works on end-to-end
encryption basis. Just send a Hi on 7036165000 at WhatsApp and get subscribed with Axis Bank WhatsApp
Banking. (Source: https://www.axisbank.com/axis-whatsapp-banking)
CONCLUSION
Modern Digitalization age is an age of innovations and technology; hence Banking Sector is no exception to
this scenario. The major driver of Banking Sector is the retention and retaliation of customers. The digital
transformation in the banking work environment forces the banking sector to undertake digital marketing
strategy. As the digital transformation redefines banking business, we got a lot of innovative products and
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Contemporary Issues in Banking, Insurance and Financial Services
services, „Any Time, Any Where‟, thanks to digitization. Digital marketing endorse the banking products and
services at a very low down cost.
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REFERENCES
Boomer and Senior (2014). How Wired Are Boomers and Seniors?” Slideshare, Feb. 6, 2014.
EliHackel,HuiShan (2014). Millennials:TheHousing Edition. Goldman Sachs,Aug.4,2014
Jeramy Biberdorf. Millennial Investing: A Beginner’s Guide to Retirement Savings. Daily Finance, Oct. 16,
2015
Internet and Mobile Association of India (IAMAI)
SeanWilliam (2015). ForBanks,Baby Boomers Mean Lucrative Business. Gallup Business Journal, Feb. 2,
2015
Eurofound (2015). Social inclusion of young people. Publications Office of the European Union,
Luxembourg.
259
Contemporary Issues in Banking, Insurance and Financial Services
Fintech Services: Changing landscapes of BFSI
Pankaj Chaudhary, Research Scholar
Lovely Professional University, Phagwara (Jalandhar)
Dr. Rupinder Katoch, Associate Professor
Mittal School of Business, Lovely Professional University, Phagwara (Jalandhar)
Abstract
Disruptive technologies and innovation has changed the face of Banking, Finance and Insurance Industry.
One of the technologies is Fintech – Financial Technology which is being used by at mass level by the people.
Fintech is easy to use, user friendly and cost effective services. Fintech is emerging as new business models
and reducing the pen paper. Post demonetization and in this pandemic period, fintech is proved as pennaca
for the people for using BFSI services. The present study is an aim to study the impact of gender, age on
awareness, to find out significant association of demographic variables and perceived benefits and to find out
impact of demographic factors on problem encountered while using fintech services. A Conceptual model is
drawn to test the awareness, attitude, perceived benefits and adoption towards the fintech services. A
structured questionnaire is prepared through google forms and circulated to seek the responses. Data analysis
has been made using software. ANOVA, Regression and Percentage analysis has been used to draw the
results. The proposed study will provide insights to policymakers to increase the awareness about fintech and
will help to curb corruption and flow of black money in the economy.
The study is based on small sample size and in conducted in fewer time frames. By using large samples, it
can be more generalized.
Keywords: Fintech, BFSI, Awareness, Attitude, Perceived Benefits.
INTRODUCTION
Industry 4.0 i.e. fourth industrial revolution has given rise to mass production using technologies, new
processes and models at lower cost and efficiency. Digitalization and fusion of technologies is slackening the
dark line between the physical and economic boundries. Emerging technologies like Machine learning,
Artificial Intelligence, Blockchain, Big Data Analytics, Neural Network etc. has changed the way to think and
analyse. Fintech – Financial Services Technology has changed the face of financial services and also set up
new landmarks in the history of banking and finance industry. Disruptive technologies always created and
opened new doors of opportunities for the innovations and given rise to new entrants. Fintech has given the
banking services in the hands of the people or consumers. Fintech is growing at an exponential rate and
innovative business models are emerging.
India focused on fintech and adopted UPI payment methods since 2016 when demonetization occurred and in
this pandemic, there is tremendous growth in fintech industry. Innovations and new models of fintech has
reduced the use of pen paper ad reduces the cost of processes also. According to Payment Council of India,
the digital payment industry has shown a CGAR of 40% to 60% which was earlier 20% to 25%. Startup and
pandemic has created more opportunities to move India towards cashless economy.
As per the report of EY Fintech Adoption Index, 2019, India is at the second position in adopting Fintech
with adoption rate of 85%.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 1: Country-wise Fintech Adoption Index
Country
Adoption Index
Country
Adoption Index
87%
72%
China
Maxico
85%
71%
India
Ireland
82%
71%
Russia
UK
82%
67%
South Africa
Hong Kong
76%
67%
Colombia
Singapore
75%
67%
Peru
Argentina
73%
64%
Netherlands
Brazil
(Source: Compiled from EY Fintech Adoption Index 2019 Report)
Chart 1: Fintech Industry
Uses of
Fintech
Crowd
Funding
1.
2.
3.
4.
5.
Online
Trading
Virtual
Currency
InsurTech
Digital
Payment
Direct Lending
Services
Models of Fintech
P2P Lending: Fintech is creating a market place for borrowing from an individual for lending to other
individuals. The registered borrowers post their funding requirements. It is called Peer to Peer Lending.
Digital Wallets: digital wallets are used for making payments, adding money to their account. These wallets
can be used for making payment of utilities, recharges and booking for travel and tours.
Asset/Wealth Management: Fintech has enabled investors to buy shares, mutual funds. This model of
fintech is called asset management services. These services are being offered at with or without brokerage.
Invoice Financing: This model provides the working capital facility and given to MSME on the unpaid
customer’s invoice. This can accelerate the cash flows in the industry.
Digital Insurance: Fintech companies are coming with new models of insurance – life and general. These
services are providing at lower premium as compared to traditional insurance cover.
Fintech was in nascent stage in 2015, but over the years, it has been found that the industry has grown rapidly
and had achieved ever high growth rate in 2019. Fintech is growing at an exponential rate and has
revolutionized the overall banking and finance industry.
Table 2: Top 10 FinTech Companies in India 2019
Sr. No.Company’s Name
Core business activities
1
Paytm
Mobile Wallet Service, Payment , E-Commerce Services
2
FinBucket
Buy loans on customized rates, Credit Card
3
MobikWik
Mobile based digital wallet, payment system
4
BankOpen
Neo Banking services, Invoices, Access Credit, Book Keeping
5
NPCI
CTS, IMPS, UPI, Rupay, BHIM
6
Wealth Bucket
Investment in Mutual Funds, Assist customers in MF processing
7
BBPS
Utility Bills through registered enablers
8
PayU
Online deferred payment facility, Online Visa-Master Card acquirer,
Anti Fraud System
9
Citrus Payment
Online Checkout processes
10
Rubique
Matching services for cash/credit, eKYC, Fraud Detection
(Source: complied from https://www.marketingmind.in/)
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Contemporary Issues in Banking, Insurance and Financial Services
REVIEW OF LITERATURE
Lu, Wang, Wu & Ye (2020) explored the taxonomy of the fintech industry and depicted the information with
respect to economic perspective. They provided the Bird’s eye view of the development sin fintech research.
Basically the paper was based on the review of literature on fintech services. Their findings reflected that the
traditional theories will remain useful in the present context of fintech. On the other hand, technology
enabled environment can improve the financial decisions and can enhance the chance of fraud detection.
They found a research gap existing fintech researches are not addressing the coherent issues.
Randy, Budi & Purwandari (2020) explained the challenges and trends which are coming in the fintech
researches. They conducted systematic literature review on the research paper collected from various
databases. They took the articles published between 2014-2019. They included the topics such as payments,
risk management and investment, market aggregators, crowd funding, P2P lending and Block chain
technology. Their research shoed that there is need t improve the education about digital finance so that the
expansion of digital finance can be made. They also discussed the acceptance models and other behavioural
model. They also recommended to include the fintech in eduation to prepare the potential workforce for the
maket.
Gurung (2018) studied the growth of fintech industry in India and how this industry is changing the landscape
of financial services in India. They also depicted the factors that are responsible for stunning growth in the
fintech sector. The fintech can be a game changer whether as competitor or collaborator in the BFSI industry.
They also stated that the fintech can be a messiah for the ailing banking industry and can provided solutions
for financial inclusion and marginalized people. They said the fintech can work in diverse, secure and cost
effective manner. It continued to revolutionize the BFSI and transform the ailing industry into a robust and
competitive.
Somnath, A. (2018) focused on the fintech role in Indian BFSI and financial gateways. They also provided an
insight on future banking in collaboration with fintech. They explained the changes taking place due to
implementation and implications of fintech programmes into banking sector. They explored the various
fintech technologies like Chatbot services for customers, Artificial Intelligence, Machine Learning,
Blockchain and India stack which the Govt. of India provided for world class technological framework. They
concluded their study with that using fintech good for India and for its customers. Using fintech, the banking
industry can offer the products and services at lower cost and innovations can increase the customers’ base.
Mohannad et. al. (2020) conducted an empirical study on the fintech adoption among millennial and
generation Z. They took sample of millennial who were born between 1980-2000 and Generation Z who
were born after 2000. They asked 20 questions regarding awareness, attitude and perception about the fintech
services. Their findings reflected that there are is great difference between these two generations with respect
to financial behaviour and perception towards fintech services. Their research also highlighted that
Generation Z globally has more aware of fintech services and highly adoption than millennial. Millennial
have a high intention of using e-wallets to manage their business payroll. They concluded that major
difference between the adoption of fitnech srvices among all generations.
Singh & Rana (n.a.) explored in their study conducted on consumer percerption of digital payment has a
significiant impact on adoption of digital payment. They framed five hypotheses to achieve the objective.
Their sample size was of 150 respondents from Delhi. They found that there is no significant difference
among gender towards digital payment/wallet. However, they found educational qualification has significant
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Contemporary Issues in Banking, Insurance and Financial Services
impact on the use of digital payment. In their findings, they found that majority of the respondents accept
digital wallets in respect of cost, service charges, convenient etc. They concluded that demographic factors
do not have much impact on digital payment/wallet. Das & Das (2020) conducted a study on the adoption of
fintech services across different demographics profile and to analyze the pattern of usage of fintech services
by bank customers. They also analyzed the various constraints while using these services. They collected
primary data from the customer of SBI, ICICI, AGVB Banks. They found that there is no significant
association between gender and adoption of fintech services except educational qualification. They also
found that the awareness about various fintech apps like Paym, PhonePe, Google Pay, Amzaon Pay,
Freecharge etc and drew the conclusion that most of the people are aware. They concluded that there is gender
gap while using fintech services, security measures must be stringent, proper grievance mechanism can create
positive attitude towards the adoption of fintech.
OBJECTIVES OF THE STUDY
1. To know the awareness of Fintech services.
2. To examine the perceived benefits of Fintech services.
3. To determine the attitude for adoption towards Fintech services.
HYPOTHESIS FRAMED
H01: There is no significant difference between demographic factors and perceived benefits towards fintech
services.
H02: There is no impact of Gender, Age and Problem encountered using fintech services.
H03: There is no association between awareness about Fintech services and Gender.
H04: There is no association between awareness about Fintech services and Education Qualification.
Conceptual Model
Awareness about
Fintech Services
Attitude towards
adoption of Fintech
Services
Demographic
Factors
Perceived Benefits
using Fintech Services
RESEARCH METHODOLOGY
The data has been collected through primary and secondary sources. The primary data has been collected
through a structured questionnaire which was circulated through google forms. The secondary data has been
collected through the RBI reports, EY Fintech Adoption Index Reports and reports of Fintech Companies.
The data so collected has been analyzed through SPSS 22 software. The percentage analysis, Regression
analysis and ANOVA techniques have been used for computing the results.
Sample Size: 50 respondents and Sampling Technique : Convenience Sampling.
DATA ANALYSIS AND DISCUSSIONS
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Contemporary Issues in Banking, Insurance and Financial Services
Table 3: Demographic Profile (%)
Frequency
Demographic
Factor
Male
Female
Gender
24
26
50
18
25
7
50
18
26
6
50
12
17
11
7
3
50
Total
Less than 20 Years
20 Years- 30 Years
More than 30 Years
Age
Total
Educational
Qualification
Graduate
Post Graduate
Other
Total
Occupation
Percentage
Student
Serviceman
Businessman
Professional
Other
Total
(Source: Compiled from Primary Data)
48
52
100
35
50
14
100
36
52
12
100
24
34
22
14
6
100
Table 4: Perceived Benefits Analysis with ANOVA
Educational
Gender
Age
Perceived Benefits
Qualification
Occupation
F
Sig.
F
Sig.
F
Sig.
F
Sig.
.003
.066
.954
.798
1.925
.232
.157
.794
.115
.811
.892
.450
.935
.569
.452
.686
Cash Back offers attracts me/us.006
.939
1.654
.202
.973
.385
1.780
.150
.036
Cost Efficient services
2.390
24*7 Usage
(Source: Compiled from Primary Data)
.851
.129
1.394
8.592
.258
.001
.503
.959
.608
.391
3.143
1.635
.023
.182
Convenient to use
Fast and Quick Service
Table 4 shows that there is no significant difference between demographic factors and perceived benefits of
fintech services. There is one factor i.e cost efficient services and occupation has significant difference. H 01
is accepted andthere is no significant difference between demographic factors and perceived benefits towards
fintech services except one factor under occupation.
Table 5: Awareness about Fintech Services
Response
Frequency
Percentage
27
54
Yes
23
46
Awareness
No
Total
50
100
(Source: Compiled from Primary Data)
Table 5 shows that 54% of people are aware of fintech services and 46% are not yet aware of fintech services.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 6: Problems encountered with respect to Gender & Age analysis with ANOVA
Gender
Problem faced
F
Sig.
Age
F
Sig.
Service Charge
.013
.911
.597
.555
Transaction Failure
.018
.894
.713
.495
Connectivity Issues
.038
.846
.111
.895
Fear of Hacking
..056
.923
2.505
.093
Trust of Service Provider
.124
.726
2.100
.134
(Source: Compiled from Primary Data)
Table 4 shows that there is no significant difference between problem faced with regard to age and gender.
H01 is accepted andthere is no significant difference between Gender, Age and Problem encountered using
fintech services.
CONCLUSION
The present study found the demographic variables has no association with awareness and attitude towards
fintech services. The results also supported that except educational qualification, there is no significant
difference between other factors. India is moving towards cashless economy gradually. Most of the users of
fintech services are millennials and generation –Z. They have adopted these services at large. Government
should start the programme for more awareness and should include in the educationalEY programmes for
creating workforce.
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REFERENCES
Arora, A.K. (2019). Fintech: New Financial Landscape in India. The Management Accountant Journal, Vol.
54(10), retrieved from https://icmai.in/icmai/news/209.php
Hassnian, Ali et. al. (2018). Awareness and Knowledge of Fintech among Islamic Banking and Finance
Students in Pakistan. Islamic Banking and Finance Review, Vol. 5, pp. 2-22.
Lu, H., Wang, B., et. al. (2020). Fintech and the Future of Financial Service: A Literature Review and
Research Agenda, China Accounting and Finance Review, Vol. 22(3), pp. 107-136.
Randy, R., Budi, I. et. al. (2020). Challenges and Trends of Financial Technology (Fintech): A Systematic
Literature Review, Information Journal.
Gurung, S. (2018). Fintech: A Messiah for the Ailing Banking Industry in India, Journal of Emerging
Technologies and Innovative Research, Vol. 5(10), pp. 159-164.
Sanmath, A. (2018). Fintech Banking: The Revolutionized Digital Banking, International Journal of Trend
in Scientific Research and Development, pp. 172-180.
A., Mohannad., et. al. (2020). Fintech in the eyes of Millennials and Generation Z (The Financial Behaviour
and Fintech Perception), Business Perspectives Journal, Vol 45(3), pp 20-28.
Singh, S. & Rana, R., (2019). Study of Consumer Perception of Digital Payment Mode, Journal of Internet
Banking & Commerce.
Das, A. & Das, D. (2020). Perception, Adoption and Pattern of Usage of Fintech Services by Bank
Customers: Evidence from Hojai District of Assam, Emerging Economy Studies Journal, pp. 1-16.
EY(2019). Global Fintech Adoption Index. Retrieved from https://www.ey.com/en_gl/ey-global-fintechadoption-index
265
Contemporary Issues in Banking, Insurance and Financial Services
Prospects of Cash less Economy in India: A Theoretical View
Dr. Sunita Bishnoi
Associate Professor, DAV Institute of Management Faridabad
Dr. Nidhi Turan
Assistant Professor, DAV Institute of Management Faridabad
Abstract:
In a cashless economy, the maximum transactions are done without using the physical cash or the means of
hard cash. It is the economy where economic transactions are done with the facilities like credit card, debit
cards and on line transactions by means of fund transfer and using e-wallets. The introduction of cashless
economy with the help of information technology these days is fully supported by the national government in
India. This initiative has not only helped the fast transactions but at the same time it has saved lot of time and
money in the country. If we see the global trend in the market it is clear that all over the world people have
started taking interest in cashless transactions. The main focus of this article is to outline the basics of
cashless economies and to summarise and integrate the current understanding regarding cashless
economies.The study has been carried out based on the collection of the relevant secondary data. The sources
like newspapers, magazines, articles, conceptual and research papers, related websites of newspaper, banks
and Government departments have been used to achieve to abovementioned objectives.
Keywords: Cashless Economy, Digital Payment Modes, Net Banking, Future Challenges, Mobile wallets Etc.
INTRODUCTION
India has a special love for cash in line with the world’s top-10 highly cash-reliant countries like Chad,
Angola, Ethiopia, Tanzania, Nepal and Iran. Global Ranking of Cashless Countries ( Source: Business
Today 30.11.2016): Singapore(61%), Netherlands(60%),, France(59%),, Sweden(59%), Canada(57%),
,Belgium(56%),, UK(52%),, USA(45%),, Australia(35%),, Germany(33%). Recent research
by ForexBonuses.org shows cashless options are growing quickly in some countries. They looked at the 20
top economies and spending habits based on available data and the overall weighted average was compiled
for rankings. Researchers used six criteria in measuring top cashless countries: number of credit and debit
cards per person; number of cards with contactless functionality; growth of cashless payments in past five
years; payments made with non-cash methods; and awareness of mobile payment options.The world’s Most
Cashless Countries 2020: Canada, Sweden, UK, France, US, China, Australia, Japan, Russia.
OBJECTIVES OF PAPER
The main focus of this article is to outline the basics of cashless economies and to summarise and integrate
the current understanding regarding cashless economies.
1)
2)
To list out various benefits of cashless economies along with future prospects and challenges.
To assemble information regarding various modes available to users to use Cashless transactions/digital
transactions.
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Contemporary Issues in Banking, Insurance and Financial Services
RESEARCH METHODOLOGY
This research article is exploratory in nature. The author uses existing resources on the subject under study.
The study has been carried out based on the collection of the relevant secondary data. Electronic databases
and online libraries are searched for relevant literature using a comprehensive set of keywords and graphical
representation relating to cashless technology of different countries including India. The sources like
newspapers, magazines, articles, conceptual and research papers, related websites of newspaper, banks and
Government departments have been used to achieve to abovementioned objectives. All the resources used
were cited in reference section.
CASHLESS SOCIETY
Despite debates and controversies, countries like Sweden, China and the UK have proved that the
cashless society is possible. A cashless economy is a system where any type of money transactions are done
through digital means like debit cards, electronic fund transfer, mobile payments, internet banking, mobile
wallets, and other newly evolved payment channels, this will leave very little scope for flow of hard cash in
economy. (References: Aggarwal, Tawade P. H., Basu Agnishwer, Vijay Kittu Manda & Suguna Margana,
Maurya Pooja, Garg Preeti,).the following are the benefits:• No paper money or coins
• Everything is electronic
• Payment via E-wallets
• EFT- Electronic Funds Transfer
• EPS – Electronic Payment System
• Microchips/Smart Cards
• Fingerprints
• Retinal scan
Cashless Economy Advantage
1) To avoid black money transactions
2) To avoid time consuming
3) To avoid risk
4) It helps to economic growth
5) It helps to increase security
6) It helps to reduce illegal business
7) It helps to avoid the threat of counterfeit currency
8) Help to effective utilization of resources
9) It helps to effective transaction
10) To avoid criminal activities
11) Reduces the circulation of liquid money
12) People using the means of e-commerce, mobile banking or
13) Internet banking for their purchase or for their transaction
14) Easy to handle
15) The transaction process and purchase made easy
16) Helps to eliminate counterfeit currencies
17) If the government finds a person guilty government can easily block his/her transaction
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Contemporary Issues in Banking, Insurance and Financial Services
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18) The government can control the financial transactions in the society
19) More transparency and easy to track money laundering and other such activities
20) Environmental friendly
Few Challenges to Cashless System
People still rely on the idea of money being ‘physically’ realizable. For some psychological reason, ‘paper’
money is revered more than ‘plastic’ money or ‘digital’ money. Cash keeps a check on people’s spending
habits.
Anything that’s technological comes with a baggage of risks and security threats. A very high and
unreachable degree of security would be needed as a deterrent to hackers and cyber criminals.
There would require some sort of digital awareness to understand the working of a society with no cash.
People who have grown up and lived through times when a substitute for cash wasn’t even thought of might
face some difficulty in adjusting to a world without currency notes.
All the existing cash in the world cannot be removed or deemed ‘abandoned’ at one go. Also, when it comes
to money, reassurance is the thing that matters most. For a complete switch-over to the new monetary model,
the voluminous amount of cash presently circulating in the market would have to be converted into an
equivalent number of ‘digital’ points.
Developing economies have an added challenge in the form of high levels of illiteracy among the masses. For
example, in India itself, there are large sections of rural population who haven’t seen a bank in their lifetimes,
let alone owning a bank account. The only way they recognize money is through currency notes and coins.
The Indian Government has also been encouraging cashless society like never in th e past, giving the
digital currency a new hope, through supportive government schemes like Digital India, Jandhan Yojna,
BHIM app etc. Year 2016 (demonetisation and 2020 (Pandemic) has recorded sudden rise in demand for
the online marketplace and the increasing usage of UPI, JioMoney, G-Pay, Paytm, PhonePe,
AmazonPay, Paypal, among other digital payment apps. Programs like Pradhan Mantri Jan -Dhan Yojna
(PMJDY) and Digital India have been successful in bringing more people under cover of new -age
connectivity and advanced banking. Increasing mobile usage, rising internet speeds, fast-spreading
awareness and affordable data plans are among other key drivers by driving the cashless trend in India.
The Government of India has reportedly urged the banks to avoid cash or paper currency and promote
the usage of digital currencies.
In this regard, the Ministry urged banks to run campaigns across print, online and social media channels
to highlight the benefits of digital payments in the current situation. As a precautionary measure, the
government has pressed for usage of digital payment options like UPI, NEFT, mobile banking, debit and
credit cards instead of paper currency. The cashless economic activity usually happens in three different
modes, namely:

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
Mobile or e-wallet: Mobile Wallet refers to the usage of mobile wallets or digital payment apps
Plastic money: Plastic Money involves the usage of debit/credit cards across swiping machines and POS
terminals
Net Banking: the user logs in to the banking account and make the transactions through National
Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) or Immediate Payment Service
(IMPS)
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Contemporary Issues in Banking, Insurance and Financial Services
The National Payments Corporation of India (NPCI), which oversees electronic retail payment systems in the
country, created an infrastructure for payments and settlements in India. In fact, the development of the UPI
system, payment applications such as Bharat Interface for Money (BHIM) and RuPay were catalysts for
increased use of digital payments in India. This is a great achievement for the NPCI that money transfer
digitally is now so simple. There are now several private players in the market like Google Pay, Amazon Pay,
PayTm, PhonePe, and, now, whatsapp Pay.
Modes of Cashless Transactions
As part of promoting cashless transactions and converting India into less-cash society, various modes of
digital payments are available, such as
1. Banking Cards (debit / credit / cash / travel / others)
2. Unstructured Supplementary Service Data (USSD)
3. Aadhaar Enabled Payment System (AEPS)
4. Unified Payments Interface (UPI)
5. Mobile Wallets - Paytm, Freecharge, Mobikwik, Oxigen, Mruppee, Airtel money, Jiomoney, Sbi buddy, Itz
cash, Citrus pay, Vodafone M-pesa, Axis bank lime, ICICIpockets, Speedpay etc.
6. Banks Pre-paid Cards
7. A Point of Sale (POS) is the place where sales are made
8. Internet Banking also known as Online Banking, E-banking or Virtual Banking
9. Mobile Banking is a service provided by a bank or other financial institution
10. Micro ATM meant to be a device that is used by a million business correspondents (BC)
11. Cheques, Demand Drafts etc. Cheques& Demand Drafts Methods are usually use where we not need to
transfer money Online.
INDIAN ECONOMY TOWARDS DIGITAL PAYMENTS AND CASHLESS ECONOMY
The Indian government has been promoting and propagating online payments aggressively, starting with
demonetization back in 2016. ‘Digital India’ had been the guiding force of many economic and financial
decisions that pushed Indians to switch to online payments. After the launch of Cashless India, we currently
have ten methods of digital payment available in India. Some methods have been in use for more than a
decade, some have become recently popular, and others are relatively new.
1: Banking Cards: Indians widely use Banking cards, or debit/credit cards, or prepaid cards, as an alternative
to cash payments. Andhra Bank launched the first credit card in India in 1981.Cards are preferred because of
multiple reasons, including, but not limited to, convenience, portability, safety, and security. This is the only
mode of digital payment that is popular in online transactions and physical transactions alike. Nowadays,
many apps are being launched with the sole purpose of managing card transactions like Cred, Square, etc.
2: Unstructured Supplementary Service Data (USSD): USSD was launched for those sections of India’s
population which don’t have access to proper banking and internet facilities. Under USSD, mobile banking
transactions are possible without an internet connection by simply dialing *99# on any essential feature
phone. This number is operational across all Telecom Service Providers (TSPs) and allows customers to avail
of services including interbank account to account fund transfer, balance inquiry, and availing mini
statements. Around 51 leading banks offer USSD service in 12 different languages, including Hindi &
English.
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Contemporary Issues in Banking, Insurance and Financial Services
3: Aadhaar Enabled Payment System (AEPS): AEPS is a bank-led model for digital payments that was
initiated to leverage the presence and reach of Aadhar. Under this system, customers can use their Aadhaarlinked accounts to transfer money between two Aadhaar linked Bank Accounts. As of February 2020, AEPS
had crossed more than 205 million as per NPCI data. AEPS doesn’t require any physical activity like visiting
a branch, using debit or credit cards or making a signature on a document. This bank-led model allows digital
payments at PoS (Point of Sale / Micro ATM) via a Business Correspondent (also known as Bank Mitra)
using Aadhaar authentication. The AePS fees for Cash withdrawal at BC Points are around Rs.15.
4: Unified Payments Interface (UPI): UPI is a payment system that culminates numerous bank accounts
into a single application, allowing the transfer of money easily between any two parties. As compared to
NEFT, RTGS, and IMPS, UPI is far more well-defined and standardized across banks. You can use UPI to
initiate a bank transfer from anywhere in just a few clicks. The benefit of using UPI is that it allows you to
pay directly from your bank account, without the need to type in the card or bank details. This method has
become one of the most popular digital payment modes in 2020, with October witnessing over 2 billion
transactions.
5: Mobile Wallets: Mobile Wallets, as the name suggests, is a type of wallet in which you can carry cash but
in a digital format. Often customers link their bank accounts or banking cards to the wallet to facilitate secure
digital transactions. Another way to use wallets is to add money to the Mobile Wallet and use the said balance
to transfer money.
Nowadays, many banks have launched their wallets. Additionally, notable private companies have also
established their presence in the Mobile Wallet space. Some popularly used ones include Paytm, Freecharge,
Mobikwik, mRupee, Vodafone M-Pesa, Airtel Money, Jio Money, SBI Buddy, Vodafone M-Pesa, Axis Bank
Lime, ICICI Pockets, etc.
6: Bank Prepaid Cards: A bank prepaid card is a pre-loaded debit card issued by a bank, usually single-use
or reloadable for multiple uses. It is different from a standard debit card because the latter is always linked
with your bank account and can be used numerous times. This may or may not apply to a prepaid bank card.
A prepaid card can be created by any customer who has a KYC-complied account by merely visiting the
bank’s website. Corporate gifts, reward cards, or single-use cards for gifting purposes are the most common
uses of these cards.
7: PoS Terminals: PoS (Point of Sale) is known as the location or segment where a sale happens. For a long
time, PoS terminals were considered to be the checkout counters in malls and stores where the payment was
made. The most common type of PoS machine is for Debit and Credit cards, where customers can make
payment by simply swiping the card and entering the PIN.
With digitization and the increasing popularity of other online payment methods, new PoS methods have
come into the picture. First is the contactless reader of a PoS machine, which can debit any amount up to Rs.
2000 by auto-authenticating it, without the need of a Card PIN.
8: Internet Banking: Internet Banking, also known as e-banking or online banking, allows the customers of a
particular bank to make transactions and conduct other financial activities via the bank’s website. E-banking
requires a steady internet connection to make or receive payments and access a bank’s website, which is
called Internet Banking.
Today, most Indian banks have launched their internet banking services. It has become one of the most
popular means of online transactions. Every payment gateway in India has a virtual banking option
available. NEFT, RTGS, or IMPS are some of the top ways to make transactions via internet banking.
9: Mobile Banking: Mobile banking refers to the act of conducting transactions and other banking activities
via mobile devices, typically through the bank’s mobile app. Today, most banks have their mobile banking
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Contemporary Issues in Banking, Insurance and Financial Services
apps that can be used on handheld devices like mobile phones and tablets and sometimes on computers.
Mobile banking is known as the future of banking, thanks to its ease, convenience, and speed. Digital
payment methods, such as IMPS, NEFT, RTGS, IMPS, investments, bank statements, bill payments, etc., are
available on a single platform in mobile banking apps. Banks themselves encourage customers to go digital as
it makes processes easier for them too.
10: Micro ATMs: Micro ATM is a device for Business Correspondents (BC) to deliver essential banking
services to customers. These Correspondents, who could even be a local store owner, will serve as a ‘micro
ATM’ to conduct instant transactions. They will use a device that will let you transfer money via your
Aadhaar linked bank account by merely authenticating your fingerprint.
Essentially, Business Correspondents will serve as banks for the customers. Customers need to verify their
authenticity using UID (Aadhaar). The essential services that will be supported by micro ATMs are
withdrawal, deposit, money transfer, and balance inquiry. The only requirement for Micro ATMs is that you
should link your bank account to Aadhaar.
Benefits of Cashless Transactions:
In a country like India, where disparities are sometimes poles apart, ensuring financial equality becomes an
issue of prime importance. One of the reasons why our government started vocalizing Cashless Economy and
Digital India was to improve access to financial resources. There are many benefits that are related directly or
indirectly to the India’s economy with the use of cashless transactions in the market. These benefits have been
noticed from the following articles written by Malhotra, Kamlesh, P. Shamshadali, C.P. Fidha, C. Syamjith.
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Cost of printing money:
Maintenance Cost
Eradication of the corruption
Help to Check High Rate Of Organized Crimes, Such As Armed Robbery, Kidnapping Terrorist Activities
And Money Laundering:
Wipe away the black money from the market:
Installation of formal and pure form of economy:
Stop Leakages
Decrease the cost of commodity:
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Challenges in establishing Cashless economy
Financial inclusion:
Lack of infrastructure:
Lack of education:
Access of technology
Large number of people to be covered:
Unwillingness to join cashless moment
Uneven profile of the participants
Customer awareness is missing
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Contemporary Issues in Banking, Insurance and Financial Services

Benefits of digital payments for Users
Modern customers and client cannot think of banking without the facility of plastic cards. Today credit and
debit cards have largely replaced cheques as alternatives tocash. Both are reasonably secured compared to
cash and are widely accepted. User friendliness and feasibility are the main features of plastic money that
have made plastic money popular not only in India but also all over the world.
Credit cards usage for travel bookings
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Electronic transactions grew strongly with the help of Reserve Bank of India (RBI)
Mobile banking applications become common for all banks
Security
Universal Acceptance
Emergency Protection
Convenience
Simplified Record Keeping
Hygienic
Environment Friendly
CONCLUSION
For implementing cashless transaction systems/economy system India need to be well established there needs
to be certain challenges that need to be overcome. These needs include developing adequate infrastructure and
making people more aware about such systems. This paper has discussed certain benefits and challenges
associated with the cashless economy. However, with the introduction of safer methods and stricter rules by
the government, it is definitely the most sought option as of now. Cashless economy increases the speed at
which the money is transferred from one person to another. Moreover, it provides transparency in the
transactions as well. On the other side, it is important for the individual users to follow the security procedures
in place. This is important to ensure no illegal transactions take place and the money remains safe.
REFERENCES
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Agarwal K Rajiv, “Impact of Cashless Society for the Economic Growth in India”, Emerging Trends and
Innovations
in
Modern
Management,
Accessed
from
https://www.inspirajournals.com/uploads/Album/1754909285.pdf
Anjali, D., & Srivastava, S. (2018, June). Cashless India: Challenges and Benefits. International Journal of
Novel Research and Development, 3(6), 17 - 22.
Bappaditya Mukhopadhyay(2017), “Understanding cashless payments in India”, https://jfinswufe.springeropen.com/track/pdf/10.1186/s40854-016-0047-4.pdf
C. Thilagavathy & S. Naga Santhi (2017), “Impact and Importance of Cashless Transaction in India”,
International Journal of Recent Research and Applied Studies, Vol. 4, No.10
cashlessindia.gov.in, ssrn.com, Forbes.com , thehindubusinessline.com, thebalance.com
Gaba Madhu and Nagpal Manisha (2017), “Cashless Economy: Problems and Prospects”, International
Journal of Engineering Research & Technology (IJERT), special issue (2017).
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Garg Preeti & Panchal Manvi (2017), “Study on Introduction of Cashless Economy in India 2016: Benefits &
Challenge’s”, IOSR Journal of Business and Management, Volume 19, Issue 4, pp. 116-120.
https://www.forexbonuses.org/cashless-countries/ accessed on 20.03.2021
Kamlesh
(2017),
“Impact
of
Cashless
Payment
on
Economy
Growth”,
http://data.conferenceworld.in/GNCG/P358-362.pdf
Malhotra S. (2018), “ Impact of Cashless Society for the Economic Growth in India”, www.gjimt.ac.in
Maurya, Pooja, Cashless Economy and Digitalization (January 5, 2019). Proceedings of 10th International
Conference
on
Digital
Strategies
for
Organizational
Success,
Available
at
SSRN: https://ssrn.com/abstract=3309307 or http://dx.doi.org/10.2139/ssrn.3309307
P. Shamshadali, C.P Fidha, C. Syamjith. Evaluation of cashless economy concept in Indian scenario. Indian
Journal of Economics and Development. Vol 6 (12), December 2018.
Ravikumar T, Suresha. B, Sriram. M, Rajesh. R (2019), “Impact of Digital Payments on Economic Growth:
Evidence from India” International Journal of Innovative Technology and Exploring Engineering (IJITEE)
ISSN: 2278-3075, Volume-8 Issue-12.
Singhraul & Garwal (2018),“Cashless Economy – Challenges and Opportunities in India”, Pacific Business
Review International Volume 10 Issue 9, March 2018
Tawade Pradeep (2017), “FUTURE AND SCOPE OF CASHLESS ECONOMY IN INDIA”, Vol-2 Issue-3
2017 IJARIIEVijay Kittu Mandaa Suguna Margana (2018),Mitra A., Rath S., Nayak J.K. (2017), KaurManpreet (2017), Dr.
Sathya R. and Ms.Rooplata (2016), PiyushKumar(2015)
www.motilaloswal.com, “Benefits of going cashless in India”, accessed on 10 march 2021
Newspaper Websites: ET News, Mint, Times of India, HT, Financial Express, the Business Line, Business
Today,
Banks websites visited: RBI, HDFC, ICICI,
www.digitalindia.gov.in
www.cashlessindia.gov.in
273
Contemporary Issues in Banking, Insurance and Financial Services
A Measure of Consumers’ Perception toward e-wallet (Digital
Payment Method)
Dr. Divya Malhan, Associate Professor
IMSAR, MDU, Rohtak; divyagrewal@rediffmail.com
Mohan Kumar, Research Scholar, IMSAR,
MDU, Rohtak, Email: mohan.rs.imsar@mdurohtak.ac.in
Dr. Preeti, Assistant Professor,
CMK National Girls' P.G. College, Sirsa; pkhatri2010@gmail.com
Abstract
Electronic payment has become a famous way of making payments. The covid-19 pandemic has made it even
more popular as people don’t want to get affected by the virus. Various payment systems and e-vendors have
emerged to date and consumers are getting used to mobile payment applications. The present study is
conducted to know the perception of consumers toward e-Wallet (digital payment methods). Different
opinions from customers about satisfaction level, problems faced during using e-Wallet have been highlighted
using 15 statements on a 5-point Likert type scale. An online survey was conducted and a sample size of 158
consumers was collected. As a result, no significant difference has been found between demographic factors
and consumer perception and between demographic factors and the satisfaction level of consumers about the
e-Wallet (digital payment method).
Key words: e-Wallet, digital payment, demographic, consumer perception, satisfaction
INTRODUCTION
In todays’ era of technology, the mobile phone plays a vital role in human life. The mobile phone is used for
multiple purposes i.e., to make money transaction by using a different type of electronic Payment System
(EPS), e-Wallet, e-cash, e-payments, m-wallet, digital payments are the names people use to make money
transactions. E-payment provides a tool or instrument that helps consumers making online payments for
goods and services conceded on the internet (Subramanian et al., 2019). Electronic payment has become a
famous way of making payments and the covid-19 pandemic has made it even more popular as people don’t
want to get affected by the virus. According to Economic Times, 2020 definition of e-Wallet is “e-Wallet is a
type of electronic card which is used for transactions made online through a computer or a smartphone. Its
utility is the same as a credit or debit card. An e-Wallet needs to be linked with the individual’s bank account
to make payments.” The escalation of internet has made the e-payments successful as compared to traditional
methods (Sumanjeet, 2009)
Various payment systems and e-vendors have emerged to date and consumers are getting used to mobile
payment applications. 33% used Paytm, 14% used Google Pay, 4% used Phone Pe, 10% used Amazon Pay,
and 6% used BHIM while 33% consumers used other apps for digital payment during lockdown (42 per
Cent Indians Have Increased Use of Digital Payments during COVID-19 Lockdown: Report- The New
Indian Express, n.d.).
This paper focuses on consumers’ perception regarding e-Wallet (Digital payments Method).
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Contemporary Issues in Banking, Insurance and Financial Services
REVIEW OF LITERATURE
There are some factors like benefits, self-efficacy, and ease of use exert significant influences on
perception of consumers regarding e-payments and they have also found insignificant result for trust and
security factors identified in the study of (Teoh et al., 2013). (LAI, 2016) suggested that the determinants
like design, security, perceived usefulness and ease of use plays significant role in consumers’ intention of
using electronic platform.
Security is the major issue among digital app users suggested by (Jaiswal et al., 2020; Undale et al.,
2020a). They have also implied that use of digital app for payment is forceful not willful. Privacy and
security were the major issues that consumers perceived (Gopinath et al., 2017; Subramanian &
Sarojadevi, 2018) While adopting e-banking option important factors like perceived usefulness, perceived
ease of use, perceived risk and consumer awareness plays strong positive (Fatonah et al., 2018) effects on
consumers mind (Information et al., 2010). (Undale et al., 2020b) provided theoretical and practical
contributions in the factors of security and trust in e-payment system. Their research has also developed a
model of consumers’ which helped to explain the direct relationship between perceived securities, trust and epayment use.
To build trust, create interest and make a secure e- payment system (Fatonah et al., 2018). People have shown
greater adoption of digital payment system till now and there will be significant population of first-time
adopters continuing with e-payments (Global Annual Review 2020: PwC, n.d.). A Study on Usage of
EPayments for Sustainable Growth of Online Business (Prof . Sana Khan , 2 Ms . Shreya Jain,” 2018)
elaborated in their study that benefits of e-payment methods are associated benefits provided by smart phones
like independent payments easy accessibility quick payments, no more waiting in queues.
OBJECTIVE AND HYPOTHESIS
The main objective of the present study was to measure the consumer perception toward e-Wallet (digital
payment method) and their satisfaction level about digital payment. For achieving this objective, following
hypothesis were formulated.
1. (H0):There is no significant different between demographic factors and consumer perception about e-Wallet.
2. (H0): No significant difference between Demographic factors and satisfaction level of consumers using eWallet.
RESEARCH METHODOLOGY
The present study is consisting of primary as well secondary data type. Primary data is collected by structured
questionnaire adopted from the study conducted by (Subramanian et al., 2019). This questionnaire is related
to consumer’s point of view on perception regarding awareness about e-Wallet, intention to use digital
payment methods. Different opinions from consumers and their satisfaction level, problems faced during
using e-Wallet have been highlighted using 15 statements on 5-point Likert type scale ranging from Strongly
disagree (1), Disagree (2), Neutral (3), Agree (4) and Strongly Agree (5). Source of secondary data includes
annual reports, journals, seminar materials and various publication etc. For data collection, a google form was
framed in an appropriate manner and distributed randomly to the respondents. Sample size for this study was
158 respondents.
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Contemporary Issues in Banking, Insurance and Financial Services
DATA ANALYSIS
The following paragraph represents the analysis of data conducted for the study. Table-1 represents the
gender and satisfaction level of respondents using e-Wallet by One-way ANOVA.
Table:1 Respondents’ gender and satisfaction level of using e-Wallet
by One-way ANOVA
S. No. Items
“How likely you think e-wallet apps are safe and
secure to use”
1
“How likely you think that e-wallet apps are easy
to use”
2
“Using the mobile wallet improves the quality of
my decision making for buying products”
3
“Believe mobile wallets are useful in buying
products than the traditional methods”
4
“Think that using online wallets can offer me a
wider range of banking services and payment
options”
5
“Mobile wallets are capable of providing benefits
to individual for purchase of product”
6
“Trust the service providers of mobile wallet”
7
“Money transfer speed”
8
“Digital payment is highly efficient comparing to
conventional payment methods”
9
“Account to account transfer option.”
10
“SMS alerts about specific information to the bank
services /new products”
11
“Reward point status”
12
“Digital payment protects my privacy”
13
“E-wallet make able to make payments from
anywhere”
14
“Digital payments have low level risk”
15
Source: Primary Data
F
Sig.
5.258
.023
2.128
.152
.018
.893
1.858
.175
12.571
.000
Hypothesis
(Accepted/Rejected)
Rejected
Accepted
Accepted
Accepted
Rejected
1.030
.060
2.949
1.903
.088
.062
0.580
.460
15.271
.000
3.879
.050
8.254
.497
.005
.482
.092
.762
.532
.467
Accepted
Accepted
Accepted
Accepted
Rejected
Accepted
Rejected
Accepted
Accepted
Accepted
Here, we accept the (H0) null hypothesis for the items where p-value is more than 0.05 at the 5% level of
significance and where p-value is less than 0.05 we not accept the null hypothesis so Alternate hypothesis
(H1) is automatically accepted. There are only four statements (1,5,10,12) where null hypothesis is rejected.
Other than these four statements, for remaining all statements null hypothesis is accepted. Hence, we can
conclude that there is no significant difference between demographic factors and consumer perception about
e-Wallet and no significant difference between demographic factors and satisfaction level of consumers about
the e-Wallet (digital payment method).
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Contemporary Issues in Banking, Insurance and Financial Services
SOCIAL IMPLICATIONS OF THE STUDY
The present study is conducted to know the perception of consumers toward e-Wallet (digital payment
methods). The scope of this study is limited to user experience. Finding of this research reflect that consumers
are ready to move from traditional payment system to cashless payment system. This research focuses toward
security issues related to e-Wallet are being take care by concerned Digital wallet’s companies. Through this
study we have identified numerous factors which are responsible for this movement from cash to cashless
transaction i.e., security concern, social influences, privacy, time saving, comfort level etc.
CONCLUSION AND DISCUSSION
The present empirical study helps in evaluation of consumer perception and satisfaction level of different age
groups, academic background, different income level and gender about the use of e-Wallet. Finding of this
study suggest that consumers really want to go for cashless transaction and its related facilities. We can use
internet in many different ways for doing online transaction in easy way with more security. This study
mainly focuses on ease of doing online transaction using e-Wallet and security concern related to digital
wallet. We can make it more secure by not sharing mobile OTP with others. One-way ANOVA is used to
analyze the items between different groups. Result of ANOVA is indicated that there is no significant
difference between demographic factors and perception and this result is supporting with the study of
(Mathiraj et al., 2019).
REFERENCES










A Study on Usage of ePayments for Sustainable Growth of Online Business Prof . Sana Khan , 2 Ms . Shreya
Jain. (2018). IOSR Journal of Business and Management, 74–81. www.iosrjournals.org
Global Annual Review 2020: PwC. (n.d.). https://www.pwc.com/gx/en/about/global-annual-review2020.html
Gopinath, U., Sundaram, N., & Rengasamy, D. (2017). Green banking initiatives as catalyst for
demonetization chaos – A study with reference to ICICI Bank. International Journal of Applied Business and
Economic Research, 15, 33–38.
Information, M., As, S., & Of, A. D. (2010). Journal of Internet Banking and Commerce. Journal of Internet
Banking and Commerce, 15(3).
Jaiswal, A., Borage, S., & Shelotkar, P. (2020). A clinical approach to COVID-19. International Journal of
Research in Pharmaceutical Sciences, 11, 723–729. https://doi.org/10.26452/ijrps.v11iSPL1.3073
LAI, P. C. (2016). Design and Security impact on consumers’ intention to use single platform E-payment.
Interdisciplinary Information Sciences, 22(1), 111–122. https://doi.org/10.4036/iis.2016.r.05
Mathiraj, S. P., Geeta, S. D. T., & Saroja Devi, R. (2019). Consumer acuity on select digital wallets.
International Journal of Scientific and Technology Research, 8(12), 3551–3556.
Subramanian, S. M., Geeta, S. D., & Rajendran, S. D. (2019). Consumer Acuity On Select Digital Wallets.
International Journal of Scientific & Technology Research, 8, 3551–3556.
Subramanian, S. M., & Sarojadevi, R. (2018). Customers Perception in Online Payment System In India.
Sumanjeet. (2009). Emergence of payment systems in the age of electronic commerce: The state of art. 1st
South Central Asian Himalayas Regional IEEE/IFIP International Conference on Internet, AH-ICI 2009, 2(2),
17–36. https://doi.org/10.1109/AHICI.2009.5340318
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

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Teoh, W. M. Y., Chong, S. C., Lin, B., & Chua, J. W. (2013). Factors affecting consumers’ perception of
electronic payment: An empirical analysis. Internet Research, 23(4), 465–485. https://doi.org/10.1108/IntR09-2012-0199
Undale, S., Kulkarni, A., & Patil, H. (2020a). Perceived eWallet security: impact of COVID-19 pandemic.
Vilakshan - XIMB Journal of Management, ahead-of-p(ahead-of-print), 89–104. https://doi.org/10.1108/xjm07-2020-0022
Undale, S., Kulkarni, A., & Patil, H. (2020b). Perceived eWallet security: impact of COVID-19 pandemic.
Vilakshan - XIMB Journal of Management, ahead-of-p(ahead-of-print). https://doi.org/10.1108/xjm-07-20200022
278
Contemporary Issues in Banking, Insurance and Financial Services
Foreign Institutional Investors and Indian Stock Market
Dr. Sushma Rani
Assistant Professor, Hansraj College, University of Delhi
(Corresponding Author) Email- sushmaharikot@gmail.com.
Dr. Beauty Das
Assistant Professor, Hansraj College, University of Delhi
Ms. Naina, (Student, B Com (H), Sem. VI)
Hansraj College, University of Delhi
Abstract
This paper studies the impact of FII on Indian stock exchanges (BSE SENSEX, NSE NIFTY) to determine
the association between the two variables. It has also highlighted the reasons behind such a major outflows in
specific years. For finding out the association among the variables, it has used correlation coefficient,
coefficient of determination and regression coefficients. The findings suggest that FII is associated to stock
exchanges i.e. Sensex and Nifty, with strong correlation and regression coefficients in the normal period of
time (2001-15) where there isn’t any big political, economic, structural policy changes in India but in the
period of policy changes (2016-20) there had not been any association amongst these variables.
Keywords: FII, FPI, Indian Stock Market, Correlation, Association
INTRODUCTION
Foreign Institutional investment (FII) is a form of investment wherein investors hold assets and securities
outside their country. International portfolio flows refer to capital flows made by individuals or investors
seeking to create an internationally diversified portfolio rather than to acquire management control over
foreign companies. By diversifying the portfolio, they can reduce their degree of risk and enhance the chances
of better return, hence FII are volatile in nature. Foreign Portfolio Investors are also called ‘fair weather
friend’ who come in when money is made and leave when there is any weak economy conditions, hence,
destabilizing the recipient country. FIIs are regulated by Securities and Exchange Board of India(SEBI), while
the ceiling on such investment is maintained by the Reserve Bank of India(RBI)
FII is allowed to trade in Indian Stock Market from 14th September 1992. These investments could include
stocks, bonds, and exchange traded funds. FII flows often referred as ‘hot money’ (i.e. short term and overly
speculative) that come faster and goes out even faster. FII investing in India include Hedge funds, Foreign
Mutual Funds, Sovereign wealth funds, Pension Funds, Trusts, Asset Management Companies and
endowments, University Funds, etc.As Per the Budget 2021, The Government has allowed Foreign
Institutional Investors (FII) and Non-Resident Indians (NRIs) to invest in the insurance sector through
automated route within 26% cap on FDI (Foreign Direct Investment). Foreign investors would have to obtain
the necessary license from IRDA (Insurance Regulatory and Development Authority) for undertaking the
activities of Insurance. 74% FDI including investments by FIIs in Private sector banks has been allowed by
banking sector FDI norms. In this sector government route is followed from 49% to 74% and automatic route
is followed up to 49%.
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Contemporary Issues in Banking, Insurance and Financial Services
REVIEW OF LITERATURE
Here are the conclusions from various earlier studies. All these literatures and reports are showing that there is
positive relationship between FII and Indian Stock Exchanges but some of them show very strong correlation
or association while other shows very poor relationship.
Karan Walia, et. al. (2012) examine the contribution of FII in sensitivity Index (Sensex) during 2001 to 2010.
It attempts to present the correlation between FII and BSE Sensex by the Karl Pearson’ Coefficient of
correlation test. It indicates that there is very strong impact of FII on BSE Sensex of about 75%. The
objectives of the research paper of Hemkant Kulshrestha (2012) are to find out impact of FII on Indian capital
market, factors that influence FII and whether FII has impact on BSE Sensex and CNX Nifty. It has find out
that movement of FII are closely related with the both of them. It concludes that market rise with increase in
FII. The finding of the study also indicates that Foreign Institutional Investors had emerged as the most
dominant investor group in the domestic capital market.
Bashir Ahmad Joo and Zahoor Ahmad Mir (2014) have taken into account the period from 1999 to 2013 for
finding out association between FII and SENSEX and NIFTY. Correlation analysis revealed that there is
moderate low positive correlation between Net FIIs and NIFTY and SENSEX. Results suggest that volatility
andof Indian stock market and FIIs has increased over the period of study but the volatility was maximum
during financial down turn and then normalized to normal levels. Vaibhav Bhansali (2016) found the Impact
of FII’s on BSE SENSEX and NSE NIFTY from 1996 to 2015. They observed that during the last 10 years
there has been a gradual increase in the FII investment. It concluded that FIIs had significant influence on the
movements of stock market indexes in India.
Kedia Naresh and Vashisht Anil (2017) conducted a study using data from BSE Sensex and FII activity over
the period spanning from Jan.2003 to Dec 2012. It provides the evidence of significant positive correlation
between FII activity and effects on Indian Stock Market. It concludes that, inflow of FII’s leads to a bullish
trend in the market or vice versa. Saba Abid, Neelam Jhawar (2017) find out whether there exist any
significant relations between two variables and to validate the impact of FIIs on Indian Stock Market (NSECNX NIFTY). This study show a that there isn’t a very high degree of correlation found but there was
positive relationship between the indices and FIIs in Indian capital Market, validating the dominance of FIIs.
RESEARCH METHODOLOGY
Objectives of the study is to find the relationship between FII and Indian Stock Market
HypothesisHo- There is no effect of FII on Indian Stock Market
H1- There is effect of FII on Indian Stock Market
SCOPE OF THE STUDY
To study the relation between the stock index movement of the Indian stock market and the FII flow into
Indian markets. The study takes 20years into consideration from 2001-2020. This period has further divided
into two parts
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Contemporary Issues in Banking, Insurance and Financial Services
a) 2001 -2015: before some drastic policy changes, economic changes and specially the pandemic (covid-19)
b) 2016-2020: after some drastic policy changes, economic changes and specially the pandemic (covid-19)
DATA COLLECTION AND ANALYTICAL TECHNIQUES
The data has been collected from internet by exploring the secondary sources available on the websites.
Yearly closing index values are taken so that they represent the real economic conditions of that period.
Individual BSE SENSEX and NIFTY data and FII investment act as sample elements. Data has been
collected from websites, nseindia.org, bseindia.org and yahoofinance.
In order to analyse the collected data statistical tools such as correlation and regression have been used.
Various line graphs have been used for easy understanding. Correlation coefficient: It is a statistical measure
that determines the degree by which two variables movements are associated. Its value ranges from -1 to1.
The analysis has been made by correlating the FII purchases and the closing value of the indices for that
particular year to identify whether a relationship exists between them ('Pearson correlation' has been used).
Regression analysis: It is used to evaluate the effects of independent variables on a single dependent variable.
In the current paper an effort has been made to study the impact of FII on Indian stock exchange.
DATA ANALYSIS AND DISCUSSION
Table 1 gives the net purchases by FII in the Indian stock market from the year 2001-2020. It is observed
from Table 1 and Chart 1 that inflow of FII has increased about 725% from 2001 to 2020. Though it has
witnessed many ups and downs but overall there had been a significant increase in FII.
Table 1: Inflow of FII in India (in Rs. Cr.) from 2001 to 2020
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Total FII(Cr.)during the year
(Calendar Year)
12,495
3,678
35,154
42,048
41,663
40,589
80,915
-41,216
87,987
1,79,674
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
281
Total FII(Cr.)during the
year (Calendar Year)
39,353
1,63,348
62,286
2,56,213
63,663
-23,079
2,00,048
-80,919
1,35,995
1,03,156
Contemporary Issues in Banking, Insurance and Financial Services
Total FII(Cr.) during the year (Calender Year)
200,000
Total FII(Cr.)
during the year
(Calender Year)
100,000
0
-100,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total FII (Cr.)
300,000
Years
Chart 1: Inflow of FII (in Rs. Cr.) from 2001 to 2020
FII has rapidly improving between 2003 and early-2008, the biggest Bull Run in the history. It ended with
52% slump in 2008. Negative FII (or FII outflows) are recorded in the year 2008, 2016, and 2018.
1) The negative FII flow of 2008 are due to the following reasons:
a) FII has been influenced by many factors. Generally, the most important are valuations and earning
expectations.
b) In 2008, Global investors fled from high-risk equity assets, hit by a world-wide financial crisis. It is also
affect the pricing of stock exchanges as well.
c) Fear from global economic slowdown and domestic troubles with inflation, interest rate, lack of reforms and
the falling rupee all collaborate to make the foreign investors cautions in 2008, 2011, 2013 and 2015.
d) Hence India had got fluctuating FII even after the global economic crises (2008-15).
2) Negative FII of 2016 are due to the following reasons:
a) FII outflow in FY16 so far highest in last 7 years,
b) FII’s are withdrawing money from India as they reduce exposure to emerging markets because of commodity
slumps, while companies’ earnings continue to disappoint and the reform momentum remains slow.
c) Withdrawal by FII has put pressure on Indian Rupee Currency also has impact on the returns earned by FIIs.
Which again attract the withdrawal by FII
d) Withdrawal of FII has also affected by the hope that US interest rates will be increased by Federal Reserve. In
such case investors feel it is safer to invest in USA as the rates are expected to rise.
e) In the November 2016, announcement of Demonetisation in India by Government of India, again create
uncertainty among the Foreign Investors.
3) Reasons behind huge FII outflow in 2018 :
a) FII known as hot money that come faster and goes out even faster, in 2018 India has net outflow of about
Rs.1 lakh crore.
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Contemporary Issues in Banking, Insurance and Financial Services
b) It is due to the negative sentiments about possible changes in the regulatory framework after the sudden exit
of the RBI governor and the emerging political scenario.The uncertainty around the political scenario, with
general elections scheduled in the first half of 2019, which also indicate that the volatility may continue.
c) Rates hikes in the US and the global, rupee depreciation and crude oil rise, uncertainty about fiscal deficit
target were all contributors towards higher FII pull out and dampened FII sentiments.
d) On the global front, escalating trade war between US and China has caused a widespread uncertainty in
emerging market.
While FII were bullish on India equities for a variety of reasons, such as, high long term earnings growth
potential, along with low earning volatility and indicator of economic growth (such as increase in GDP). Ease
of stock selection and availability of diverse range of sectors to invest, high future earnings expectations etc.
are some of the factors which attract FII. FII was on the peak in the year 2010, 2014, and 2017.
Table 2: Average Monthly Closing Value of BSE Sensex
Years
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average monthly Closing value of
BSE SENSEX
Years
3475.921667
2011
3230.578333
2012
3967.638333
2013
5551.600833
2014
7498.3675
2015
11663.58167
2016
15901.4425
2017
14028.7625
2018
13941.4825
2019
18207.56083
2020
Average monthly Closing value of
BSE SENSEX
17724.3825
17834.85167
19727.075
24940.99917
27382.92
26505.69333
31162.8375
35683.9525
38716.2725
37947.085
It is evident from Table 2 that BSE SENSEX has grown about 992% approximately since 2001 to present.
From the above chart it can be ascertained that the value of BSE SENSEX has continued to increase driven by
strong economic growth experienced by the country during this period.
Table 3: Average Monthly Closing Value of NSE Nifty
Years
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Average monthly closing value
1121.55
1056.02
1233.7
1754.58
2268.91
3357.09
4571.29
4198.8
4183.4
5462.1
Years
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
283
Average monthly closing value
5312.7
5410.6
5908.1
7453.5
8294.0
8139.2
9661.4
10826.4
11535.4
11150.5
Contemporary Issues in Banking, Insurance and Financial Services
Table 3 gives the average closing value of NSE NIFTY from year 2001 to year 2020. It is observed from
Table 3 and Chart 3 that NSE NIFTY has increased about 894% from 2001 to 2020.
Now to ascertain whether there had been an impact of FII on the value of stock exchanges, correlation and
regression has been applied on excel using data analysis toolpak. The data has been divided in two phases.
First Phase-- From 2001 to 2015: As this time period was a normal period where there had been no drastic
changes in policies, system, rules and regulations. The results are being reported here. These results are
imported from MS Excel.
Impact of FII on BSE SENSEX
Summary
output
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.587369149
0.345002517
0.294618095
6452.659281
15
ANOVA
Regression
Residual
Total
Df
1
13
14
Coefficients
Intercept
9438.203497
Total FII(Cr.) during the year
(Calendar Year)
0.059469127
Interpretation from the results
SS
285104092.7
541278553.4
826382646.1
MS
285104092.7
41636811.8
F
6.847404506
Standard Error
2322.356202
t Stat
4.064063681
P-value
0.001340504
0.022726292
2.616754575
0.021317118
Sign. F
0.0213
1) Correlation:
a) There is strong and positive correlation between FII and SENSEX (0.5874 approx.) during the period from
2001 to 2015
b) R2: coefficient of determination, which is showing the change due to explained variance is about 34.5% (or
0.345)
c) Test of Model fit: as the Confidence Level of calculation is 95% implies that the level of significance is 5%
(100%-95%). This model has proved its relationship and rejects the null hypothesis as its p-value is 0.02or
2%.
2) Regression:
a) Here, the dependent variable is BSE SENSEX (Y) and independent variable is FII (X).
b) The intercept or the fixed amount of BSE irrespective of FII is Rs.9438.20
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Contemporary Issues in Banking, Insurance and Financial Services
c) The slope or coefficient of regression (bYX) is 0.059, it implies that one unit change in FII (in Rs. Cr. ) will
lead to .059 unit change in BSE SENSEX.
Impact of FII on NSE NIFTY
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.587401961
0.345041063
0.294659607
1919.678074
15
ANOVA
Regression
Residual
Total
Intercept
Total FII(Cr.) during
the year (Calendar
Year)
1)
d)
e)
f)
2)
a)
b)
c)
Df
1
13
14
SS
25238112.55
47907130.82
73145243.38
Coefficients
2846.14261
Standard
Error
690.9052668
0.017693684 0.006761114
Significance
MS
F
F
25238112.55 6.848572594 0.021308085
3685163.909
t Stat
P-value
4.119439736 0.001208346
2.61697776
0.021308085
Interpretation:
Correlation:
There is strong and positive correlation between FII and NIFTY (0.5874 approx.)during the period from 2001
to 2015
R2: coefficient of determination, which is showing the change due to explained variance is about 34.5% (or
0.345)
Test of Model fit: as the Confidence Level of calculation is 95% implies Significance Level is 5% (100%95%). This model has proved its relationship and rejects the null hypothesis as its p-value is 0.02 or 2%.
Regression:
Here, the dependent variable is NSE NIFTY (Y) and independent variable is FII (X)
The intercept or the fixed amount of NSE NIFTY irrespective of FII is Rs.2846.14
The slope or coefficient of regression (bYX) is 0.016, it implies that one unit change in FII (in Crore) will lead
to .016 unit change in BSE SENSEX.
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Contemporary Issues in Banking, Insurance and Financial Services
The compiled results of analysis are being reported here. Only the results of Phase 1 (2001-2015) were found
significant.
Table 4 : Compiled results of Correlation and Regression Analysis (BSE Sensex)
Impact of FII on BSE SENSEX
Period
Correlation
Coefficient of
Significance
Regression
Coefficient of
determination
Intercept
Regression(slope)
2001-2015
.59 strong and 34%
Reject null
9438
.0594 better
(Phase 1)
positive
hypothesis
2016-2020
.22 weak and
4.7%
Fails to reject
33358
.0096 weak
(Phase 2)
positive
null hypothesis
2001-2020
.27 weak and
7.4%
Fails to reject
16148
.0371 good
(Overall)
positive
null hypothesis
Table 5: Compiled Results of Correlation and Regression for Impact of FII on NSE Nifty
1)
a)
b)
c)
2)
a)
b)
3)
a)
Period
Correlation
2001-2015
(Phase 1)
2016-2020
(Phase 2)
2001-2020
(Overall)
.59 Strong and
positive
.23 weak and
positive
.27 weak and
positive
Coefficient of
determination
34%
5.3%
7.2%
Significance
Reject null
hypothesis
Fails to reject
null hypothesis
Fails to reject
null hypoth
Regression
Intercept
2846
Coefficient of
Regression(slope)
.0176 better
10078
.0027 weak
4873
.0109 good
NSE NIFTY and BSE SENSEX are showing very similar results as it has got proved from the above tables. It
concludes that both stock exchanges have got similar impact of FII.
When there is stable FII (2001-2015)-Phase 1
During this time period, FII and Stock Exchanges has shown very strong correlation implies there is very high
degree of association between the two variables.
Coefficient of determination is also very high during this time. It means change due to explained variance
(FII) is having high impact on stock exchanges.
As per Regression analysis, at this period intercept is low and regression coefficient (slope) is relatively high.
High slope represent that both variables are related with each other. One unit change in FII has also change
stock exchanges to some extent (represented by coefficient of regression or slope.
When there is very high fluctuation in FII (2016-20)-Phase 2
As FII has shown very high fluctuations during the last five years, and its result has separately shown in this
report. During the period of high fluctuation (FII fluctuates very much while yearly stock exchanges has
remained a little stable) there is very less impact of FII on Stock Exchanges.
During this Period correlation between the FII and Stock Exchanges is very weak (positive), regression
analysis shown very high intercept and very low slope (coefficient of regression) implies that poor
relationship among the two variables.
During the overall time period of 20 years (2001-2020)
This period has affected by both the above observations, it has shown a little better result than the last five
years (2016-20), but very poor result if compared with the initial period (2001-15),
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Contemporary Issues in Banking, Insurance and Financial Services
b) As affected by both the period, regression and the correlation, show very less association or relativity between
the FII and Stock Exchanges.








CONCLUSION
FII is related or associated with stock exchanges with strong correlation and regression coefficient in the
normal period of time where there isn’t have any big political, economic, structural change in India and in
global world.
But during the period of ups and downs, change in any factor affecting FII sentiments and expectations, FII
fluctuations are very large. So during this time Stock Exchanges and FII are less associated.
Overall, FII behavior and trends affect stock exchanges to some extent which would be high in normal period
but very less in dynamic period when major changes taking place.
REFERENCES
K. Walia, Dr. R. Walia, M. Jain (2012), Impact of Foreign Institutional Investment on Stock Market,
Specialized and Refereed Journal for Research Scholar, Academicians, Engineers and Scientists, Vol. 2 Issue
5 September 2012, ISSN (online) 2249-054 X.
H. Kulshrestha (2014), Impact of Foreign Institutional Investors (FIIs) on Indian Capital Market, IMPACTInternational Journal of Research in Business Management (IMPACT:IJRBM), ISSN(E): 2321-886X,
ISSN(P): 2347-4572, Vol. 2, Issue 3, Mar 2014, PP. 35-52.
B. Ahmad Joo, Z. Ahmad Mir (2014), Impact of FIIs Investment on Volatility of Indian Stock Market: An
Empirical Investigation, Journal of Business & Economic Policy, Vol. 1, No. 2, ISSN 2375-0774 (Print)23750774 (Online), PP. 106-114.
N. Kedia, Prof. (Dr.) A. Vashisht (2017), Impact of FII’s on Indian Stock Market (Specific to SENSEX),
International Journal of Management, IT & Engineering, Vol. 7 Issue 5,May 2017, ISSN: 2249-0558 Impact
Factor 7.119, PP. 255-268, http://www.ijmra.us
SabaAbid, N. Jhawar (2017), Impact of Foreign Institutional Investors (FIIs) on Indian Capital Market,
Journal of Business and Management (IOSR-JBM), Volume 19, Issue 6, Ver.III (June 2017, PP 42-46,
available at www.iosrjournals.org.
287
Contemporary Issues in Banking, Insurance and Financial Services
Awareness Regarding Old Pension Scheme and New Pension Scheme
among Government Employees
Khujan Singh
Professor, HSB, GJUS&T, Hisar, e-mail: kh_hsb@yahoo.co.in
Aarti Devi
Research Scholar, HSB, GJUS&T, Hisar, e-mail: aarti5320@gmail.com
Abstract
The aim of the study is to find out the level of awareness about 'general provident fund (GPF)' and 'national
pension scheme (NPS)' among the employees working in government jobs in Ambala and Karnal
administrative division of Haryana. A survey of 250 respondents was carried out, but 205 valid responses
were received and properly analysed with descriptive statistics. The reliability and validity of the data has
been checked through Cronbach's alpha (.871). The result of the study showed that the majority of national
pension scheme holders are not aware about investment in NPS tier II account, penalty rate for not
maintaining a minimum balance and different options available in NPS.
Keywords: defined benefit, defined contribution, pension reform, awareness
INTRODUCTION
Retirement planning should be started by employees during his/her golden years (at the age of 26 to 35 years)
because at this age employees have a positive attitude toward their retirement. Early retirement life helps
individual to secure their life after retirement (Moorthy et al., 2012). Murphy and Yetmar (2010)depicted
three ways to fulfil the financial requirement during retirement years: personal saving, social insurance
program (i.e., social security), and employer sponsored pension program. The increase in longevity risk
increases the value of regular pension income for after retirement life (Bhattacharya, 2004). According to
United Nations Population Fund report, the average life expectancy rate at birth of India was 47 years in
1969, it increased to 60 years in 1994 and 69.73 years in 2020 and it is expected to increase 77.15 years in
2050. These increasing rates of life expectancy increase the importance of pension in one’s life.
Before 2004, pension was provided to government sector employees on defined benefit basis. In defined
benefit system the benefits given to employees after retirement are assured by the employer. It means
employer bear the actuarial and investment risk (Kali and Jana, 2017; Murphy and Yetmar, 2010). Further,
the amount of benefit is calculated on the basis of predetermined formula which based on salary and number
of year of services (Park, 2017). But there are various shortcomings in this existing pension system that leads
to pension reform. This includes low coverage and increasing financial burden (Asher, 2008; Asher and
Nandy, 2006; Whitehouse et al., 2009; Sanyal et al., 2011). Other shortcomings include increasing age of
working population and life expectancy, low level of financial literacy and awareness (Asher and Nandy,
2006; Asher, 2008), revised salary structure increase the benefit received by employees which ultimately
increase the burden of government (Anand and Ahuja, 2004). Therefore, to reduce the burden of existing
defined benefit pension scheme, it becomes necessary to shift to defined contribution pension system (Anand
and Ahuja, 2004). The defined contribution plan does not guarantee a specific income level upon retirement.
In this system, the liability of employer is limited to the specified amount of contribution and all other risks
are borne by employee (Kali and Jana, 2017; Murphy and Yetmar, 2010). National pension scheme (NPS)
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Contemporary Issues in Banking, Insurance and Financial Services
and general provident fund (GPF) accumulated by employees in old pension scheme are the examples of
defined contribution scheme. India adopts NPS on 1st January 2004 which is being regulated by Pension Fund
Regulatory & Development Authority (PFRDA). It is a simple, transparent, portable, low cost, flexible and
online system, that helps to get regular income and other benefits after retirement (Watson, 2008). NPS
replace the defined benefit pensions for all its employees who joined services of central government including
central autonomous bodies (except armed forces) on or after 1st January 2004. And w.e.f. 1st May 2009, NPS
is extended to all citizens including self-employed professionals and others working in unorganized sectors on
a voluntary basis. However, the Haryana government adopt the NPS architecture and implement this w.e.f. 1 st
January 2006.
The three broad objectives of NPS are:
1.
To provide old age income security;
2.
To earn market based return over long term investment; and
3.
To enhance the security of old age to all citizens.
CONCEPTUAL FRAMEWORK
The pension fund is a corpus that is collected to provide retirement benefit in the form of lump sum amount or
regular income during the retirement year (Kalu and Attamah, 2015). He further argues that defined benefit
pension scheme is difficult to administer because of increased pension debt, less transparency, insufficient
budgetary pension and lack of reliable records which lead to the adoption of fully funded contributory pension
scheme in both public and private sector. He further summarized that pension reform makes a significant
impact on worker’s savings and investment.In India, before 1st January 2004 employees of public sector get
the benefit of general provident fund (GPF), pension, and gratuity. Out of these benefit pension and gratuity
are comes under defined benefit scheme and GPF comes under defined contribution scheme (Kali and Jana,
2017). In India government employees are covered under GPF whereas the worker of private sector covered
under Employees Provident Fund (EPF). Pandy (2013) studied the usage of GPF by government employees in
India. The result demonstrated that employees use GPF account as a long-term saving account instead of a
retirement account. They do not increase their GPF subscription even after getting an increase their salary
during the year. Male employees make more withdrawal from GPF account, therefore, the GPF balance of
female employees is significantly more than male employees. On the other hand (Sanyal et al., 2011)studied
the response of people toward pension reforms. Pension fund reform was undertaken to enhance the coverage
of old age security but the data from 1 May 2009 to 30 July 2010 revealed that only 0.005% of the working
population joined NPS voluntary and others who joined NPS are on default basis as per the design of the
scheme. The large number of subscribers of NPS was the employees of central and state government for
whom the scheme was mandatory. The poor response toward NPS was mainly because of uncertainty
regarding assured pension. The study suggests that the government should take some steps to increase NPS
coverage like employer contribution, guaranteeing minimum pension after retirement, etc. However, there are
some studies that revealed that for long time period the pension available in NPS is better than the old pension
scheme. For example (Kali and Jana, 2017) showed that if the employees retire after 33 years of services
instead of 20 years then the amount of pension would be more than doubled in the case of an old pension
scheme and it would be more than four-time in case of NPS. The study showed that under NPS expected
return on pension depends on the overall performance of the market and as the number of services is
increasing NPS becomes more profitable in comparison of OPS.
The studies on awareness level of regarding defined contribution plan among government employees are
limited in India. However, there are some literatures from other countries like, Omoni (2013) studied the
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Contemporary Issues in Banking, Insurance and Financial Services
teacher’s level of awareness about NPS in Nigeria and found that they are dissatisfied with the management
of national pension scheme. It was observed that they had little knowledge about the working of NPS. The
shift from Defined Benefit to Defined Contribution plan place substantially more responsibilities into the
hand of individual members, basically regarding how much to save and how to invest (Byrne, 2007). Similar
finding had been reported by Lusardi and Mitchelli (2007),that decline in defined contribution system
increase the responsibility of worker for their retirement and other saving. But a number of households were
financially illiterate to make rational saving and investment decision.
NEED AND OBJECTIVE OF THE STUDY
The reviewed literature has pointed out that would be retiree employees are not satisfy with the NPS system.
The reasons for this include employee’s inability to manage their contribution, and they are unable to
calculate that how much amount they will require for their after-retirement life, and uncertain annuity rate, etc
(Watson, 2008). All this create uncertainty in the mind of employees about their retirement years. This may
be because of their low awareness level about NPS. Therefore, there is a need to assess the level of awareness
about defined contribution plan (general provident fund and national pension scheme) among government
employees of Haryana. This paper investigates the level of awareness regarding the defined contribution plan.
The analysis is carried out across two demographic variables: Pension scheme covered and gender.
RESEARCH METHODOLOGY
The present study is exploratory cum descriptive study based on primary data. The data has been collected
with the help of a structured questionnaire. To conduct this pilot study, 250 questionnaires were distributed
and out of which 205 questionnaires were found valid and used for further analysis. It covers the government
employees working in autonomous institutions, corporation board/undertakings and state government
departments of Ambala and Karnal administrative division of Haryana. Out of 205 respondents, 44 (21.5%)
employees were from corporation board/undertaking, 61 (29.8%) employees from autonomous institutions
and 100 (48.8%) employees state government departments. A total of 91 (44.4%) employees covered under
old pension scheme and 114 (55.6%) employees covered under NPS. Further, 128 (62.8%) males participated
in the survey and the number of females was 77 (37.6%). The awareness level was measured through selfstructured questionnaire with Cronbach’s alpha .871. This includes eight statements related to awareness of
GPF and NPS. It has been measured through a five-point Likert-scale (1= not at all aware to 5= extremely
aware).
RESULTS OF DATA ANALYSIS
Table 1 indicates the level of awareness regarding contribution to GPF, tax benefits and withdrawal rules etc
among old pension scheme holders. The table highlights that while a total of 66.7% of male respondents are
moderately and extremely aware about GPF investment, 62.5% of female respondents are moderately and
extremely aware about GPF investment. It indicates that a majority of both male and female respondents are
aware about GPF investment. However, male respondents have more awareness about GPF investment than
female respondents.
For the second statement i.e., awareness about your contribution to GPF, it has been found that a total of 64%
of male respondents are either moderately or extremely aware about their contribution. On the other hand,
68.8% of female respondents are moderately and extremely aware about their contribution. While comparing
both, it has been found that female respondents are more aware about contribution to GPF.
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Contemporary Issues in Banking, Insurance and Financial Services
The study also indicates that a total of 69.3% of male respondents are either moderately or extremely aware
about the tax benefit available in GPF. 68.8% of female respondents are moderately and extremely aware
about the tax benefit. This shows a little difference among male and female respondents regarding the level of
awareness about tax benefits available in GPF. Regarding the fourth statement, 61.3% of male respondents
are moderately and extremely aware about the rules of withdrawal of funds from GPF. 68.8% of female
respondents are moderately and extremely aware about the withdrawal rule of GPF fund. This indicates that
female have more awareness level about the rule of withdrawal of fund from GPF than male respondents.
Table 1: Gender-wise level of awareness about contribution towards 'general provident fund' among
Old Pension Scheme
Awareness about investment in GPF.
Gender
Not at all
Slightly
Somewhat
Moderately Extremely
Total
aware
aware
aware
aware
aware
Male
8(10.7%)
8(10.7%)
9(12%)
11(14.7%)
39(52%)
75
Female
3(18.8%)
1(6.2%)
2(12.5%)
4(25%)
6(37.5%)
16
Awareness about your contribution to GPF.
Gender
Not at all
Slightly
Somewhat
Moderately Extremely
Total
aware
aware
aware
aware
aware
Male
13(17.3%)
3(4%)
11(14.7%)
8(10.7%)
40(53.3%)
75
Female
1(6.2%)
0(0%)
4(25%)
4(25%)
7(43.8%)
16
Awareness about the tax benefit available in case of GPF.
Gender
Not at all
Slightly
Somewhat
Moderately Extremely
Total
aware
aware
aware
aware
aware
Male
8(10.7%)
6(8%)
9(12%)
9(12%)
43(57.3%)
75
Female
2(10.5%)
0(0%)
3(18.8%)
4(25%)
7(43.8%)
16
Awareness about withdrawal of funds from GPF.
Gender
Not at all
Slightly
Somewhat
Moderately Extremely
Total
aware
aware
aware
aware
aware
Male
11(14.7%)
6(8%)
12(16%)
9(12%)
37(49.3%)
75
Female
1(6.2%)
0(0%)
4(25%)
3(18.8%)
8(50%)
16
Source: Author’s calculation
The table 2 indicates the level of awareness of NPS holder employees about contribution to NPS, tax benefit,
withdrawal rules, investment in tier II account, return on investment, penalty rate, and different investment
options. The table shows that 28.3% of male respondents are moderately aware and the same percent are
extremely aware about investment in NPS, whereas 39.3% of female respondents are moderately and 24.7%
are extremely aware. This indicates that female have more awareness level about NPS than male respondents.
Regarding awareness about government contribution to NPS, it has been found that a total of 62.2% of male
respondents are moderately and extremely aware about their and government contribution in NPS. On the
other hand, 73.7% of female respondents are moderately and extremely aware about their and government
contribution.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 2: Gender wise level of awareness about 'national pension scheme'
Awareness about investment in NPS.
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Gender
Male
Female
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
2(3.8%)
10(18.9%)
11(20.8%)
15(28.3%)
15(28.3%)
2(3.3%)
6 (9.8%)
14(23%)
24(39.3%)
15(24.6%)
Awareness about your and govt. contribution in NPS.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
1(1.9%)
6(11.3%)
13(24.5%)
12(22.6%)
21(39.6%)
2(3.3%)
6(9.8%)
8(13.1%)
26(42.6%)
19(31.1%)
Awareness about the tax benefit available in NPS.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
5(9.4%)
6(11.3%)
8(15.1%)
11(20.8%)
23(43.4%)
4(6.6%)
69.8%)
7(11.5%)
27(44.3%)
17(27.9%)
Awareness about withdrawal of fund from NPS.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
9(17%)
6(11.3%)
12(22.6%)
10(18.9%)
16(30.2%)
9(14.8%)
7(11.5%)
17(27.9%)
21(34.4%)
7(11.5%)
Awareness about investment in NPS tier II account.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
15(28.3%)
12(22.6%)
10(18.9%)
8(15.1%)
8(15.1%)
16(26.2%)
12(19.7%)
14(23%)
14(23%)
5(8.2%)
Awareness about rate of penalty for not maintain minimum balance.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
14(26.4%)
11(20.8%)
9(17%)
10(18.9%)
9(17%)
12(19.7%)
14(23%)
14(23%)
13(21.3%)
8(13.1%)
Awareness about different options available in NPS.
Not at all
Slightly
Somewhat
Moderately Extremely
aware
aware
aware
aware
aware
13(24.5%)
10(18.9%)
12(22.6%)
7(13.2%)
11(20.8%)
16(26.2%)
12(19.7%)
15(24.6%)
12(19.7%)
6(9.8%)
Return on NPS depends on market return and interest rate.
Gender
Gender
Gender
Gender
Gender
1(1.9%)
6(11.3%)
10(18.9%)
14(26.4%)
22(41.5%)
6(9.8%)
9(14.8%)
15(24.6%)
16(26.2%)
15(24.6%)
Total
53
61
Total
53
61
Total
53
61
Total
53
61
Total
53
61
Total
53
61
Total
53
61
Gender
53
61
Once again result shows that female respondents are more aware than male respondents about their
contribution in NPS. Further, 64.2% respondents are moderately and extremely aware about the tax benefit
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Contemporary Issues in Banking, Insurance and Financial Services
available in NPS. 72.2% of female respondents are moderately and extremely aware about the tax benefit.
Again, while comparing awareness level of male and female respondents, it has been found that female has
more awareness about tax benefit that male counterpart. Next, only 49.1% of male respondents are
moderately and extremely aware about the rule of withdrawing fund from NPS. On the other hand, only
45.9% of female respondents are moderately and extremely aware about the fund withdrawal rule of NPS.
This indicates that male have more awareness level about the rule of withdrawal of fund from NPS than
female respondents.
In the fifth statements, a total of 50.9% of male respondents are not or slightly aware about NPS tier II
account. 45.9% of female respondents are not or slightly aware about the NPS tier II account. Similarly, in
sixth statement 47.2% of male respondents are not or slightly aware about the penalty rate for not maintaining
the minimum balance in NPS. On the other hand, 42.7% of female respondents are not or slightly aware about
the penalty rate for not maintaining the minimum balance in NPS. In this way it has been found that most of
the male and female respondents have less awareness about NPS tier II account and penalty for not
maintaining the minimum balance in NPS. While comparing awareness level of both counterparts, it has been
found that male respondents have less awareness about NPS tier II account and penalty for not maintaining
the minimum balance than female respondents.
In statement seventh, a total of 43.4% of male respondents are not or slightly aware about the different option
available in NPS like auto choice and active choice. On the other hand, 45.9% of female respondents are not
or slightly aware about the different option available in NPS. Once again, both male and female respondent
have less awareness about different option available in NPS. But on gender base comparison, it has been
found that female respondents have less awareness level than male counterpart about the different option
available in NPS.
In the eighth statement, a total of 67.9% of male respondents and 50.8% of female respondents have
moderately and extremely aware that the return on NPS depends on market return and interest rate. This
indicates that the majority of male and female respondents have more awareness that the return on NPS
depends on market return and interest rate. However, while comparing the awareness level of both groups, it
has been found that male have more awareness about NPS return than the female counterpart.
CONCLUSION
In this study, it has been found that the majority of old pension scheme holders are aware about the
investment in GPF, their contribution, tax benefit, and withdrawal rules of GPF. The result concluded that the
level of awareness among male respondents is more than female respondents about their investment and tax
benefit. Female respondents are more aware than males about the contribution and withdrawal rules of GPF
than male respondents. However, female respondents in the new pension scheme have more awareness than
male respondents about their investment, contribution, and tax benefit in NPS. On the other, male respondents
have more awareness than females about the fund withdrawal rule and the market-based return on NPS. On
the other hand, the majority of new pension scheme holders are not or slightly aware about investment in tier
II account, different options available in NPS and penalty for not maintain the minimum balance in NPS.
There are some possible reasons for low awareness first, the mandatory minimum contribution from the salary
of government employees. Therefore, they are not bothered about their investment in NPS. Second, if
employees do not have enough knowledge to manage their investment then their money will be invested
automatically according to auto choice-life cycle method.
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Contemporary Issues in Banking, Insurance and Financial Services
LIMITATION OF THE STUDY
The study has conducted in only two administrative divisions of Haryana. In addition, the sample size is
limited to 205 respondents due to time constraints and thus the results may vary as the sample increases.
REFERENCE















Anand, M., & Ahuja, R. (2004). Government Pensions: Liability Estimates and Assumptions. Economic and
Political Weekly, 39(25),2569-2576.
Asher, M. G. (2008). Pension reform in India. In The Indian economy sixty years after independence Palgrave
Macmillan, London, 69-91.
Asher, M. G., & Nandy, A. (2006). Reforming provident and pension fund regulation in India. Journal of
Financial Regulation and Compliance, 14(3), 273-284.
Bhattacharya N.S. (2004), ‘Defined Benefit Pension Scheme- Can it survive?” 6th Global Conference of
Actuaries, New Delhi.
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evidence from the UK. Financial Services Review, 16(1), 1-28.
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Investment in Nigeria: Anambra State case study. IOSR Journal of Economic and Finance (IOSR–JEF),6(2),
9-20.
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implications for financial education. Business economics, 42(1), 35-44.
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study on the retirement planning behaviour of working individuals in Malaysia. International Journal of
Academic Research in Economics and Management Sciences, 1(2), 54-72.
Murphy, D. S., & Yetmar, S. (2010). Personal Financial Planning Attitudes: A Preliminary Study of Graduate
Students. Management Research Review, 33(8), 811-817.
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state of Nigeria: Counseling complications. African Journal of Social Science, 3(3), 53-63.
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evidence from the Korean retirement and income study. Emerald publishing limited, 18(1), 3-19.
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Political Weekly,46(8), 17-19.
Watson, R. (2008). A review of the risks, costs and benefits of defined contribution and defined benefit
pension schemes. Journal of Financial Regulation and Compliance, 16(3), 230-238.
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Contemporary Issues in Banking, Insurance and Financial Services
Growth of Global and Domestic Exchange Traded Funds (ETFs)
Ms Akanksha, Research Scholor
Department of Commerce,
Delhi University.
Abstract:
The present article is an exploratory work on the origins, development and trends on the Global ETF industry
with a special focus on the ETF markets in India. We observe that ETFs are one of the most important
developments in financial markets in the last three decades; their popularity grows as the markets mature and
the funds following the active investing strategy find it increasingly difficult to outperform the market. Our
trend analysis show that ETF markets are growing at a tremendous pace, especially in U.S. and ETF assets
may exceed those of active funds in the near future. Our analysis of the Indian ETF markets reveals that as yet
the industry is a small proportion of the mutual fund industry and the global ETF market, but it has been
growing at a much faster pace in the last few years and is becoming increasingly significant due to the
government divestment programmes and large scale investment by Employees Provident Fund Organisation
(EPFO).
Keywords: Exchange Traded Funds (ETFs), Passive Investing, Mutual Funds, India, Finance, Financial
Markets
INTRODUCTION
Exchange Traded Funds (ETFs) are a recent innovation in financial markets. An ETF is an example of a
‘basket’ security whose value is derived from multiple underlying assets which constitute its portfolio. ETFs
enable investors to hold and trade multiple securities in a single transaction. Unlike mutual funds, ETFs offer
intraday liquidity; their prices are continuously determined in the secondary market on the basis of demand
and supply forces. Additionally, ETFs are a cost-effective instrument and offer significantly lower expense
ratios than mutual funds.
Classic ETFs are simple instruments which use physical replication strategies to replicate the performance of
their underlying index. More recently, complex ETFs have emerged which employ synthetic replication using
derivatives and swaps to track their benchmark. Synthetic ETFs are riskier than conventional ETFs due to the
counterparty risk involved. Presently, Physical ETFs are more dominant around the globe; Synthetic ETFs are
primarily found in Europe and a few Asian countries.
ETFs have gained immense popularity among institutional as well as retail investors; especially in mature
financial markets of US and Europe where actively managed funds often fail to produce higher returns which
justifies their higher expenses and fees. Ben-David, Franzoni and Moussawi (2017) opine that intraday
liquidity and low-cost are the main drivers behind the ETFs’ rapid ascent.
The article is exploratory and descriptive in nature. Our objective is to chronicle the origin and development
of the ETF industry, to make the reader familiar with the different forms of ETFs and to study the trends in
the ETF sector during the last 13-14 years. First, we outline the history and evolution of passive investing and
the ETF industry with a special focus on India. Next, we look at the trends in the ETF markets, from a foreign
as well as domestic viewpoint.
EVOLUTION OF EXCHANGE TRADED FUNDS (ETFS)
Even though ETFs were launched only in the last decade of the 20th century, the concept of index investing
goes quite a long way back. Index funds for institutional investors were launched in 1973. The world’s first
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Contemporary Issues in Banking, Insurance and Financial Services
public index mutual fund was launched in 1975 by John C. Bogle. Known as the First Index Investment Trust,
the primary objective of this fund was to replicate the performance of the S&P 500. Even though the idea of a
passive fund was initially ridiculed by many members of the investment community, the fund had
accumulated more than USD 100 billion in assets by 1999, up from just USD 11 million in 1975.
According to Gastineau (2010) the first investment product that bore some resemblance to modern day ETFs
were Index Participation Shares (IPS) which were first launched at the American Stock Exchange and
Philadelphia Stock Exchange in 1989. The objective of IPS was to synthetically mimic the performance of the
S&P 500. However, the exchanges had to close down trading in IPS after a federal court held that IPS were
future contracts and could only be traded at future exchanges. The growth and evolution of different forms of
ETFs are discussed as under:
Equity ETFs
In 1990 in Canada, the Toronto Index Participation Shares (TIPS) which tracked the Toronto Stock Exchange
35 (TSE 35) were launched and traded on the Toronto Stock Exchange. Gastineau (2010) describes TIPs as “a
warehouse receipt-based stock portfolio designed to track the TSE-35 stock index.” Later on, HIPs were
launched to track the TSE-100 index. Both TIPs and HIPs were characterised by extremely low expense ratios
and became quite popular among both Canadian and international index investors. However, the expense
ratios proved to be so low that the Toronto Stock Exchange and its members were not able to recover the
costs from the investors. As a result, the investors were given the option to either liquidate their TIPs position
or to shift to the Barclays Global Investors (BGI) Fund. (Gastineau, 2010)
The interest shown by investors in TIPs helped popularise the concept of exchange traded products, which led
to the creation of the Standard and Poor’s Depository Receipts (SPDRs) in 1993 which tracks the S&P 500. It
is widely considered to be the first ETF in the world and is the largest and one of the most actively-traded
ETFs globally. As of March 2021, the size of the fund stood at USD 333 billion (Source for AUM data: The
ETF Database). The phenomenal success of SPDRs can be attributed to a wide variety of factors, the
prominent ones being high liquidity, low expense ratios and tax efficiency.
Initially the ETFs were mainly used by institutional investors to implement complex trading strategies, later
on as awareness about their benefits spread, they became popular among financial advisors and retail
investors as well. Deville (2008) states that the next milestone in the US ETF industry came with launch of
the Nasdaq-100 Index tracking ETF Cubes or Qubes, ticker QQQ, in March 1999. As of March 2021, it holds
USD 147 billion in assets.
Fixed-income ETFs
The first fixed income ETF was launched in 2002. Initially, the fixed income ETFs were based on U.S.
Treasury Securities issues. Since then, fixed-income ETFs have come a long way and many market
participants and academicians are of the opinion that they have played a pivotal role in modernizing the bond
markets and making them more accessible to investors (Vlastelica, 2017).
Gastineau (2010) asserts that the number of distinct tradable debt securities runs into millions. Majority of
these securities are highly illiquid, and their quotes are available only on inquiry instead of being posted
continuously. A single bond index generally consists of thousands of different bond securities and this is why
bond ETFs generally use a representative sample strategy to track their index. Industry experts note that this
representative sample has become more and more inclusive overtime (Murphy, 2017). ETFs also assist in
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Contemporary Issues in Banking, Insurance and Financial Services
price discovery, as per Gastineau (2010) in stressed market conditions the market price of a bond ETF that is
actively traded may be a better indicator of the intrinsic value of its underlying portfolio as compared to a
compilation of quotes for all constituent bonds that form part of the portfolio. In addition to the above
advantages, the bond ETFs (similar to Equity ETFs) have very low expense ratios which allows investors to
participate in a yet untapped market without having to incur exorbitant costs.
As compared to Equity ETFs the market penetration of Fixed Income ETFs still remains quite low. However,
there are definite signs of increased acceptance among investors. As per the Vanguard AMC, in 2017, the
inflows in Fixed Income ETFs crossed USD 100 billion. A 2017 Global ETF Survey by EY forecasts that
there is strong growth potential in fixed-income ETFs and they will most likely remain the area of focus of
the ETF industry for the next few years. During 2020, almost half of new ETF flows in U.S. went into fixedincome ETFs. (Mccann, 2020)
Commodity ETFs
Precious metal, Gold, is the commodity of choice among ETFs. The first commodity ETF to be launched was
the SPDR Gold Shares (GLD.A) in November 2004 which mimicked the returns of the physical gold bullion.
Not long afterwards, iShares launched their own Gold ETF, making it the second commodity ETF in the
world. Both the funds have done quite well in terms of assets, their AUMs as on May 2018 stood at USD 35
billion and USD 12 billion(Data Source: Morningstar) respectively. Besides Gold, ETFs are also available
for crude oil, silver, agricultural products and other precious metals. As per data from a BlackRock report, in
2017 the inflows into commodity ETFs totalled USD 8.4 billion while the assets under management were
USD 141 billion.
Table 1 presents the AUM and the daily average volume of the 10 largest ETFs in the world. All of these
ETFs are listed in U.S., which is an indication of the disproportionately large size of the U.S. ETF markets
vis-à-vis the rest of the world. Furthermore, 9 out 10 ETFs are equity based clearly revealing equity ETFs to
be the most popular ETF category. The remaining one ETF, the iShares Core U.S. Aggregate Bond ETF
(AGG) is a fixed-income fund.
Table 1: Top 10 ETFs in the world by Asset Size
(as of March 2021)
ETF Name and Symbol
AUM
Average Volume
(in USD BILLION)
(in MILLION)
SPDR S&P 500 ETF (SPY)
iShares Core S&P 500 ETF (IVV)
Vanguard Total Stock Market ETF (VTI)
Vanguard S&P 500 ETF (VOO)
PowerShares QQQ (QQQ)
Vanguard FTSE Developed Markets ETF (VEA)
iShares Core MSCI EAFE ETF (IEFA)
iShares Core U.S. Aggregate Bond ETF (AGG)
Vanguard FTSE Emerging Markets ETF (VWO)
iShares Core MSCI Emerging Markets ETF
(IEMG)
Source: ETF database
297
333.86
255.98
218.83
199.89
147.22
92.85
86.60
84.59
77.32
76.53
76.58
4.34
4.43
3.73
41.90
9.63
8.86
6.26
11.08
12.91
Contemporary Issues in Banking, Insurance and Financial Services
Trends in the Global ETF Industry
The total amount of assets invested in ETFs around the world had crossed $7.86 trillion by 2020. The trend in
global ETF assets over the past 18 years is presented in Figure 1.
Figure 1: Global Assets Under Management (AUM) in ETFs
Global ETF Assets (in billion U.S. Dollars)
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
7858
6194
4690 4683
1313 1355
807 716 1041
580
417
204 283
1771
2283
2674 2898
3423
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Statista
From 2003-2020, the cumulative annual growth rate (CAGR) in Global ETF assets has been around 22.38%
over the 18 years period. The U.S. market remains the largest in size by a large margin with assets surpassing
USD 5 trillion by the end of 2020.
This shift to passive investing has been caused by the inability of majority of the active mutual schemes in
mature markets such as U.S. to outperform the passive schemes after accounting for higher expenses
associated with active funds. ETFs also owe their popularity to rock bottom
expense ratios and intraday liquidity which can prove to be very useful during periods of high intraday
volatility.
Table 2 provides the area-wise distribution of ETF assets at the end of December 2020. U.S. is by far the
biggest market for ETFs in the world. Out of the $7.86 trillion of assets invested in ETF at the end of 2020,
$5.45 trillion or about 69% is in U.S. alone.
Table 2: ETF Assets as per Region
Assets as on 31 Dec
Equity
Fixed
Commodity and
Total
2020 (US$bn)
Income
Others
4215
1053
178
5446
U.S.
830
335
124
1289
Europe
128
64
10
202
Canada
768
99
40
907
Asia Pacific
13
1
0
14
Latin America
5954
1552
352
7858
Total
Source: BlackRock Global ETF Landscape (Dec 2020)
The tax and cost advantages associated with ETFs as well the proliferation of cheap ETF products that
accurately track the market indices are some of the reasons for the momentous growth of ETFs in U.S.
Besides the huge amount of investments that ETFs have attracted in the US markets, they are also one of the
most heavily traded products. As per NYSE data, at the end of 2020, there were 2,391 ETFs listed in the US
st
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Contemporary Issues in Banking, Insurance and Financial Services
market and the average daily value of transactions stood at $111.5 billion while the average number of ETF
trades executed in a day are 1.5 billion.
Europe stands second with about USD 1.3 trillion in assets. The Asia-Pacific Region has exhibited the highest
regional growth rate.
EVOLUTION AND TRENDS OF THE INDIAN ETF INDUSTRY
The first ETF in India was the NiftyBeEs which was launched by the Benchmark AMC in 2001. The
objective of the fund was to closely track the performance of the S&P CNX Nifty Index. Later on, Benchmark
also introduced India’s first liquid ETF, the Liquid BeEs, which invests in treasury bills, calls and other fixedincome securities in 2003 and the first Gold ETF, the GoldBeEs, in 2007, which aims to provide returns that
closely correspond, before expenses, to the returns produced by domestic price of gold. Despite being a
pioneer in the ETF industry in India, the Benchmark AMC was able to attract just INR 70 crores ($16.16
million) worth of funds in its ETF schemes in 2004 (Samalad, 2017). As of Dec 2020, the Asset Under
Management (AUM) of the ETF industry (including Gold ETFs) stood at INR 2,70,411 crores ($37.2billion).
The data for this section has been collected from the reports of Association of Mutual Funds in India (AMFI).
AMFI reports ETF data in 2 separate classes: the first one is the Gold ETFs and the second one is Other ETFs
which primarily consists of stock Index ETFs. The trends analysed here are from 2007 onwards even though
ETFs have existed from 2001. The reason behind this is that AMFI did not have a separate category for ETFs
prior to that. Figure 2 presents the share of ETFs in the mutual fund industry as a whole over a 14-year period.
The average percentage share of ETFs in the Mutual Fund industry has been quite low at 2.59%. However, it
has been rising steadily since 2015. Index ETFs occupy the majority proportion of total ETF assets while the
share of Gold ETFs has fallen considerably from its highs during 2011-2012.
Figure 2: Share of ETFs in the Mutual Fund Industry
ETFs as a percentage of the MF Industry
10.000%
8.000%
6.000%
4.000%
2.000%
0.000%
2007
2008
2009
2010
2011
Total ETFs
2012
2013
2014
Gold ETFs
Source: AMFI
299
2015
2016
Index ETFs
2017
2018
2019
2020
Contemporary Issues in Banking, Insurance and Financial Services
AUM (in Rupees Crores)
Figure 3: AUM of Domestic Gold and Index ETFs over time
300000
250000
200000
150000
100000
50000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Gold ETFs
Years Index ETFs
Source: AMFI Quarterly Reports
Here also, we see that the proportion of index ETFs, fell down during the 2008-2011 years while the
investment in Gold ETFs rose. However, the growth of ETFs has accelerated rapidly since 2015, especially
for equity index ETFs while the assets of Gold ETFs have since declined. This trend is likely the result of the
Global Financial Crisis, during which the value of equities fell around the world and as a consequence,
investors began flocking towards Gold and related assets as a safe haven for their investments.
Table 3 reports the AUM of the mutual fund industry and the two ETF classes as well as the year-on-year
growth rates. From the table, we see that the value of the assets invested in ETFs has historically been quite
small. The inverse relationship observed between Gold and Index ETFs in Figure 2 is on display here as well.
We also see that the ETF industry has grown quickly in the last few years. The CAGR for Index ETFs during
the 2014-2020 periods has been about 68.29 %, for comparison purposes the Mutual Fund industry assets
grew at just 16.71 % during the same time period
Table 3: Growth in ETF and Mutual Fund Assets
At the
end of
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Mutual Fund Industry
Gold ETF
AUM
AUM
Y-o-Y
growth
(in Rupees crores) (in %)
5,49,936
4,13,365
-24.83
6,65,146
60.91
6,26,314
-5.84
6,11,402
-2.38
7,59,995
24.3
8,25,840
8.66
10,51,343
27.31
12,74,835
21.26
16,46,337
29.14
21,26,665
29.18
22,85,912
7.49
26,54,075
16.11
Other ETFs
Y-o-Y
AUM
growth (in
(in Rupees crores) %)
(in Rs crores)
467
6,074
1,734
271.31
1,761
1,352
-22.03
1,031
3,516
160.06
1,730
9,153
160.32
1,515
11,992
31.02
1,676
8,784
-26.75
1,489
7,188
-18.17
6,702
5,773
-19.69
11,887
5,519
-4.4
28,834
4,855
-12.03
70,353
4571
-5.85
107363
5516
20.67
166586
300
Y-o-Y
growth (in
%)
-71.01
-41.45
67.8
-12.43
10.63
-11.16
350.1
77.36
142.57
143.99
52.61
55.16
Contemporary Issues in Banking, Insurance and Financial Services
31,02,475
2020
16.89
14174
156.96
256237
53.82
Source: AMFI
Figure 4 plots the year on year growth rates of the Mutual Fund industry as a whole, the Index ETFs and the
Gold ETFs. From the figure it is evident that the growth rates in ETFs have been a lot more volatile than the
growth rates in the industry as a whole. The Index ETF category in particular has witnessed significant
growth in recent years.
As discussed earlier, the Benchmark AMC was the first fund house to come out with an ETF issue in India. It
also sponsored India’s first Gold and Money market ETF. For many years after this launch the number of
ETF schemes remained quite low mainly because of the lack of interest shown by investors in ETFs. Table 4
shows the number of ETF schemes available to Indian investors over the years.
Figure 4: Comparison of Growth rates of Mutual Funds and ETFs
Y-o-Y Growth (in per cent)
Growth rates of Mutual Funds and ETFs over time
400
200
0
-200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Years
Mutual Funds -
Gold ETFs -
Source: AMFI
Table 4: Number of Schemes in Gold and Index ETFs
No. of schemes at the end of:
Gold ETFs
Other (Index) ETFs
4
8
2007
5
11
2008
6
12
2009
10
16
2010
12
21
2011
14
20
2012
14
25
2013
14
31
2014
13
44
2015
12
51
2016
12
55
2017
12
59
2018
11
74
2019
11
89
2020
Source: AMFI
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Contemporary Issues in Banking, Insurance and Financial Services
We observe that in recent years the number of schemes has increased considerably. Now almost every major
fund house offers ETF schemes. However, in comparison to most of the developed markets such as the US,
the schemes available are still quite low. Among Index ETFs, the Nifty 50 is the most popular choice of
benchmark. Besides this, the S&P BSE Sensex and Nifty 100 are other broad-based indices which the ETFs
track. The fund houses also offer ETFs which try to mimic the performance of thematic and sectoral indices
such as the Nifty Bank, Nifty PSU Bank, Shariah Index, Nifty Next 50 and the CNX Dividend Opportunities
Index among others. In addition to this a few AMCs offer ETFs that benchmark a foreign index such as the
Hang Seng and the NASDAQ. All the major fund houses including Reliance Mutual Fund, Kotak Mutual
Fund, ICICI Prudential, Motilal Oswal, SBI Mutual Fund, LIC Mutual Fund and UTI among others offer ETF
Schemes. While the size of the ETF market still remains quite small in comparison with actively managed
mutual funds and the mutual fund industry as a whole, yet there are definite signs of an upward trend in recent
years. There can be multiple reasons behind this increased interest in ETFs: firstly, in the rise of ETFs
globally has been phenomenal. ETFs have grown at a Cumulative Annual Growth Rate (CAGR) of 22% since
2003. The global ETF assets had touched USD 7.8 trillion by December 2020. The exponential growth in
global markets has likely provided an impetus to the growth of ETFs in India. Secondly, the Central
Government has chosen the ETF route to divest its holdings in the Public Sector. The first divestment was in
the form of CPSE ETF and then there was the Bharat 22 ETF. Both the ETFs are extremely popular with the
investors and were oversubscribed multiple times. Thirdly, Employees’ Provident Fund Organization (EPFO)
has been steadily hiking its investment in ETFs. As per media reports, EPFO’s investment in ETFs have risen
from 5% of its investible deposits in 2015-16, to 10% in 2016-17 and 15% in 2017-18(The Economic Time).
COMPARISON OF INDIAN ETF AND GLOBAL ETF MARKETS
At the end of 2020, the total ETF assets in the Indian financial market stood at INR 2,70,411 crores (AMFI)
or approximately USD 37.02 billion, at the same time the global AUM in ETF stood at USD 4.8 trillion
(Kealy et al., 2017). So, the Indian ETF industry is just 0.24% of the Global market. Table 5 exhibits the
Assets under Management (AUM) in ETF schemes in the Global market and the Indian ETF market over the
years. For comparison purposes, all the figures in the table are in USD terms.
Assets at the end of
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Table 5: Comparison of Indian and Global ETF Assets
Indian ETF assets
Global ETF assets
Indian ETF market
(in USD Billions)
(in USD Billions)
as a percentage of
Global Market
1.81
467
0.39%
0.49
734
0.07%
0.51
1352
0.04%
1.17
3516
0.03%
2.01
9153
0.02%
2.49
11992
0.02%
1.66
8784
0.02%
2.20
7188
0.03%
2.67
5773
0.05%
5.06
5519
0.09%
11.78
4855
0.24%
16.09
4571
0.35%
24.12
5516
0.44%
302
Contemporary Issues in Banking, Insurance and Financial Services
2020
37.02
14174
0.26%
Source: AMFI and Blackrock ETF Landscape Reports
CONCLUSION
We note that the ETF market in India represents a miniscule portion of the Global market. Between the 10year periods shown in the table above, the Indian ETF assets have never been even 1% of the global assets.
However, the pace of growth has picked up in recent years. The market for ETFs in India grew at progressively
slower pace between 2010-2013. For 3 years 2008, 2009 and 2013, the growth rates were, in fact, negative.
However, the market has recovered since then and a few years saw growth in excess of 100%. The reasons behind
this sudden shift which include the Government’s ETF divestment program, increased investment by EPFO and
the Global ETF growth trends have already been discussed above.
The Global growth trends, on the other hand, have been more uniform. The growth was positive during all the
years. The CAGR for the Global ETF assets during the 14-year period from 2007 to 2020 was 22.49%, while
the same figure for the Indian ETF assets was higher at 52.82%. Even though currently the ETF market in
India is quite small as compared to the market for active securities and also as a percentage of the Global ETF
industry but recent trends seem to be quite favourable. Increase in the number of ETF schemes, greater
awareness among individual investors, the Government’s disinvestment program and increased investment by
EPFO in ETF securities can help in building a more vibrant ETF market in India in the near future.
REFERENCES

Ben-David, I., Franzoni, F., & Moussawi, R. (2017). Exchange-traded funds. Annual Review of
Financial Economics, 9, 169-189.

Gastineau, G. L. (2010). The exchange-traded funds manual (Vol. 186). John Wiley & Sons.

Deville, L. (2008). Exchange traded funds: History, trading, and research. In Handbook of financial
engineering (pp. 67-98). Springer, Boston, MA.

Vlastelica, R. (2017). How the bond industry changed, 15 years after the first fixed-income ETF?
Retrieved May 26, 2018, from https://www.marketwatch.com/story/ how-the-bond-industry-changed-15years-after-the-first-fixed-income-etf-2017-08-03

Murphy, C. (2017.). 15 Years of Bond ETF History in A Nutshell. Retrieved May 26, 2018, from
http://www.etf.com/publications/etfr/15-years-bond-etf-history-nutshell?nopaging=1

Samalad, R. (2017). Do ETFs have a future in India? Retrieved May 10, 2018, from
https://www.morningstar.in/posts/43871/etfs-future-india.aspx
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Kealy, L. et al. (2017) ‘Reshaping around the investor-Global ETF Research 2017’, Ernst & Young,
London: Ernst & Young Global.
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Mccann, B. (2020) ‘Fixed income ETF flows hit new high as bonds bounce back’, City Wire Selector.
Available
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https://citywireselector.com/news/fixed-income-etf-flows-hit-new-high-as-bonds-bounceback/a1404127.
303
Contemporary Issues in Banking, Insurance and Financial Services
Human Resource Issues in Financial Services Sector: Opinions of
Researchers and Professionals
Beauty Das, Assistant Professor, Hansraj College, University of Delhi*
Sushma Rani, Assistant Professor, Hansraj College, University of Delhi
*Corresponding Author-Dr. Beauty Das, email id- prof.beautydas@gmail.com
Abstract:
The role of financial sector in any economy is of paramount importance. But in recent times, the world of
financial services sector organizations is right on the cusp of the next wave of interruption. The changes in the
need for digitization takes hold across each sector in the economy, the financial services sector organizations
are no exception. Every financial organization is plowing resources into digital transformation facelift as they
work hard to keep in line with the changes the recent time brings like the legacy systems, improvement in the
operating effectiveness, its own human resources, customer experience, etc. to name a few. As such, not only
will financial organizations need significantly more and more sophisticated expertise in terms of technology
or highly skilled human resources to deal with such wave of change over the coming years, but they will also
need leaders who can manage change effectively. With these issues and many others like them in mind, this
paper looks at the human resource issues and its broad challenges and also how to overcome those in the
financial services sector organizations in the recent years. The outcome of the paper is indeed an exceptional
one in terms of various issues and challenges that a financial service sector organization face and how
effective they are dealing with them to tackle it at ease.
Keywords: human resources, financial service sector, organizations, issues, challenges
JEL Classification Code: G20, J24
INTRODUCTION:
The financial services sector is probably the most important sector of any economy and plays a vital role in
the global economy. Financial services are a broad term used to describe the various offerings within the
finance industry–encompassing everything from insurance and money management to payments and digital
banking technology. There are a multitude of stakeholders and moving parts within financial services, and
includes companies engaged in activities such as investing, lending, insuring, securities trading and issuance,
asset management, advising, accounting, and foreign exchange. And with financial activity becoming
increasingly digitized, especially as consumers are choosing to manage their finances from home amid the
ongoing global pandemic, financial institutions are sharpening their technology and expanding remote
services. It is often seen that, many large conglomerates dominate this sector, but it also includes a diverse
range of smaller companies. Many people in India equate the financial sector with Dalal Street (in similar
terms with the Wall Street) and the stock exchanges that operate on it. But there's much more to it than that.
As stated earlier, companies in the financial services industry manage and mobilize money. It provides not
only payment services, but also enables organizations and households to cope with economic uncertainties.
They offer many services such as loans, installment services, savings accounts etc. In order for an economy to
remain stable, it needs to have a healthy financial sector. An efficient financial sector reduces the cost and risk
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of producing and trading goods and services and thus makes an important contribution to raising the standard
of living.
Human Resource (HR) on the other hand, is the department of a company or organisation which focuses on
activities that relate to employees. HR forms part of the back office in a financial services firm. But this by no
means implies that the professionals that work in this industry are hidden away backstage. In today’s
technologically upgraded environment too, the importance of HR cannot be neglected. In fact, HR sprawls
across every area of a financial organization in many ways possible. HR communicates effectively with the
employees of all levels in each department, senior managers and even the executive board members. As
companies continue to reorganize and re-structure to gain a competitive edge, the role of HR within the
company will also continue to grow and expand. This can be a fast-changing and competitive environment
due to the continuing need for quality employees. Globalization of the financial sector has meant significant
challenges for HR staff. Companies have had to deal with damaged reputations and ever-decreasing
workforces as well as cost reductions due to declining demand for services like mortgages and small business
lending. These changes have widely affected recruiting and staff development efforts.
Keeping in mind the broad prospect on HR in the financial service sector and also inclusive in other types of
companies in other relevant sectors in an economy, this paper looks at the human resource issues and its
broad challenges in the financial services sector organizations in the recent years. This paper is a descriptive
one with emphasis given on secondary data collected from various sources.
The financial services sector is the primary driver of a nation's economy. It provides the free-flow of capital
and liquidity in the marketplace. The strength of the financial services sector is also important to the
prosperity of a country's population. When the sector and economy are strong, consumers generally earn
more. This boosts their confidence and purchasing power. When they need access to credit for large
purchases, they turn to the financial services sector to borrow. If the financial services sector fails, though, it
can drag a country's economy down and can lead to a recession. When the financial system starts to break
down, the economy starts to suffer. Capital begins to dry up as lenders tighten the reins on lending.
Unemployment rises, and wages may even drop, leading consumers to stop spending. In order to compensate,
central banks lower interest rates to try to boost economic growth. As companies continue to reorganize and
re-structure to gain a competitive edge, the role of HR within the company will also continue to grow and
expand. This can be a fast-changing and competitive environment due to the continuing need for quality
employees.
Over the past few years, financial institutions such as banks, securities houses, and insurance companies have
come to offer very similar services. More recently, increased competition, technological change, and a
chipping away at the regulatory barriers embodied in various new and amended Acts, there is a rise in
financial institutions like commercial banks to expand their activities into domains traditionally associated
with investment banks, brokerage houses, and insurance companies. Research on financial sector organization
shows that while all the above mentioned industries have come to rely heavily on highly skilled labor. In fact,
the educational and occupational profiles of their respective employees have remained fairly stable and
therefore the role of HR has not changed substantially. HR now needs to be attentive to delivering positive
results regarding not only the employees of an organization, but also towards the planet and long-term profit.
An understanding of one’s industry, business, customers, products and internal operations comes with
experience, maybe. Once firms realize the importance of providing their HR staff with organizational insights
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of its internal and external exposure, they can use a range of mechanisms that could be useful for
understanding the in depth knowledge of HR requirements in the organization like job rotation, training
programs, cross functional teams, etc. An understanding of the business context is critical, but not sufficient.
HR professionals like all business professionals also need a set of tools that they can use to analyze that
business context and evaluate alternative courses of action. If looked properly inside the spectrum of any
financial service sector organization’s HR department, the HR professionals most often lack in financial
analysis skills. This basic understanding of financial logic is necessary to support all HR decision-making.
Some HR professionals also need an understanding of specific areas where HR and finance intersect. For
example, one cannot design a pay-for-performance system that supports a firm’s business strategy without
understanding what is captured in alternative measures of corporate financial performance. There are
countless other examples. Most HR professionals can acquire the general and specialized finance
understanding they need without pursuing a degree in finance or business. The alternatives are to either
participate in a well-designed training program or devote time to working through appropriate self-study
materials. The challenge is to find programs or materials that demonstrate both how financial analysis tools
can be used to improve the return on investment from HR initiatives and how they can be used to evaluate
business strategy. Many finance for nonfinancial manager classes ignore the latter topic completely. But,
management should stress on putting those issues on the decision table.
CHALLENGES OF HR IN THE FINANCIAL SERVICE SECTOR
In the wake of on-going global pandemic, every sector in all economies now faces an uphill battle against the
structural and financial impact due to that. A financial service sector organization makes no exception to this,
with many firms being challenged to quickly adapt to an ever-changing set of realities. No enterprise ever
wants an unplanned interruption of productivity or services, and many of the big financial service sector
organizations have done a great deal of preparation to support business resilience in crisis situations, but 2020
has brought unique challenges to the table for all. One of the most immediate and significant challenges was
the need to adapt business, IT systems and teams to support a fully remote workforce and ensure operational
resiliency. For example, almost overnight, banks of all sizes rapidly switched thousands of their employees to
working from home for the very first time, to ensure productivity and vital tasks continued to function.
Most companies today are responding to an increasingly tight labor market, especially when it comes to
technical talent. For any organization dealing with people requires a good human resource management for
efficient working of the organization. The financial industry is no exception. Like any company, financial
institutions have their fair share of HR challenges. As technology emerges to help streamline processes,
financial organizations are among the many industries engaged in digital transformation processes. To
accommodate that change, they need to adjust their talent and business strategies and do so cost-effectively.
By understanding and prioritizing these challenges, financial industry players can begin to chip away at what
must be done to remain competitive and financially sound. The most common HR challenges facing financial
service sector institutions today are briefly discussed below.

Skills Gap: A lack of skilled candidates is definitely a serious problem in any sector and financial service
sector too have that issue at a highest rate at this moment. According to PWC’s Annual Global Survey, 74%
of CEOs are concerned about the availability of key skills in the finance industry. In an economy where the
unemployment rate is hovering around sky-rocketing and always above 10%, generally considered full time
employment, employers of all kinds are struggling to find skilled, even competent workers. 70% of financial
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services CEOs saw the availability of key skills as a threat to growth (HR Financial Services points out that in
2016, PwC). The skills gap in the finance industry is continuously widening. In 2016, a PwC survey found
that 70% of financial services organizations saw the availability of key skills as a threat to growth. This, in
large part, was and still is being driven by the increasing capabilities of digital technology and the emergence
of new roles in finance, such as data scientist, and artificial intelligence (AI) and software engineers.
Unfortunately, however, there just aren't enough developers or data scientists out there who are well-versed in
finance, and vice versa. And the problem persists. More recently, the 2016 Financial Services and IT Study by
Peak 10 found that though more than three-quarters (76%) of financial institutions had created new IT roles in
recent years, half were finding it either "difficult" or "very difficult" to fill them. As new technology and
software continue to change the way organizations work, their HR staff also need to be up skilled to learn
how to use it. But many organizations in financial service sector particularly in banking have lost popularity
since the economic downturn of 2008, putting off newly-qualified graduates from pursuing a career in
finance.

Retaining Employees: Retaining employees is one of the most difficult challenges in HR. There are many
reasons why people decide to move on, and it can be difficult to persuade them to stay after they have made
their decision. Retaining staff is about inspiration and motivation, so make them feel like they have a purpose.
Jobs at financial firms are very unpopular because of their monotonous and boring work schedule. Often
bankers leave their high paying jobs and start working elsewhere. This is just because they found their job
boring and unchallenging. This is a challenge faced by HR teams. They have to work to change the way bank
workers perceive their jobs. A 2012 global survey by Deloitte found that financial services industry
executives are more focused than their counterparts in all other industries, 45 percent versus 19 percent, on
reducing employee headcount and costs. The same trend, 41 percent versus 30 percent, holds true when it
comes to retaining employees at all levels over hiring new workers. More than half of financial industry
respondents said they planned to accelerate leadership development programs in the coming year, and 41
percent expressed heightened interest in global diversity management.
Another challenge is that while many companies struggle to retain top talent, financial companies in particular
struggle to hire and retain younger employees. Keeping industry knowledge and maintaining productivity
aren’t the only reasons to retain talent as replacing an employee is costly and time-consuming. Studies
estimate the average cost of replacing a mid-level employee is 150 percent of that employee’s annual salary,
so it’s in organization’s bottom line’s best interest to keep their employees around longer. Studies find that
Millennial prioritize professional growth opportunities above all else when job hunting. Showing employees
that organizations invest in them and encourage their professional growth can go far in building a meaningful
employee experience and increasing employee loyalty and tenure. Financial services organizations need to be
employing a variety of employee retention strategies to hang on to their best employees. Professional
development opportunities should be provided to create more knowledgeable employees and increase an
employee's investment in their financial services career.

Sourcing Talent: Firms are focusing on retaining their key talent by improving their performance
management processes and by fostering a culture that more closely aligns with their strategic priorities.
However, attracting talented performers and getting recruitment right the first time is proving a tougher nut to
crack. For many firms, talent sourcing and selection are high priorities. The consulting firm Deloitte notes
that the insurance industry faces several recruiting challenges, including a poor image as a career destination
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and an aging workforce. Qualified finance graduates are looking beyond money when choosing where to
work and are focused on issues such as the reputation of the company, the degree of autonomy and challenge
on the job, and future opportunities with the firm.

Digitalization & Upgrading Technology: Informalization and computerization of society is one of the most
important processes of present, everywhere around the world. Opportunities for new activities open up, while
the information and technological environment as such contains the potential danger of deformations in the
structure of personality and the ways of its social integration. In this regard, there is reason to assume that the
development of information technologies in our modern age has both constructive and deconstructive
consequences for a person or for a business. Management of finance faces new risks coming from
implementation of artificial intelligence or digital systems. Like the rest of the world, the banking and finance
sector is also shifting towards digitalization. To remain competitive and achieve longevity in the market,
financial services have to keep up with digital transformation. The survival of financial institutions is
connected with the adoption of innovation, and embracing digital changes, to improve the efficiency and the
performance within the organization. Not only in the affairs of the office, but also the client. Digital
transformation and new technology adoption have changed the way of doing business and channels that offer
banking and financial products and services are more intuitive and trustworthy. Bank interaction is becoming
increasingly digital. People tend to pay their bills and transfer funds using mobile banking instead of taking
the tedious journey to the bank and then wait in lines. Anticipating this trend, HR teams are now focusing on
hiring employees that are going to help develop the mobile banking service rather than those who sit in the
banks 9 to 5 and work on paper. Full-time bankers such as receptionists, tellers and managers are still needed
because a segment of the population still prefers to make and receive their payments in hard cash. Another
trend in this industry is the advancing technology, there’s no escaping this. It influences the sector in so many
areas.
Today’s digital wave has the same markers: separate teams, budgets and resources to advance a digital
agenda. This agenda extends from customer experience and operational efficiency to big data and analytics. In
financial services also, this approach can be seen and have been applied to payments, retail banking, insurance
and wealth management, and migrating toward institutional areas such as capital markets and commercial
banking. In respect to this, consider the evolution of the digital wallet, which is rapidly just becoming ‘the
wallet’. Digital wallets, typically housed within a mobile phone are now at the core of a battle between
traditional financial services providers and disruptors. They give consumers a fast, secure, low-cost method to
use, store and send money over the Internet. It is a service they value as well as a front door to many lucrative
bank offerings.

Leadership Development: In many financial services firms, leadership development is either non-existent or
an exercise in box-ticking. The risks of dysfunctional leadership are not just bad publicity and damaged
brands, but have an effect on the monetary costs. Building a ready pool of future leaders will reduce the risk
of critical positions going unfilled. However, caution needs to be applied here. What makes someone
successful in one role does not necessarily translate to the next rung up the leadership ladder. So organizations
need to be clear on what specific competencies and qualities they want to assess while choosing a good HR
personnel for the top position. In today’s organizations, assessment now has a value beyond recruitment. It’s
not just about maximizing the person-job match and minimizing the risk of early attrition or the expense of
making a bad hire.
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Contemporary Issues in Banking, Insurance and Financial Services

Corporate Culture: Because company culture is not tangible or measurable, it’s often tossed aside for other
business priorities, but makes no mistake as company culture should be prioritized at every financial
company. Company culture is not only important for attracting talent; it also helps you retain existing talent.
Many job seekers say company culture is a very important factor when applying to a new job. Employees
want to join a company with a strong mission, vision, and values that align with their own, but that’s not all
that goes into forming company culture. Work-life balance, transparency, management style, office vibe, team
dynamic all that and more contribute to any company’s work environment and corporate culture. At financial
companies in particular, company culture is crucial to business success. According to the new Workplace
Culture report from LinkedIn, 86% of millennial would take a pay cut in order to work at a company whose
values they feel are in tune with their own. By comparison, only 9% of baby boomers would do the same. To
build a culture at any organization whether it’s a financial service organization or not, the management should
be intentional and should start at the top itself. In fact, as researchers we should research about exploring the
consequences of top management who support for HR implementation and there is very much scope to
expand research on this process in recent times.

Diversity: Diversity and inclusiveness is one core focus of the HR remit. While adhering to local policies and
procedures, the HR department’s principle goal should always be to foster a workplace environment that is
comfortable, welcoming, and free of conflict. Implementing cultural awareness programs can be helpful in
making employees aware of the benefits of a diverse workplace, drawing attention to the better ideas and
innovations a diverse team yields, and the wider customer reach attainable for a diverse business. For
example, the finance industry needs to focus on drawing in more bright young females with the potential to
reach senior levels in the company. The Big Four financial service originations (PwC, EY, KPMG and
Deloitte) run a number of events to encourage and promote diversity. These diversity events mean that HR
professionals in a financial firm are often in charge of organizing webcast events, presentations and
discussions with ‘role models’ from the firm. Another helpful tool for managing diversity in the workplace is
team building activities, which can assist in integrating employees of different cultures and uniting them
towards a collective business objective. They have to think creatively about how they can reach out to target
diversity groups, encourage them to apply for the company, and aspire to more senior roles there. The
organization must ensure that there are the provisions in their company policy, which are in place to help
them-achieve that.
OVERCOMING THE CHALLENGES OF HR
Researchers face a challenge in recognizing that management behaviour may not be aligned with traditional
methods of collecting data about HR practices. For example, advocates of a human capital perspective have
argued that organizations should invest in those human resources that will provide a good return. Lepak and
Snell have presented a classification of human capital and a justification for high investment in core workers
who are valuable, scarce, inimitable and non-substitutable. Following this logic, other categories of worker
will require different levels of investment and therefore different human resource policies and practices. Many
factors continue to transform the workforce. HR leaders are juggling numerous staffing challenges, from a
multi-generational workplace to a shifting focus on performance reviews. Among these priorities and focuses
also includes talent management, which focuses on elements such as promotions, learning management, and
culture. Individual industries are also undergoing change. Many banks are facing the challenges of the current
4th Industrial Revolution. On the one hand, they need cloud computing, AI, and digital marketing to remain
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Contemporary Issues in Banking, Insurance and Financial Services
competitive. On the other hand, they also have large workforces which need to be retrained. Learning
programs can help develop these new capabilities. At the same time, reinforcing employee engagement is
also key to staying competitive with other banks, insurance companies, and financial technology firms. In
financial services, the arrival of automation and emerging technologies have resulted in layoffs at major
institutions, especially as customer preferences shift toward self-directed asset management programs and
countries face increasing political volatility. For the workers and institutions who survive staffing changes,
questions remain around retention and worker satisfaction. Being able to adapt to those changes, however
unfamiliar or daunting, is critical for sustainable business success. Above all, the biggest HR challenge
professionals face is identifying and understanding the corporate landscape of the future. Successful banks
and insurance companies are focused on cultivating and retaining top talent through training programs and
learning tools while also investing in technology as a way to accelerate employee performance.
For example, in terms of technology, is revolutionizing how bank employees and personal financial advisors
interact with customers. New self-service and robotic-advisors now own the lion’s share of the work, with
face-to-face interactions reserved for specific value-added interactions. This revolution impacts the
capabilities and tools required by financial services teams. Different generations share differing viewpoints on
the arrival of AI and other emerging technologies.
In terms of corporate culture, younger generations are used to higher levels of collaboration across the
organization and want workplaces with immediate access to colleagues, managers, mentors, and subject
matter experts where they can build meaningful relationships. One of the ways that younger generations can
navigate through their complex financial institutions is with digital assistants, where they can get intelligent
recommendations within the context of natural conversations. Digital assistants make onboarding tasks,
performance assessment, and, general self-service easier to handle. Because many organizations are
proactively attempting to increase the diversity of their workforce, and because the workforce of today is
increasingly global, successful HR leaders must be able to effectively and respectfully interact with
colleagues, customers and clients of varying backgrounds and cultures. HR professionals are often tasked
with developing, delivering and evaluating these diversity-related initiatives. Additionally, various laws and
regulations require organizations to use inclusive hiring practices. Again, HR professionals are often primarily
responsible for complying with these laws and regulations because of their pivotal role in employee hiring.
Given the role of HR professionals in promoting and maintaining a diverse workforce, it is easy to see the
need for and importance of the global and cultural effectiveness competency.
When it comes to leadership development, effective leaders are associated with numerous positive outcomes.
For example, positive employee work attitudes such as job satisfaction and organizational commitment,
decreased turnover, and increased employee job performance. Leadership and Navigation recognizes this
important role for HR professionals by describing the attributes needed by HR professionals to lead
organizational initiatives and obtain buy-in from stakeholders.
Conclusion:
The paper comes to the conclusion that HR plays an important role in any organizations growth and financial
service sectors organizations are no exception. But to initiate that HR personnel in big financial service
sectors organization don’t end up having a skill gap and employees remain with their employer for the longest
time, management of such financial organization should consider HR as an important element to their success
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and respect their boundaries and limitation. To overcome the challenges and issues of HR in financial
organization, their management should implement and apply proper HR planning and policies to deal with
those issues as and when they arise.
REFERENCES
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Demsetz, R. (1997). Human Resource Needs in the Evolving Financial Sector. SSRN Electronic Journal.
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8th Global Financial Services Industry Security Study (2012), Deloitte. (Assessed on 20 th March 2021.
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Human capital trends in the insurance industry (2016), Deloitte. (Assessed on 20 th March 2021.
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Lokova, M.Y., Khanova, M.N., Azamatova, G.K., Vindizheva, A.O. and Reshetnikova, N.N. (2018, April),
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Conditions of the Global Financial and Economic Crisis. In International Conference Project “The future of
the Global Financial System: Downfall of Harmony” (pp. 176-182). Springer, Cham.
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Financial Services Technology 2020 and Beyond: Embracing disruption, (2020), PwC. (Assessed on 21st
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Stanton, P., Young, S., Bartram, T. and Leggat, S. (2010). ‘Singing the same song: translating HR messages
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Lepak, D. and Snell, S. (1999). ‘The human resource architecture: toward a theory of human capital allocation
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Energy Efficiency and the Finance Sector: Policy and Regulatory
Issues- Conceptual Framework
Kamaljit Singh, Research Scholar, USM,
Kurukshetra University, Kurukshetra, Email: kamaljitsehjanusm17@kuk.ac.in
Dr. Simmi Vashishtha, Assistant Professor, USM
Kurukshetra University, Kurukshetra, Email: simmivashishtha@kuk.ac.in
Abstract
In some countries, highly volatile oil and electricity prices and extreme power shortages are essential
drivers of energy efficiency. Managing costs, including high energy costs, have become a much
greater priority in many parts of the economy and society, given the extreme global financial
conditions and concern for the global slowdown. In comparison to recent years, current investment
levels and growth rates illustrate the increasingly growing attention to the energy efficiency market.
Most governments do not have a consistent, convincing, and well-defined collection of energy
efficiency policies and incentives. Therefore, key policy and regulatory issues of public and private
sector financial institutions are discussed in the present study. In a nutshell, there is no one-size-fitsall solution or single policy that can solve the problem on its own. The development of systematic
strategies, incentives, and implementation efforts across various industries facilitates energy
efficiency.
Keywords: Energy Efficiency, Finance Sector, Energy Service Companies, Policy and Regulatory
Issues
INTRODUCTION
A core collection of goals in the literature aimed to assess the views on the financial institutions’ policy and
regulations. This will play a significant role in developing the financially funded energy efficiency (EE)
sector. The policy and regulatory system and, most critically, the successful implementation of adopted
policies have been accorded high priority over the global scenario (Zobler and Hatcher, 2003). This reflected
the conclusion of the financial services firm Union Bank of Switzerland (UBS) in mid-2008, which claimed
that as the price of energy continues to rise, government intervention would be increasingly necessary to
sustain energy efficiency (Taylor et al., 2008). However, effective strategies on climate change and energy
supply sustainability eliminate the barrier to progress. The majority of the studies provided two valuable
starting points for understanding what will drive the energy efficiency market’s rapid development. Firstly, to
take advantage of the number of short-term drivers and secondly, to see the lesser danger of energy
conservation and the renewable energy market in the longer term.
The challenge for policies and regulations is to help financial institutions, particularly the private sector and
emerging financial institutions, recognize that this long-term vision is sustainable and can translate into cash
flows today (Painuly et al., 2003). Integrating energy efficiency and clean energy policies with a holistic
strategy for sustainable energy policy and regulatory assistance would have to be sufficiently precise to
answer the questions posed about energy efficiency funding and explicitly enough energy efficiency to be
raised on mainstream and agenda (Gillingham et al., 2009). It is also essential to incorporate complementary
energy regulations and incentives with broader economic and energy policies to prevent conflicting
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Contemporary Issues in Banking, Insurance and Financial Services
statements. Financial institutions would make a financially appealing case for early, constructive market
participation to their boards, credit committees, and customers using a comprehensive and systemic public
policy agenda.
Furthermore, the approach towards policies that guide the infrastructure, and regulations that are applied to
energy and structures, and support performance will influence the building, manufacturing, and in addition to
this, will play a decisive role in forming the creation of the structure and conduct of energy in the industrial
sector. The supply chain would require appropriate long-term incentives and market stability to fully produce
and enforce energy efficiency solutions (Bell et al., 2011; Singh, 2020).Even the effect of energy market
globalization on the growth of Energy Service Companies (ESCOs) in Europe can only be defined as
balanced instead of explicitly optimistic. Such cases indicate energy market instability and more
comprehensive economic development programs and suggest how critical it is that government policies
across sector and regulation areas should be audited to be compatible with energy efficiency objectives (Wang
et al., 2017). To achieve the scales of savings and time frames indicated by the International Energy Agency
(IEA), underlying constraints must be addressed, and appropriate financial incentives should be in place.
The financial markets can be considered highly fragile, regardless of the structure of a particular country’s
economic structure. There is the assumption that policymakers are not offering a convincing and robust
collection of economic and political incentives to move toward energy efficiency (EE). An excellent example
to be followed was a rapid, politically led increase in sustainable energy investment in several countries.
Therefore, this study aims to address key policy and regulatory issues affecting public and private sector
financial institutions (FIs). The rest of the paper is organized as follows: Sections 2 and 3 highlights the key
policy and regulatory issues of public and private sector financial institutions. Section 4 suggests some
enumerable policy suggestions, and based on discussion, the concluding remarks are given in Section 5.
REGULATORY ISSUES: PUBLIC-SECTOR FINANCIAL INSTITUTIONS
Financial institutions in the public sector are more directly involved with governments in providing devoted
financial and energy efficiency programs through their boards and their public mandates and incorporating
energy effectiveness into their more comprehensive financial activities (Hayes et al., 2011). Although much
of this attention is focused on what governments can do, governments still must focus on the policies that
impact the service or finance they provide, whether for themselves or citizens. The following are the central
policy and regulatory issues confronting public-sector financial institutions:
i.
ii.
iii.
iv.
v.
For renewable energy to go forward, including energy conservation, a long-term stable policy and regulation
are considered necessary.
Some financial institutions in the public sector function with governments when needed and independent
regulators are essential to successful enabling environments.
These financial institutions provide finance related to national or regional policies and market structure
inefficiencies. Additionally, market forces that lead to an increase in the consumption of fossil fuel energy
and state intervention in the provision of lower levels of renewable energy or emerging competitors stand in
the way of progress.
Where viable policies or energy efficiency targets exist, policy implementation consistency is critical.
An initiative that has been proposed is a possibility is a partnership between private and public financial
institutions to set efficiency standards for technology used in various industries and regions. This can be
useful in technology transfer.
KEY POLICY AND REGULATORY ISSUES: PRIVATE-SECTOR FINANCIAL INSTITUTIONS
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Contemporary Issues in Banking, Insurance and Financial Services
i.
ii.
iii.
iv.
This segment begins with some private-sector perspectives derived from the literature and proceeds to discuss
the problems outside the industry. Government policy and regulation can assist in the growth of finance
opportunities, on a broad scale, for energy efficiency (Deason et al., 2016). An exciting business proposition
is crucial for attracting investment capital from the commercial banking sector. Regulatory challenges that are
critical to the private sector financial institutions include:
There are various options to make the opportunity scale larger, including improving energy efficiency in
public buildings and having a more positive attitude about power from the utility’s perspective, rather than
penalizing them.
It is also crucial that policymakers or regulators identify and eliminate perverse incentives, such as analyzing
underlying market mechanisms, such as a clear link between utility sales and their income, and ‘agency’
matters, such as the division of landlord-tenant.
A healthy investment climate at the national level is required to grow new companies devoted to energy
efficiency activities such as energy supply companies and service companies, e.g., metering, installation, and
stimulating energy efficiency strategies across the economy, using consistent legally based policy and
regulation.
A robust public policy promoting energy efficiency would give entrepreneurs and the investment and equity
finance to take over new corporate ventures the right signals and a long-term perspective.
ENUMERABLE POLICY SUGGESTIONS
The majority of the studies proposed different policy options as approaches that could aid the energy
efficiency funding model’s financing aspect. It should be considered alongside other components of the
energy conservation strategy, for instance, setting requirements for appliances, machinery, and buildings. On
the other hand, some research indicated that the most straightforward solution would be an obligatory straight
set of societal goals (Kim et al., 2012). Customers would have to adapt, a more politically appropriate option.
The key to a successful program of incentives is to develop various financial tools tailored to different
sectors’ needs to encourage commercial activity.
To develop commercial financing solutions for energy efficiency:
i.
ii.
iii.
iv.
v.
Particularly First, government bodies’ facilities should be opened to the private sector to allow the market to
develop, allowing businesses to work with existing government assets to accomplish a much faster
deployment of the goal of market expansion.
Encourage the purchasing of energy-efficient appliances, using product life cycle cost analysis where
appropriate.
To get rid of unprofitable customer segments at the base, precisely the point where sales and profits cannot be
optimized. For utilities to build a business model for selling demand reduction, incentives are required.
White certificates (WCs) are a standard EU policy that can promote energy-saving business models. In most
situations, the definition of ‘a negative kilowatt-hour,’ or a ‘saved’ of electricity, is the same worldwide. Each
power unit that is saved, theoretically combined with carbon, will receive a WC, which would allow energy
efficiency to be connected to a working carbon market more closely.
Service companies, including Energy Service Companies and technologies that calculate and control
electricity needs, must be in place, e.g., metering that enables customers to track and manage energy
consumption. It is necessary to make the supply chain efficient.
CONCLUSION
Energy efficiency goals alone are inadequate, while strict unless they are adequately stimulated, efficiently
enforced on the ground, or incorporated into other components of a sustainable energy strategy in order to
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Contemporary Issues in Banking, Insurance and Financial Services
ensure that policy signals are not contradictory. Any dependence on high prices is self-defeating, just as any
dependence on low prices would decline. Though long-term efficiency needs are getting raised in policy
terms, financiers are starting to put them into the spotlight as well. Globally, financial institutions are
increasingly involved in the sector. For the most part, the requirements are not yet to turn energy conservation
into a lucrative investment opportunity.
Although lending activities and some clear examples of innovation by those creating the tools and business
models that will generate new market opportunities are ongoing, they are still on a small scale, particularly in
the context of the very significant investment and climate change management opportunity. There is a patchy
policy situation as countries are still not providing a visible and systematic structure for energy conservation
that is adequately sustainable to prioritize energy effectiveness. To address climate change and energy
security issues, a realistic and integrated policy strategy is required to reflect the urgency and scale of change
required within the energy economy and establish the constraints for sustainable, financially successful
growth opportunities. Financial institutions must explain capital deployment to develop more comprehensive
energy management organizational strategies through institutions and activities. In order to make full use of
its energy potential, the economy needs a consistent energy policy and regulatory structure.
REFERENCES

Bell, C. J., Nadel, S., & Hayes, S. (2011). On-bill financing for energy efficiency improvements. A review of
current program challenges, opportunities and bets practices.
 Deason, J., Leventis, G., Goldman, C. A., & Carvallo, J. P. (2016). Energy Efficiency Program Financing:
Where it comes from, where it goes, and how it gets there.
 Gillingham, K., Newell, R. G., & Palmer, K. (2009). Energy efficiency economics and policy. Annu. Rev.
Resour. Econ., 1(1), 597-620.
 Hayes, S., Nadel, S., Granda, C., & Hottel, K. (2011, September). What have we learned from energy
efficiency financing programs. In American Council for an Energy-Efficient Economy.
 Kim, C., O’Connor, R., Bodden, K., Hochman, S., Liang, W., Pauker, S., & Zimmermann, S. (2012).
Innovations and opportunities in energy efficiency finance. Wilson Sonsini Goodrich and Rosati, New York,
USA. Retrofitting buildings in the UK, 129.
 Painuly, J. P., Park, H., Lee, M. K., & Noh, J. (2003). Promoting energy efficiency financing and ESCOs in
developing countries: mechanisms and barriers. Journal of Cleaner Production, 11(6), 659-665.
 Singh, K. (2020). Are energy efficiency policies efficient? Evidence from India. European Journal of
Research, 5(6), 3-10.
 Taylor, R. P., Govindarajalu, C., Levin, J., Meyer, A. S., & Ward, W. A. (2008). Financing energy efficiency:
lessons from Brazil, China, India, and beyond. The World Bank.
 Wang, X., Liu, C., & Hawkins, C. V. (2017). Local government strategies for financing energy efficiency
initiatives. The American Review of Public Administration, 47(6), 672-686.
 Zobler, N., & Hatcher, K. (2003). Financing energy efficiency projects. Government Finance Review, 19(1),
14-18.
 Websites
 https://www.unepfi.org/fileadmin/documents/Energy_Efficiency.pdf
 http://ases.org/images/stories/file/ASES/climate_change.pdf
 http://www.sefi.unep.org/
 http://www.newenergyfinance.com/
315
Contemporary Issues in Banking, Insurance and Financial Services
A Comparative Study of Analysis of Financial Health of Automobile
Industry
Vicky, Research Scholars
Department of Commerce, MDU, Rohtak
Aishwerya
Student, Govt. PG College for Women, Rohtak
Abstract:
Automobile industry of India is on 4th place in the world in respect of selling passenger and
commercial vehicles and will reach to 3rd largest country by 2021. It happens only when this
industry perform well and produce and generate demand of the product. So, present study focuses on
analysis of financial health of automobile industry. The main objective of the study is to evaluate the
financial health of automobile companies. For these purpose research select top 5 automobile
companies based on market capitalization and time period of the study was 12 years from 2009 to
2020. The research applied Altman Z score and found that overall financial health of the sample
companies was good except Scooter India ltd. The study also provides comparative analysis of
financial health and found that Hero MotoCorp ltd is more stable company and it is followed by
Bajaj auto ltd. The study concluded that financial health of automobile industry is in safe zone.
Keywords: Automobile, financial health, Altman Z score etc.
INTRODUCTION
Automobile industry of the India is in fourth place in 2019 in selling of passenger and commercial
vehicles and it is expected it will crossed Japan in 2021 and will become 3rd largest industry in the
world. Most of the Indian citizen depends on two wheelers and automobile industry also depends for
revenue on middle class family. This industry of India also contributes in export and it will expand
in near future. Indian automobile industry is ready to become world leader in market share of sales
of two and four wheelers by 2021. From 2016 to 2020, growth in production is CAGR 2.36% and
26.36 million vehicles produce in this period. Overall domestic sales increased with 1.29 %. India’s
automobile industry export reached 4.77 million in financial year 2020. Out of which 73.9 % is
related to two wheelers and 10.5 % is related with three wheelers. The government of India also
supports automobile industry and 100 % foreign direct investment is allowed in this industry. Govt.
also support electric vehicles production and for this in year 2019-20 central govt. allowed income
tax deduction up to 1.5 lakh for payment of interest payment on loan taken for purchase of electric
vehicles. In future the demand of automobile industry production will increase due to low labor cost
and availability of technology and research and development in this industry. As per expectation
India’s automobile industry grow up to 16-18 trillion by 2026. (ibef.org.)
REVIEW OF LITERATURE: Kumar (2018) carried out a research to analysis financial
performance of the automobile industry and study based on listed company on BSE and time period
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Contemporary Issues in Banking, Insurance and Financial Services
of the study was five years. The study found that overall financial performance of automobile
industry was good and liquidity position affect the performance of the companies.
Geethalakshmi (2017) conducted a research to measure the financial health of the automobile
industry and applied Z score model. The study found that financial health of the industry was good
and performed well in near future.
Surekha (2015) conducted a research to measure the financial position of the TATA motors and
study found that financial position of the company was remarkable.
RESEARCH METHODOLOGY:
Objectives of the study: To analyze the financial health of automobile industry using by Altman Z
score model.
1. To comparative analysis of financial health of automobile industry.
Sample of the research: The present study based on top 05 automobile companies which are based
on market capitalization and selected through non probability judgmental sampling.
Period of the study: The period of the study is 12 years from 2009 to 2020.
Data type and collection: The study purely based on secondary data and collected by annual reports
of the companies and various magazines and websites.
Tools and techniques: The present study is applied Altman Z score model and various descriptive
statistics like mean, standard deviation and coefficient of variation etc.
“Altman Z score Model explanation:
Z= 1.2X1 +1.4X2+3.3X3 +0.6X4 +1.0X5
Where
X1 =Working capital/total assets
X2 = Retained earnings /total assets
X3 = Earnings before interest and taxes /total assets
X4 = Market value of equity / book value of total debts
X5 = Net sales /total assets”
Criteria to measure financial health:
1. Below 1.81 = distress zone
2. 1.81 to 2.99 = gray zone
3. Above 2.99 = safe zone
ANALYSIS AND INTERPRETATION
Table 1 shows the Z score of Atul auto ltd. From 2009 to 2015 Z score of company has improved
continuously after that it declined from 2015 to 2020. The highest value of Z score is in 2015 which
was 17.413 and minimum in 2009 which is 2.481. Z score of company was less than 2.99 in 2009
and company is in Gray zone and company is in safe zone from 2010 to 2020. So, overall company
is in safe zone but value of Z score declined continuously.
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Contemporary Issues in Banking, Insurance and Financial Services
Table No. 1
Trend of Financial Health of Atul Auto Ltd.
Years
X1
X2
X3
X4
X5
Z-Score
2009
-0.009
0.002
0.047
1.144
1.649
2.481
2010
0.011
0.041
0.133
1.734
1.684
3.236
2011
0.068
0.090
0.212
1.973
2.976
5.066
2012
0.157
0.117
0.260
2.065
3.407
5.855
2013
0.204
0.148
0.308
3.306
3.324
6.776
2014
0.275
0.139
0.308
7.853
3.320
9.574
2015
0.200
0.154
0.336
21.381
3.020
17.413
2016
0.294
0.151
0.326
16.824
2.679
14.413
2017
0.362
0.094
0.231
16.449
2.160
13.357
2018
0.385
0.116
0.232
11.950
1.895
10.457
2019
0.281
0.110
0.233
7.765
1.874
7.793
2020
0.180
0.119
0.181
4.061
1.647
5.064
The table 2 shows the financial health of Bajaj auto ltd. from 2009 to 2020. The Z score of the
company is more than 2.99 and during study period company is in safe zone. Maximum value of Z
score is in 2017 which is 14.766 and minimum in 2009 which is 4.716. So company is in safe zone
during study period.
Years
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
X1
0.131
0.202
-0.090
0.045
0.159
0.056
0.320
0.060
0.248
0.201
0.051
0.074
Table No. 2
Trend of Financial Health of Bajaj Auto Ltd.
X2
X3
X4
X5
0.047
0.213
3.674
1.586
0.117
0.276
6.801
1.419
0.212
0.473
9.368
1.840
0.133
0.373
9.330
1.821
0.120
0.346
10.969
1.673
0.104
0.323
11.374
1.422
0.069
0.264
11.648
1.435
0.028
0.334
20.770
1.438
0.174
0.254
20.477
1.101
0.091
0.241
16.103
1.064
0.095
0.244
14.773
1.107
-0.046
0.263
11.579
1.204
318
Z-Score
4.716
6.818
9.209
8.888
9.755
9.527
9.775
15.114
14.766
11.889
10.969
9.045
Contemporary Issues in Banking, Insurance and Financial Services
Table No. 3
Trend of Financial Health of Hero Motocorp Ltd.
Years
X1
X2
X3
X4
X5
Z-Score
2009
0.270
0.134
0.302
10.383
2.322
10.060
2010
0.128
-0.039
0.334
8.016
2.041
8.051
2011
-0.053
-0.047
0.226
4.069
1.969
5.026
2012
0.005
0.135
0.292
7.308
2.579
8.121
2013
0.037
0.067
0.237
5.379
2.410
6.557
2014
0.070
0.058
0.285
10.058
2.689
9.829
2015
0.091
0.091
0.332
13.200
2.783
12.035
2016
0.188
0.109
0.326
12.319
2.259
11.105
2017
0.208
0.081
0.294
11.194
1.946
9.997
2018
0.250
0.090
0.287
10.874
1.798
9.698
2019
0.212
0.057
0.260
7.900
1.742
7.673
2020
0.220
0.065
0.230
5.435
1.442
5.817
Table no. 3 shows the financial health of Hero motocorp ltd. from 2009 to 2020. During study period
company is in safe zone and maximum value of Z score is in 2015 which is 12.035 and minimum in
2011 which is 5.026. Hero motocorp ltd performed well during study period.
Table no 4
Trend of Financial Health of Scooters India Ltd.
Years
X1
X2
X3
X4
X5
Z-Score
2009
-0.016
-0.380
-0.334
1.160
1.898
0.940
2010
-0.119
-0.310
-0.248
1.582
1.570
1.123
2011
-0.251
-0.182
-0.069
1.135
1.870
1.769
2012
-0.640
-0.184
-0.040
0.794
2.109
1.428
2013
-0.006
1.028
1.047
1.250
2.040
7.676
2014
0.405
0.086
0.091
1.849
1.228
3.246
2015
0.254
0.060
0.062
2.343
0.899
2.898
2016
0.283
0.030
0.041
2.590
0.828
2.899
2017
0.406
-0.055
-0.047
4.477
0.659
3.600
2018
0.493
-0.158
-0.152
10.655
0.428
6.690
2019
0.391
-0.044
-0.044
5.973
0.558
4.404
2020
0.343
-0.171
-0.169
3.431
0.783
2.457
319
Contemporary Issues in Banking, Insurance and Financial Services
Table no. 4 shows the financial health of Scooters India ltd from 2009 to 2020. During study period
company is in distress, gray and safe zone. From 2009 to 2012 company’s Z score value was less
than 1.81 so company was in distress zone after that company improved and Z score was above 2.99
and company reached is safe zone in 2013. Company is in safe zone in 2013 and 2014. After that
company was lied in gray zone in next two years. In 2017 to 2019 company is in safe zone and in
2020 company is in gray zone. The maximum value of Z score is in year 2013 which is 7.676 and
minimum in 2009 which is 0.940.
Table No. 5
Trend of Financial Health of T V S Motor Co. Ltd.
Years
X1
X2
X3
X4
X5
Z-Score
2009
-0.312
0.005
0.038
0.852
1.563
1.831
2010
0.013
0.020
0.087
2.589
1.683
3.568
2011
-0.077
0.046
0.112
1.479
2.330
3.558
2012
-0.105
0.055
0.124
0.968
2.429
3.369
2013
-0.065
0.016
0.100
0.778
2.449
3.191
2014
-0.073
0.051
0.120
2.104
2.396
4.037
2015
-0.111
0.052
0.103
4.178
2.313
5.099
2016
-0.184
0.056
0.137
4.981
2.401
5.699
2017
-0.183
0.069
0.124
5.626
2.184
5.847
2018
-0.232
0.065
0.129
6.606
2.122
6.325
2019
-0.159
0.055
0.125
4.386
2.125
5.056
2020
-0.177
0.041
0.090
2.415
1.717
3.307
Table no. 5 shows the financial health T V S Motor co. ltd. in 2009 company’s Z score is 1.831 and
company is in gray zone and after that company lies in safe zone and the value of Z score above 2.99
and lied in safe zone. The maximum value of Z score is in 2018 which is 6.325 and minimum in
2009 which is 1.831.
Table no. 6 shows the comparative analysis of Z score of 5 companies of Automobile industry (2
and 3 wheelers). The table represent that mean value of Bajaj auto ltd. is highest among sample
companies and mean value of Z score of Bajaj auto ltd was 10.039 followed by Hero motocorp ltd
and Z score value of Hero Motocorp ltd was 8.664 and minimum value of Z score was of Scooters
India ltd. and it was 3.261. Bajaj auto ltd and Hero motocorp ltd were in safe zone during study
period while Atul Auto ltd. and T V S motor co. ltd were also in safe zone except in year 2009.
Scooters India ltd was lied in distress zone from 2009 to 2012 and in 2015, 2016 and in 2020 lied in
gray zone. The CV value of Hero motocorp ltd is 24.83 and it is minimum which shows that Z score
of company was in consistency and CV value of Z score of Scooters India ltd was highest and it
shows that company’s financial health is not stable and there is huge variation in Z score value.
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Contemporary Issues in Banking, Insurance and Financial Services
Table no. 6
Z-Score of Sample Companies
Atul Auto
Years Ltd.
Bajaj
Hero Motocorp
Scooters India
T V S Motor Co.
Auto Ltd.
Ltd.
Ltd.
Ltd.
2009
2.481
4.716
10.060
0.940
1.831
2010
3.236
6.818
8.051
1.123
3.568
2011
5.066
9.209
5.026
1.769
3.558
2012
5.855
8.888
8.121
1.428
3.369
2013
6.776
9.755
6.557
7.676
3.191
2014
9.574
9.527
9.829
3.246
4.037
2015
17.413
9.775
12.035
2.898
5.099
2016
14.413
15.114
11.105
2.899
5.699
2017
13.357
14.766
9.997
3.600
5.847
2018
10.457
11.889
9.698
6.690
6.325
2019
7.793
10.969
7.673
4.404
5.056
2020
5.064
9.045
5.817
2.457
3.307
Mean 8.457
10.039
8.664
3.261
4.241
SD
4.680
2.931
2.151
2.113
1.347
CV
55.34%
29.20%
24.83%
64.81%
31.76%
CONCLUSION
The present study concluded that financial health of automobile companies is good during study
period except of Scooters India ltd. The company’s financial health is not well and remaining
companies are performed well and when research compare companies, research found that Hero
motocorp ltd.’s financial health is overall good and it is followed by Bajaj auto ltd. The study
suggest that company should focus on their financial resources and management of the resources.
REFERENCES:
1. Subramanim (2018)”Outward FDI and Knowledge Flows: A Study of the Indian Automotive Sector” ISID
working Paper No 2018/10, Institute for Studies in Industrial Development, Delhi.
2. Geethalakshmi (2017),” An Insight into the Performance of Indian Automobile Industry,” Science Education
Development Institute, ISSN: 2276 – 6715, Vol. 2(5), pp 191-197.
3. Kishan (2016), “Financial analysis of automobile industries: A comparatie study of Tata Motors and Maruti
Suzuki,” International journal of applied research, 2(9), pp.-533- 539.
4. Surekha(2015).” Sources of Innovation and Technology Capability Development in the Indian Automobile
Industry” Innovation Knowledge Development, The Open University, Working paper No.60.
321
Contemporary Issues in Banking, Insurance and Financial Services
5. Nandhini, (2015), “A study on leverage analysis of TVS motor company limited,” International journal of
multidisciplinary Research and Development, 2(2), pp.- 643-645.
6. A, S. (2014). Altman's Z-Score in the Airline Business. Case Study of Major U.S. Carriers. Are they
Potential Bankruptcy Candidates? International Journal of Advances in Management and Economics
, 3 (1), 16-24.
7. Shashikala (2011). Business bankruptcy prediction models: A significant study of the. Asian journal
of management research, 3 (1), 212-219.
8. Chi (2012). Comparative Study of Altman's Z-score and A Factor Analysis Approaches to
Bankruptcy Predictions., (pp. 1-43).
9. ghosh, (2013). Testing of Altman's Z - Score model, a Case Study of Dunlop India Ltd. Paripex
journal of research, 3 (4), 219-220.
10. Kishore(2011). Strategic Financial Management (2 ed.). New Delhi: Taxmann Publication (P.) Ltd.
11. Nair (2013). Measurement of financial health using Z score. Asia pecific research journal. 10(4)
.2013.
12. Amita (2014). A study of financial analysis of pharma industry.IJMR.3(10).2014.
13. www.ibef.org.
14. www.moneycontrol.com
322
Contemporary Issues in Banking, Insurance and Financial Services
Impact of Gold Prices on Indian Stock Market
Sahil Kapoor
Research Scholar, University School of Management, K.U. Kurukshetra
Dr. Anil Kumar Mittal
Professor, University School Of Management, K.U. Kurukshetra
ABSTRACT
Gold and stock market are the two major investment options as far as country like India is concerned
and this paper investigates the impact of Gold prices on Indian stock market. Secondary monthly
data have been used for the study for the years 2012-17. Econometric tools like Augmented dicky
fuller test, Phillips Perron test, Johansen cointegration test, Vector Autoregressive Model, Wald test
and Granger causality test have been used for the study. The study concludes that the data of Gold
prices and stock market are non stationery at level and stationery at first difference. The prices of
both the variables are having relationship in the short run only. Further unidirectional causality
obtained running from Gold to stock market.
Keywords: Gold, Stock market, Stationary, Cointegration, Causality.
INTRODUCTION
In a country, savings and investment go hand in hand and they have positive correlation, more
savings means more investment and the investment has a rule of thumb i.e. The more you take the
risk, The more you can get the return and vice versa. In a developing country like India, various
investment avenues are available for the investors like Banking schemes, Government schemes, Real
Estate, Commodity markets and Stock markets, each of them have merits and demerits according to
the different risk appetite of investors. On One hand, some of the investors are conservative and they
prefer a high percentage of those assets in their portfolio which are less volatile and more liquid in
nature like Gold because it is considered as the safest, least risky and highly liquid asset which can
be convertible into cash at any time and at any place because it is being traded globally. On the other
hand some of the investors are more risk taker and they invest in stock market. Stock markets are
volatile and more risky investment avenue as compared to all others asset classes and because of
having limited resources, the investment of the investors are dynamic as in the case of gold and stock
market i.e. if they found more fluctuations in gold prices they move on to the stock market and vice
versa. Now a days, commodity markets and stock markets are becoming a popular area of
investment because they are complementing each other and drive by the similar forces. So, to
explore whether the gold prices has any statistically significant relationship with the Indian stock
market or not is the central theme of this paper.
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Contemporary Issues in Banking, Insurance and Financial Services
LITERATURE REVIEW
Mohd Yahya Mohd Hussin et al, (2013) studied the relationship between selected macro- economic
variables and stock prices in their paper. They collected secondary data in their study for the period
ranging from 2007 to 2011 and their objective was to study the effect of Gold prices and oil on stock
prices. They used various tools like Augmented Dickey Fuller Test, Phillip perron test, KPSS test,
Johansen cointegration test, granger causality test, Vector auto regression method, Impulse response
function and Variance decomposition analysis. and they concluded that there exists no long run
relationship between oil, Gold prices and stock prices. Further, there exists bidirectional causal
relationship between oil and stock prices.
Amalendu Bhunia and Somnath Mukhuti, (2013) assessed the relationship between Gold prices and
stock prices in their paper. They collected secondary data in their study for the period ranging from
1991 to 2012 and their objective was to study the impact of Gold prices on stock prices and to
analyze the causal relationship between the two. They used various tools like Augmented Dickey
Fuller Test, Phillip perron test, KPSS test, Johansen cointegration test, granger causality test,
Multiple regression and Correlation and they concluded that there exists no causality between stock
prices and Gold prices. Amalendu Bhunia, (2013) examined the relationship between selected
financial variables, oil and Gold prices in his paper. He collected secondary data in his study for the
period ranging from 1991 to 2012 and his objective was to study the relationship between oil, Gold
prices, exchange rate and stock prices. He used various tools like Unit root test, Augmented Dickey
Fuller Test, Phillip perron test, KPSS test, Johansen cointegration test, granger causality test. He
concluded that there exists long run relationship between all the variables under study.
Korhan K. Gokmenoglu And Negar Fazlollahi, (2015) analysed the relationship between selected
macro economic variables and stock prices in their paper. They collected secondary data in their
study for the period ranging from 2013 to 2014 and their objective was to study the long run
relationship between the variables and stock prices. They used various tools like Unit root test,
Phillip perron test, Johansen cointegration test, granger causality test, Error correction mechanism.
They concluded that impact of Gold prices on stock prices are significant both in long and short run
whereas oil has short run impact on stock prices.
Rabia Najaf and Khakan Najaf, (2016) focused on the relationship between selected macroeconomic variables and stock prices in their paper. They collected secondary data in their study for
the period ranging from 2003 to 2011 and their objective was to study the impact of Gold prices and
oil prices on stock prices. They used various tools like Augmented Dickey Fuller Test, Johansen
cointegration test, granger causality test. They concluded that stock prices are not affected by oil and
Gold prices prices and there exists no long run relationship among all the variables under
consideration.
Varsha Ingalhalli et al, (2016) evaluated the relationship between selected macro-economic variables
and stock prices in her paper She collected secondary data in her study for the period ranging from
324
Contemporary Issues in Banking, Insurance and Financial Services
2005 to 2015 and her objective was to study the causal relationship between the variables and stock
prices. She used various tools like Augmented Dickey Fuller Test, Correlation matrix, granger
causality test. She concluded that crude oil is the main causal factor affecting all other variables.
Further there exists positive relationship among all the variables.
Gold and stock markets are the two major investment avenues which are highly complemented to
each other but to study whether there exists any statistically significant relationship between them in
the long run or short run for the selected time period is the central theme of this paper.
OBJECTIVES AND HYPOTHESIS OF THE STUDY


To examine the characteristics of Gold prices and Indian stock market prices.
To study the relationship between Gold prices and Indian stock market prices.
Keeping in view above objectives, we took the following hypotheses:




H01: Data of Gold and Indian stock market has a unit root.
H02 (a): No long run relationship exists between Gold and Indian stock market.
H02 (b): No short run relationship exists between Gold and Indian stock market.
H02 (c): No causality exists between Gold and Indian stock market.
RESEARCH METHODOLOGY
In the present study, Spot prices of Gold and closing prices of Nifty 50 have been taken. Secondary
monthly data has been collected from websites of World Bank & NSE for the period of 2012-2017.
The present study is exploratory cum descriptive in nature. The method of data analysis includes
Descriptive tools and Econometric tools like Augmented dickey fuller test, Phillips Perron test,
Johansen cointegration test, Vector Autoregressive Model, Wald test and Granger causality test.
1. Descriptive Statistics: It explains the characteristics of the collected data and helps in comparing the
variables selected for the data.

MEAN : It is a measure of central tendency to calculate the the average value of variable.
Ʃxi/N

where Ʃxi represent total of all variable
N represents total number of frequency
STANDARD DEVIATION: It is used to measure the variance in the series.
√Ʃ(xi - x̅ )²
N
where Ʃxi represents total of all variable
N represents sample size
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Contemporary Issues in Banking, Insurance and Financial Services

COEFFICIENT OF VARIATION: It measures the dispersion of data around the mean.
Standard Deviation
MEAN
2. Econometric models
 AUGMENTED DICKEY FULLER TEST: It is used to check the stationarity of the series. The
regression equation used by this test:
∆𝑌 = 𝛼 + 𝛽𝑡 + 𝛾𝑌𝑡 − 1 + 𝛿∆𝑌𝑡 − 1+. . . . +∆𝛿𝑝 − 1∆𝑌𝑡 − 𝑝 + 1+∈ 𝑡
Where 𝛼 and 𝛽 are parameters and ∈ 𝑡 is the error term.

JOHANSEN COINTEGRATION TEST: It is used to check the long run relationship between two
non stationary series. It has 2 test :
A. TRACE TEST
𝑟
 𝐿𝑅𝑡𝑟 ( ) = −𝑇 ∑
𝑘
𝑘
log(1 − 𝜃𝑖)
𝑖 =𝑟+1
B. MAXIMUM EIGENVALUE TEST
 𝐿𝑅𝑚𝑎𝑥 (
𝑟
) = −𝑇 log(1 − 𝜃𝑟 + 1)
𝑟+1
Where r is the number of cointegrationg equations and 𝜃



is the eigen value.
GRANGER CAUSALITY TEST: It is used to check the direction of the cause and effect
relationship between the variables.
𝑛
𝑛
𝑋𝑡 = 𝛼 + ∑
𝛼𝑖𝑌𝑡 − 1 + ∑ 𝑗 = 1 𝛽𝑗𝑋𝑡 − 𝑗 + µ1𝑡
𝑡=1
𝑛
𝑛
𝛿𝑖𝑌𝑡 − 𝑖 + ∑ 𝑗 = 1 𝜃𝑗𝑋𝑡 − 𝑗 + µ2𝑡
𝑡=1
Where , 𝛽 , 𝛿 , 𝜃 are the coefficients of respective variables and µ1𝑡 , µ2𝑡 are the two error terms.
𝑌𝑡 = 𝛿 + ∑
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Contemporary Issues in Banking, Insurance and Financial Services
ANALYSIS AND INTERPRETATIONS
Let us first analyze the descriptives of Gold prices and Indian stock market prices as given in Table-1.
Table1: Descriptive Statistics of Gold prices and Nifty50 prices
LNIFTY
LGOLD
Mean
8.908303
7.185161
Median
8.980628
7.151559
Maximum
9.308166
7.482119
Minimum
8.501927
6.966024
Std. Dev.
0.213850
0.134537
Skewness
-0.212208
0.827417
Kurtosis
1.846045
2.692070
CV
0.024005
0.018724
Jarque-Bera
4.535221
8.499879
Probability
0.103559
0.014265
Sum
Sum Sq. Dev.
641.3978
3.246966
517.3316
1.285114
Source: Author’s Compilation
Table 1 depicts the descriptive statistics of Gold prices and Nifty 50 prices. The mean of Gold and
Nifty 50 are 8.908303 and 7.185161 respectively. Further the values of coefficient of variation
represents that the prices of Nifty are more consistent than the prices of gold.
Figure1: Prices of Gold and Nifty50
LGOLD
LNIFTY
7.5
9.4
7.4
9.2
7.3
9.0
7.2
8.8
7.1
8.6
7.0
6.9
8.4
2012
2013
2014
2015
2016
2012
2017
2013
2014
2015
2016
2017
Source: Eviews Output
Figure 1 shows the prices of Nifty 50 have an increasing trend for the whole study period. Firstly it
was in increasing trend but at decreasing rate up to 2013 then it showed a sudden increase in 2014
but at the starting of 2015, it decreases for the whole year and then in the first quarter of 2016 it
showed the recovery and was in increasing trend up to the end of 2017.
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Contemporary Issues in Banking, Insurance and Financial Services
On the other hand the prices of Gold shows decreasing trend from 2012 till the end of 2015 then it
shows some recovery till the end of 2017.
Now, we will study the relationship between Gold prices and Indian stock market prices (table2)
H01: Data of Gold and Indian stock markethas a unit root.
Table 2: Unit Root/ Stationarity Test
(At Level)
Augmented Dickey Fuller Test
Phillips Perron Test
Intercept
Intercept
trend
0.1989
0.6345
0.2186
0.6809
NIFTY50
0.9128
PRICES
(At First Difference)
0.5160
0.9128
0.4861
GOLD PRICES
GOLD PRICES
and Intercept
Intercept
Intercept
trend
0.0000*
0.0000*
0.0000*
0.0000*
0.0000*
0.0000*
0.0000*
NIFTY50
0.0000*
PRICES
Source: Author’s Compilation
and Intercept
Intercept and
trend
Intercept and
trend
Table 2 depicts the results of Augmented dickey fuller test and Phillips perron test, the p value is
more than the significance value of 0.5 in first case of when the variables are at level, which results
in the acceptance of null hypothesis. So, it has been found that the prices of Gold and prices of
Nifty 50 were non stationery or has a unit root at level.
The p value is less than the significance value of 0.5 in second case of when the variables are at 1st
difference, which results in the rejection of null hypothesis. So, it has been found that the prices of
Gold and prices of Nifty 50 were stationery at 1st difference.
The next aspect analysed is the study the relationship between Gold prices and Indian stock
market prices.
H02 (a): No long run relationship exists between Gold and Indian stock market.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 3: Johansen cointegration test
TRACE TEST
NULL
HYPOTHESIS
TRACE
STATISTIC
CRITICAL
VALUE
PROBABILITY
VALUE
DECISION
NONE
12.12302
25.87211
0.8035
ACCEPT H0
ATMOST 1
2.508447
12.51798
0.9291
ACCEPT H0
MAXIMUM EIGENVALUE TEST
NULL
HYPOTHESIS
MAX-EIGEN
STATISTIC
CRITICAL
VALUE
PROBABILITY
VALUE
DECISION
NONE
9.614572
19.38704
0.6600
ACCEPT H0
ATMOST 1
2.508447
Source: Author’s Compilation
12.51798
0.9291
ACCEPT H0
Table 3 depicts the results of Johansen Cointegration test, the p value is more than the significance
value of 0.5 in both the cases of trace test and maximum eigen value test, which results in the
acceptance of null hypothesis. So, there is no relationship in the long run between the prices of
Gold and Nifty 50.
H02 (b): No short run relationship exists between Gold and Indian stock market.
Table 4: Vector Autoregression Estimates
Dependent Variable: D(LNIFTY)
Method: Least Squares (Gauss-Newton / Marquardt steps)
D(LNIFTY) = C(1)*D(LNIFTY(-1)) + C(2)*D(LGOLD(-1)) + C(3)
Coefficient
Std. Error
t-Statistic
Prob.
C(1)
-0.135968
0.113210
-1.201029
0.2340
C(2)
0.332127
0.096611
3.437797
0.0010
C(3)
0.013249
0.004541
2.917355
0.0048
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Contemporary Issues in Banking, Insurance and Financial Services
R-squared
0.157052
Mean dependent var
0.010479
Adjusted R-squared
0.131889
S.D. dependent var
0.039306
S.E. of regression
0.036622
Akaike info criterion
-3.734397
Sum squared resid
0.089861
Schwarz criterion
-3.638032
Log likelihood
133.7039
Hannan-Quinn criter.
-3.696120
F-statistic
6.241467
Durbin-Watson stat
2.072743
Prob(F-statistic)
0.003268
Source: Author’s Compilation
Table 4 depicts the results of Vector Autoregressive Model, where the dependent variable is the
prices of Nifty 50 the p value is more than the significance value of 0.5 when the independent
variable is lag 1 of Nifty50 and p value is less than the significance value of 0.5 when the
independent variable is lag 1 of Gold which shows that gold prices impact nifty in short run. Further
the value of R square is 0.15 and the value of D-W stat is 2.07 which represents no autocorrelation
in the model. The overall model is good as the residuals are normally distributed, no serial
correlation is there and also the residuals are homoskedastic.
Table 5: WALD Test
Null Hypothesis
Probability value
C(3)=0
0.0035*
Source: Author’s Compilation
Table 5 depicts the results of Wald test, the p value is less than the significance value of 0.5 which
further represents that there exists short run relationship between the prices Gold and Nifty50.
H02 (c): No causality exists between Gold and Indian stock market.
Table 6: Pairwise Granger Causality Tests
NULL Hypothesis
D(LGOLD)
does
D(LNIFTY50)
D(LNIFTY50)
D(LGOLD)
does
not
not
F-Statistics
Probability
Value
Decision
Granger
Cause
11.8184
0.0010*
REJECT H0
Granger
Cause
0.30407
0.5832
ACCEPT H0
Source: Author’s Compilation
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Contemporary Issues in Banking, Insurance and Financial Services
Table 6 depicts the results of granger causality test, the p value is less than the significance value of
0.5 in first case only which results in the rejection of null hypothesis which means that there exists
unidirectional causality running from Gold to Nifty 50.
CONCLUSION
The study focused on evaluating the impact of Gold on Indian Stock market and it can be concluded
that the prices of both the variables were non stationery at level and stationery at first difference.
Also, with the help of Johansen cointegration test, it was found that there exists no long term
association between both the variables. Furthermore, Vector autoregressive model and Wald test
concluded that both the variables have the relationship in the short run. It has also been found out
through Granger causality test that both the variables had unidirectional causality running from gold
to stock market which revealed that fluctuations in the prices of gold have significant effect on the
fluctuations of prices of Indian stock market in the short run only.So, in order to take any
investment decision, investors should take in to consideration all the factors affecting the prices of
both gold as well as indian stock market to make their portfolio efficient.
REFRENCES






Hussin, M. Y. M., Muhammad, F., Razak, A. A., Tha, G. P., & Marwan, N. (2013). “The link
between Gold prices price, oil price and islamic stock market: experience from Malaysia”. Journal
of Studies in Social Sciences, 4(2).
Bhunia, A., & Mukhuti, S. (2013). “The impact of domestic Gold prices price on stock price
indices-An empirical study of Indian stock exchanges”. Universal Journal of Marketing and
Business Research, 2(2), 35-43.
Bhunia, A. (2013). “Cointegration and Causal Relationship among Crude Price, Domestic Gold
prices Price and Financial Variables: An Evidence of BSE SENSEX PRICES and NSE”. Journal of
contemporary issues in business research, 2(1), 01-10.
Arfaoui, M., & Ben Rejeb, A. (2016). “Oil, Gold prices, US dollar and Stock market
interdependencies: A global analytical insight”.
Najaf, R., & Najaf, K. (2016). “Impact of Oil and Gold prices Prices on the Stock Exchange of
Bombay: An Evidence from India”. J Account Mark, 5(193), 2.
Ingalhalli, V., & Reddy, Y. V. (2016). “A study on dynamic relationship between oil, Gold prices,
forex and stock markets in Indian context”. Paradigm, 20(1), 83-91.
331
Contemporary Issues in Banking, Insurance and Financial Services
A Study of Performance of Mutual Funds during Covid-19 Pandemic:
Evidence from India
Sumit Bodla, Senior Associate
Macquarie Global Financial Services
Abstract
The mutual fund managers faced the sudden market crash that followed after COVID-19 hit stock domestic
as well as foreign stock markets. However, despite the setback the equity funds gave very attractive return
returns between during 2020-21. After falling 31 percent between Jan 2020 and March 2020, the S&P BSE
Sensex as well as Nifty 50 started to rally. No one expected a raging bull market. But between April and
December 2020, the S&P BSE Sensex rose 70 percent. Mutual fund managers who were agile, watchful and
read the markets correctly during crisis times came on top. The above background made the researcher to
write the current research paper which was aimed to analyse return performance of Large cap equity mutual
funds. Therefore, a sample of 29 large cap schemes was taken and the return was worked out and analysed
for two years- 2019-20 (before covid) and 2020-21 (during covid). Independent sample t-test was applied to
draw inference whether the sample schemes could beat the benchmark indices performance. The study
indicated that the Blue chip mutual funds outperformed the market in 2020-21 as against the year 2019-20
when the mutual fund schemes beat the market indices.
Key words: Mutual funds, Large cap funds, Return performance, Benchmark, AUM
Note: It is to undertake that the views expressed in this article are of the author and his
organisation has no concern to this article. Therefore, the author is solely responsible for all facts
in the article.
INTRODUCTION
The mutual funds are managed professionally and they pool funds from many investors. These funds are
invested in various types of securities like stocks, bonds, short-term money market instruments etc. In other
words, the mutual funds are investment companies that collect funds from individual investors and invest
those funds in a potentially wide range of securities or other assets. Weston J. Fred and Brigham, Eugene F.
(1985) define mutual funds as “Corporations which accept dollars from savers and then use these dollars to
buy stocks, long term bonds, and short term debt instruments issued by business or government units, these
corporations’ pool funds and thus reduce risk by diversification”.There are several questions before the
investor when making investment in mutual funds. More important among them is- How to select a mutual
fund scheme? One may offer answer of this question that the fund choice is based on its performance.
Beside others, risk and return are the two most important parameters for fund performance. Therefore, the
investor would like to find information about these parameters before investing.
The coronavirus pandemic resulting in lockdowns in March 2020 raised income uncertainty for the investors
and due to uncertainty many investors opted to stop their Systematic Investment Plans (SIPs) for a while.
This was evident from the decrease in SIP inflows post March 2020. From a high of Rs 8,641 crore the
contribution decreased for 11 consecutive months, before it could breach the previous highs," FYERS'
Kavalireddi said. (Quoted at economictimes.indiatimes.com; Apr 15, 2021). Overall, The Mutual fund
industry saw its collections through SIPs dropping by 4 per cent to Rs 96,000 crore in the 2020-21 fiscal,
lower than Rs 1,00,084 crore garnered in 2019-20, as per the Association of Mutual Funds in India (AMFI).
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Contemporary Issues in Banking, Insurance and Financial Services
The fall in collections may be attributed to the market correction in March-April of 2020 in tandem with the
pan-India lockdown as many retail investors reacted by stopping their SIPs and choosing instead to wait and
watch.Also, the market rally in October-November 2020 led a lot of investors to book profits. The March
2021 SIP contribution of Rs 9,182 crore is robust. While a few of the economic indicators like GST
collections, auto and housing sales look positive, IIP and inflation data along with intermittent lockdowns
can affect the economic progress in the ongoing fiscal.
The present study titled, A Study of Performance of Mutual Funds during Covid-19 Pandemic: Evidence
from India, has been done under the above background. The paper is divided in five sections namely
introduction, review of literature, research methodology, data analysis and interpretation and conclusion.
REVIEW OF LITERATURE
During 2020-21, the mutual fund industry added more than 81 lakh investor accounts as compared to 72.89
lakh investor accounts in 2019-20, according to data from the Association of Mutual Funds in India. This
increase may be attributed to rise in investor awareness and surge in digitisation. Kaustubh Belapurkar,
Director Manager Research, Morningstar India said, "The awareness about investing in mutual funds has
been on the rise over the last many years with the investor awareness programmes, ground work done by
mutual funds, financial advisors and distributors in educating and shepherding investors through their
investing journey" (25 April, 2021, www.livemint.com). Belapurkar also said, "There is potential for mutual
fund industry to reach out to wider investor base despite of the growth in last few years". The market
conditions will be playing an important role in the growth of the industry as investors will try to chip in more
during volatile market conditions. Also as things get settle down after current Covid crisis, personal finance
and savings of many investors will get back on track again, this will also help the industry, he added.
Gautam Kalia, Head - Investment Solutions, Sharekhan by BNP Paribas, said the industry is reaping the
benefits of greater retail investor understanding and participation. As more people understand and realise the
power of long term wealth creation through mutual funds, this business shall only continue to grow. Mr.
Kalia added that while there certainly are risks that can impede this growth (regulatory changes, downturn in
market, escalation in the pandemic, etc) in the short term (25 April, 2021, www.livemint.com).
Gaurav Ajmera et.al (2021) aims to study empirically the impact of COVID -19 on diverse aspects of
different schemes of mutual funds. The paper is divided empirically drives the impact of COVID-19 on
various schemes of mutual funds by applying econometric dummy variable regressions. The study concluded
that COVID-19 has largely impacted the large-cap schemes rather than mid and small-cap schemes.
The Axis Mutual Fund study which used 2004-20 data for equity and hybrid funds found “investor flows are
not stable but tend to follow market performance. As a result, realized returns are much worse than they
would have achieved by using either simple 'buy' and 'hold' or systematic investment strategies. As we have
seen repeatedly over multiple market cycles, sharp falls in market have a large effect on investor flows, and
the same was seen in year 2020 as well, especially for equity funds," the report said. From being strongly
positive, investor flows into equity turned negative in the second half of 2020 as the impact of the market
correction played out. There was also a significant drop in systematic investment plans (SIP) as many
investors didn’t renew them or cancelled ongoing SIPs (4 April, 2021: www.livemint.com).
Dhirendra Kumar (2021) suggests a fund for investment which actually falls less than its benchmark in a
falling market and rises little more in a rising market. This means that here is a fund which does little better
in a falling market and does a little better in a rising market, overall it will do exceptionally well.
Kayezad E Adajania (May 27, 2021) indicates that 'Canara Robeco Bluechip', a large-cap scheme gave 23
percent returns between January 2020 and March 31, 2021. The scheme was the best performing large-cap
fund over this period. After falling 31 percent between Jan 2020 and March 2020, the S&P BSE
333
Contemporary Issues in Banking, Insurance and Financial Services
Sensex started to rally. No one expected a raging bull market. But between April and December 2020, the
S&P BSE Sensex rose 70 percent. Mutual fund managers who were agile, watchful and read the markets
correctly during crisis times came on top.
Bodla and Sunita (2008) indicated that total resources raised by mutual fund industry in India rose to
Rs.92957.4 crore in 1999-2000 as compared to Rs. 11406 crore in 1997-98. In a period of two years, the
funds mobilized crossed the boundary of three lakhs crore when they amounted to Rs. 314706.2 crore in
2002-03. The gross funds raised by MFs rose to rupees 5.90, 8.39 and 10.98 lakh crore during 2003-04,
2004-05 and 2005-06 respectively.
RESEARCH METHODOLOGY
This article was aimed to determine the return performance of direct and regular mutual fund plans. Direct
plans are bought from the AMC and no intermediary is involved. One can invest in direct plans online by
going to AMC website or by visiting the AMC or the registrar’s office in your city. Since mutual fund
distributors are not involved in direct plan investments, the asset management company does not have to
incur distribution expenses (distributor’s commissions). On the other, the 'regular plans' are bought through
mutual fund distributors. MF distributor provides services like advising investors on which mutual scheme to
invest in, submitting investor’s Know Your Client (KYC) documents to the Registrars and Transfer Agents
(RTAs) or AMCs, etc. For these services, the distributors receive commissions from the AMC as long as you
remain invested in the regular mutual fund plans. As a result the TERs (Total Expense Ratios) of regular
plans are higher than those of direct plans.
The sample under investigation included 29 large cap equity mutual funds (please see Appendix A). The
schemes under study were launched more than five years back and are the top performing. NAV data of
these schemes was collected for two years i.e. 2019-20 and 2020-21 from moneycontrol.com and the return
of the selected schemes was determined for these years. The data on benchmark indices of these selected
funds was taken and returns were calculated for the corresponding period.
The following hypothesis was tested using independent sample t-test:
H1 : There is no significant difference between the return offered by the Large cap equity schemes and
Benchmark indices return.
RESULTS AND DISCUSSION
The data of Association of Mutual Fund Institutions (AMFI) indicate that Assets Under Management (AUM)
of the Indian MF Industry has grown from ₹ 7.31 trillion as on May 31, 2011 to ₹33.06 trillion as on May
31, 2021 more than 4½ fold increase in a span of 10 years. The Industry’s AUM had crossed the milestones
of ₹10 Trillion and ₹ 20 trillion for the first time in May 2014 and August 2017, respectively. The AUM size
crossed ₹ 30 trillion (₹30 Lakh Crore) for the first time in November 2020. The mutual fund industry has
crossed a milestone of 10 crore folios during the month of May 2021(www.amfiindia.com/indianmutual).Assets under management with the mutual fund industry jumped a whopping 41 per cent in fiscal
2021 to Rs 31.43 lakh crore, despite a minor 1 per cent decline in March. The 1 per cent decline in assets on
monthly basis in March, 2021 was because of net outflows from open-ended debt funds. Equity funds
benefitted from continued inflows through systematic investment plans, getting net flows of Rs 96,080 crore
in fiscal 2021 compared to Rs 1 lakh crore of inflows in the previous fiscal. Open-ended debt funds record
highest on-year net outflows of Rs 52,528 crore in March, 2021 the worst seen since the Rs 1.95 lakh crore
bleeding in March 2020.
The results of analysis regarding return performance of the selected mutual fund schemes are provided in
Tables 1 through 6.
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Contemporary Issues in Banking, Insurance and Financial Services
Table 1 Return Performance (in %) of Large Cap Equity Mutual Funds
20192020-21
2020-21
2020-21
2019-20
2019-20
Scheme Name
20
Regular
Direct
Benchmark Regular
Benchmark
Direct
Aditya Birla Sun Life Frontline
70.18
71.37
72.54
-27.20
-26.74
-24.85
Equity Fund
Axis Bluechip Fund
48.88
50.71
72.54
-8.09
-6.97
-24.85
Baroda Large Cap
58.73
60.02
71.18
-19.42
-18.91
-24.76
BNP Paribas Large Cap Fund
55.43
57.25
72.54
-13.53
-12.58
-24.85
Canara Robeco Bluechip
63.61
66.22
73.48
-13.04
-11.95
-25.38
Equity Fund
DSP Top 100 Equity Fund
63.70
64.97
73.48
-24.88
-24.33
-25.38
Edelweiss Large Cap Fund
64.90
67.65
72.54
-21.52
-20.42
-24.85
Franklin India Bluechip Fund
76.99
78.27
71.18
-28.33
-27.77
-24.76
HDFC Top 100 Fund
66.56
67.53
71.18
-31.20
-30.83
-24.76
HSBC Large Cap Equity Fund
64.73
66.29
72.54
-21.13
-20.39
-24.85
ICICI Prudential Bluechip
68.70
69.83
71.18
-24.65
-24.21
-24.76
Fund
IDBI India Top 100 Equity
61.98
63.74
71.18
-17.95
-16.88
-24.76
IDFC Large Cap Fund
61.13
63.03
73.48
-20.97
-20.24
-25.38
Indiabulls Bluechip
53.80
56.21
72.54
-23.50
-22.45
-24.85
Invesco India Largecap Fund
59.80
61.84
72.54
-23.17
-22.11
-24.85
JM Large Cap Fund
37.83
39.35
69.82
-9.43
-8.56
-22.69
Kotak Bluechip Fund
71.05
73.05
72.54
-21.47
-20.61
-24.85
LIC MF Large Cap Fund
50.05
51.82
71.18
-13.81
-13.02
-24.76
L&T India Large Cap Fund
62.13
63.60
73.48
-21.83
-21.18
-25.38
Mahindra Manulife Large Cap
65.18
68.15
72.54
-21.91
-20.31
-24.85
Pragati Yojana
Mirae Asset Large Cap Fund
68.68
70.53
71.18
-24.10
-23.26
-24.76
Navi Large Cap Equity Fund
66.93
70.20
72.54
-25.36
-24.25
-24.85
Nippon India Large Cap Fund
67.68
69.08
73.48
-31.83
-31.25
-25.38
PGIM India Large Cap Fund
61.82
64.27
72.54
-21.94
-20.95
-24.85
SBI Bluechip Fund
74.08
75.39
73.48
-24.11
-23.54
-25.38
Tata Large Cap Fund
66.82
68.16
69.82
-25.03
-24.37
-22.69
Taurus Largecap Equity Fund
55.06
55.20
73.48
-23.55
-23.34
-25.38
Union Largecap Fund
65.13
66.11
73.48
-23.07
-22.55
-25.38
UTI Mastershare Fund
69.01
70.66
73.48
-21.81
-21.22
-25.38
Average Return of Large cap
62.78
64.50
72.32
-21.65
-20.87
-24.84
MFs
It is evident from table 1 that the large cap direct and regular schemes, on an average, provided 62.78 per
cent and 64.50 per cent return respectively during the year 2020-21. In contrast, in 2019-20, the direct
schemes and regular schemes suffered loss of -21.65 per cent and -20.87 respectively. The sharp decline in
335
Contemporary Issues in Banking, Insurance and Financial Services
return during 2019-20 was caused by outbreak of Covid 19 pandemic in March 2020 which led to
lockdown which spread a fear and uncertainty for the investors. Due to this, the crisis emerged in the
market and almost every stock indices nosedived. For instance, the Nifty 50 stock index touched 7,511 on
March 24, 2020. However, since then, the index has seen a one-way recovery because of various stimulus
measures taken by the government of India and hopes of a quicker-than-expected turnaround. Sustained
inflows by foreign investors too aided the rally as stated in the report of Bloomberg (5 Feb. 2021: Taken
from: https://www.bloombergquint.com/markets/nifty-at-15000-doubles-from-march-low-in-charts).Since
March-low, the index scaled 10,000 and 11,000 in June and July 2020, respectively.
A gush of foreign inflows in November took Nifty 50 past 12,000, helping it erase all the losses made in
2020. On Feb. 1, 2021, the Nifty 50 posted its best budget-day gain since 1997 to close above 14,000. The
next
1,000
points
were
gained
in
just
four
sessions.
The analysis across fund scheme indicates that Franklin India Bluechip Fund provided the highest return
(76.99%) during 2020-21 followed by SBI Blue Chip (74%) and Kotak Blue chip fund (71.05%). The
Benchmark return for most of the schemes worked out above 70 per cent. The mean return of various
benchmarks was found quite higher (72.32%) than the mean return of both direct as well as regular large
cap equity funds. But, the two categories of large cap equity funds outperformed the benchmark in 201920 (table 2).
Independent sample t-test was applied to examine the validity of the null hypothesis that there is no
difference between the return of large cap schemes and the benchmark. It is interesting to note that the p
value remains below 0.01 in each case under reference and therefore the null hypothesis is rejected. Thus,
we can infer from the analysis that the benchmark outperformed the large cap equity schemes during 202021, but the vice-versa is found true during 2019-20 as the mutual fund schemes outpaced the markets. The
above result confirms that the mutual funds are less risky than the marketas their beta is lower than market
beta.
Table-2: Descriptive Statistics: Large Cap. Equity MF
N
2020-21 Regular
2020-21 Direct
2020-21
Benchmark
2019-20 Regular
2019-20 Direct
2019-20
Benchmark
Minimum
Maximum
29
29
29
37.83
39.35
69.82
76.99
78.27
73.48
62.7783
64.5000
72.3159
Std.
Deviation
8.14250
8.15361
1.10582
29
29
29
-31.83
-31.25
-25.38
-8.09
-6.97
-22.69
-21.6493
-20.8686
-24.8438
5.64637
5.78628
0.65233
336
Mean
Contemporary Issues in Banking, Insurance and Financial Services
Table-3 Independent Samples Test 2020-21 Regular Large Cap. Equity MF vs Benchmark
Levene's Test for
t-test for Equality of Means
Equality of
Variances
Sig. (2Mean
Std. Error 95% Confidence
F
Sig.
t
df
tailed)
25.290
Equal
variances
assumed
Equal
variances
not
assumed
0.000
Difference Difference Interval of the
Difference
Lower
Upper
-6.250
56
0.000
-9.53759
1.5259
-12.59
-6.48
-6.250
29.033
0.000
-9.53759
1.5250
-12.65
-6.41
Table-4: Independent Samples Test 2020-21 Direct Large Cap. Equity MF vs Benchmark
Levene's Test for
t-test for Equality of Means
Equality of Variances
F
Equal
variances
assumed
Equal
variances
not
assumed
25.505
Sig.
0.000
t
df
Sig. (2tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
-5.115
56
0.000
-7.81586
1.52795
-10.87671
-4.75501
-5.115
29.030
0.000
-7.81586
1.52795
-10.94073
-4.69100
Table-5: Independent Samples Test 2019-20 Regular Large Cap. Equity MF vs Benchmark
Levene's Test for
t-test for Equality of Means
Equality of
Variances
Sig. (2Mean
Std. Error
95% Confidence
F
Sig.
t
df
tailed)
Difference
Difference
Interval of the
Difference
Lower
Upper
Equal
24.509 0.000
3.027 56
0.004
3.19448 1.0555
1.0801 5.30
variances
assumed
Equal
3.027 28.747 0.005
3.19448 1.0554
1.0349 5.35
variances
not
assumed
Table-6 Independent Samples Test 2019-20 Direct Large Cap. Equity MF vs Benchmark
Index
337
Contemporary Issues in Banking, Insurance and Financial Services
Levene's Test for
Equality of Variances
F
Equal
25.309
variances
assumed
Equal
variances
not
assumed
t-test for Equality of Means
Sig.
t
df
Sig. (2tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower
Upper
0.000
3.676
56
0.001
3.97517
1.08129
1.80908 6.141
26
3.676
28.712
0.001
3.97517
1.08129
1.76272 6.187
63
CONCLUSION
The foregoing analysis has revealed that the direct and regular schemes, on an average, provided 62.78 per
cent and 64.50 per cent return respectively during the year 2020-21. But in 2019-20, the direct schemes and
regular schemes suffered loss of -21.65 per cent and -20.87 respectively. The negative returns during 201920 may be attributed to outbreak of Covid 19 pandemic in March 2020 which led to spread a fear and
uncertainty for the investors. Due to this, almost every stock indices nosedived. Though, the Corona Virus is
still staying and affecting economic activities severely, the timely and satisfactory measures taken by RBI
and both Centre and state governments to control the ill effects of the pandemic are making the economic
scenario and investor sentiments improving. Further, the success of the vaccination drive, better economic
scenario and higher incomes can be the factors that will have an impact on mutual funds flows. While a few
of the economic indicators like GST collections, auto and housing sales look positive, IIP and inflation data
along with intermittent lockdowns can affect the economic progress and resultantly the performance of
mutual funds in the ongoing fiscal.
The study is very useful for investors in decision making as they can take a clue from the past performance
of various schemes and can choose right type of mutual fund. The study leaves a great scope for further
researchers to conduct a more comprehensive study taking all size wise categories of schemes like small cap,
mid cap, balanced schemes and so on.
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



REFERENCES
Bodla, B.S and Sunita Bishnoi (2008). Emerging trends of mutual funds in India: A study across category
and type of schemes. Journal of Indian Management and Strategy,Volume13, pp.15
Dhirendra Kumar(28th May, 2021). How to evaluate a mutual fund's performance? Retrieved on 5 June, 2021
from: https://www.valueresearchonline.com/stories/49375/how-to-evaluate-a-mutual-fund-s-performance/
Gaurav Ajmera, Babita Jha and Sudhi Sharma (2021). Investigating the Impact of COVID-19 on the
Performance of Indian Mutual Fund Schemes. Journal of Contemporary Issues in Business and
Government, 2021, Volume 27, Issue 2, Pp. 2112-2123.
Kayezad e Adajania(May 27, 2021).These mutual fund managers beat COVID-19 volatility to deliver best
returns: A look at their winning strategies. https://www.moneycontrol.com/news/business/personalfinance/how-the-best-mutual-fund-managers-excelled-during-covid-19-6815991.html
Press trust of India April 9, 2021 (https://www.business-standard.com/article/markets/mutual-fund-assetssoar-41-to-rs-31-43-trillion-in-fy-21-report-121040900711_1.html)
PTI- 25 April, 2021; Mutual funds add more than 81 lakh investor accounts in 2020-21.
(https://www.livemint.com/mutual-fund/mf-news/mutual-funds-add-more-than-81-lakh-investor-accountsin-202021-11619329011346.html)
7th June, 2021. https://www.amfiindia.com/Themes/Theme1/downloads/home/industry-trends.pdf
338
Contemporary Issues in Banking, Insurance and Financial Services



(Apr
15,
2021:
economictimes.indiatimes.com).
Retrieved
from
https://economictimes.indiatimes.com/mf/mf-news/sip-collections-drop-to-rs-96000-cr-in-fy21-amidpandemic-leddisruptions/articleshow/82081992.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=c
ppst
The Axis Mutual Fund study (4 Apr 2021). Most mutual fund investors tend to make lower returns than the
schemes they invest in. Retrieved from https://www.livemint.com/money/personal-finance/why-mutualfund-investors-make-lower-returns-than-the-funds-they-invest-in-11617534089831.html
Weston J and Engen Brigham Eugene F, ”Essentials of Managerial Finance”, Dryden Press, p.36, 1985.
Appendix-A
Appendix- A Lage cap schemes under study
Scheme Name
Benchmark
Aditya Birla Sun Life Frontline NIFTY 50 Total Return
Equity Fund
Index
NIFTY 50 Total Return
Axis Bluechip Fund
Index
NIFTY 100 Total
Baroda Large Cap
Return Index
NIFTY 50 Total Return
BNP Paribas Large Cap Fund Index
Canara Robeco Bluechip Equity S&P BSE 100 Total
Fund
Return Index
S&P BSE 100 Total
DSP Top 100 Equity Fund
Return Index
NIFTY 50 Total Return
Edelweiss Large Cap Fund
Index
NIFTY 100 Total
Franklin India Bluechip Fund Return Index
NIFTY 100 Total
HDFC Top 100 Fund
Return Index
NIFTY 50 Total Return
HSBC Large Cap Equity Fund Index
NIFTY 100 Total
ICICI Prudential Bluechip Fund Return Index
NIFTY 100 Total
IDBI India Top 100 Equity
Return Index
S&P BSE 100 Total
IDFC Large Cap Fund
Return Index
NIFTY 50 Total Return
Indiabulls Bluechip
Index
NIFTY 50 Total Return
Invesco India Largecap Fund Index
S&P BSE Sensex Total
JM Large Cap Fund
Return Index
NIFTY 50 Total Return
Kotak Bluechip Fund
Index
NIFTY 100 Total
LIC MF Large Cap Fund
Return Index
L&T India Large Cap Fund
S&P BSE 100 Total
339
NAV Date
NAV Regular
NAV Direct
2021-03-31
280.89
301.57
2021-03-31
38.71
42.65
2021-03-31
18.54
19.65
2021-03-31
117.72
128.98
2021-03-31
35.16
38.38
2021-03-31
253.21
267.33
2021-03-31
45.94
49.39
2021-03-31
596.51
638.15
2021-03-31
574.26
605.49
2021-03-31
272.06
290.24
2021-03-31
53.63
57.42
2021-03-31
31.70
34.68
2021-03-31
41.41
45.16
2021-03-31
24.90
28.18
2021-03-31
35.30
39.86
2021-03-31
82.84
90.49
2021-03-31
314.18
343.05
2021-03-31
2021-03-31
33.79
34.29
36.49
36.49
Contemporary Issues in Banking, Insurance and Financial Services
Return Index
Mahindra Manulife Large Cap NIFTY 50 Total Return
Pragati Yojana
Index
NIFTY 100 Total
Mirae Asset Large Cap Fund
Return Index
NIFTY 50 Total Return
Navi Large Cap Equity Fund
Index
S&P BSE 100 Total
Nippon India Large Cap Fund Return Index
NIFTY 50 Total Return
PGIM India Large Cap Fund
Index
S&P BSE 100 Total
SBI Bluechip Fund
Return Index
S&P BSE Sensex Total
Tata Large Cap Fund
Return Index
S&P BSE 100 Total
Taurus Largecap Equity Fund Return Index
S&P BSE 100 Total
Union Largecap Fund
Return Index
S&P BSE 100 Total
UTI Mastershare Fund
Return Index
340
2021-03-31
13.02
13.54
2021-03-31
65.51
70.69
2021-03-31
28.51
31.97
2021-03-31
40.52
43.58
2021-03-31
211.39
235.04
2021-03-31
51.79
55.64
2021-03-31
273.68
301.14
2021-03-31
87.75
92.42
2021-03-31
13.64
14.02
2021-03-31
161.76
170.73
Contemporary Issues in Banking, Insurance and Financial Services
Financial Literacy among Women: The Need of the Hour
Dr. Geetika Shukla, Associate Professor, Dewan Institute of Management Studies, Meerut
Email: geetikadims@gmail.com, ph: 9897249022
Neha Bathla, Assistant Professor, Dewan Institute of Management Studies, Meerut
Email:nehabathla18@gmail.com, ph: 9458759500
Neha Jain, Assistant Professor, Dewan Institute of Management Studies, Meerut
Email: er.nehajainji@gmail.com, ph: 9358413545
Abstract
Financial literacy is one of the most essential elements for overall development of a nation. Where Women
occupy a large percentage of the population in our country so there is a need for them to play their part in the
economic development of the same. Ultimate purpose of financial literacy is for women to have basic
financial knowledge to help them to be efficient in managing their economic resources. Financial literacy as
much as it helps women to make financial decisions it also will help them in achieving financial stability.
One of the most important learning that it provides is how to be free of debt by becoming more financially
empowered. Current times are making it all the more vital that females have an understanding of the basic
finances as they equally deserve financial independence so that they can make sense out of all the complex
financial options available in the market. It is not easy to become financially literate, but once a female has
been made aware of it, it can relieve financial burdens immensely. So, Development of skills and confidence
to get proper knowledge of financial opportunities and threats those are there in the market. Also, to be able
to make good choices of finances in aspect of savings, expenses, investment and management of debt in life
throughout. The purpose of this research paper is to study the need and importance of being financial literate
and smart for females in general, to feel empowered, seeing the recent socio economic scenario.
Key words- financial literacy, financial stability, debt, empowered, women
INTRODUCTION
Financial Literacy is the conversion of monetary, credit, and obligation the board information that is
important to settle on monetarily dependable choices—choices that are necessary to our regular daily
existences. Financial Literacy incorporates seeing how a financial record functions, what utilizing a
MasterCard truly means, and how to stay away from obligation. In whole, Financial Literacy affects families
as they attempt to adjust their financial plan, purchase a home, reserve their youngsters' schooling, and
guarantee a pay at retirement.
Financial Literacy is significant on the grounds that it furnishes one with the information and ability to
oversee cash adequately. Without Financial Literacy, the activities and choices one make or don't make as
for reserve funds and speculations would do not have a solid establishment. Financial Literacy helps in
understanding monetary ideas better and empowers one to deal with their accounts productively. Moreover,
it helps in viable cash the executives, settling on monetary choices, and accomplishing monetary solidness.
Besides, Financial Literacy gives inside and out information on financial training and different techniques
that are imperative for monetary development and achievement. Additionally, it empowers one to be without
obligation by embracing the best obligation procedures.
Financial Literacy is likewise connected with better yields on speculations and interest in more intricate
resources, like stocks, which regularly offer higher paces of return.
Financial Literacy is likewise unequivocally connected with a more prominent capacity to adapt to crisis
costs and climate pay stuns. The individuals who are monetarily proficient are bound to report that they can
341
Contemporary Issues in Banking, Insurance and Financial Services
concoct $2000 in 30 days or that they can cover a crisis cost of $400 with money or investment funds
(Hasler, Lusardi, and Oggero, 2018).
This field outlines an individual's propensities and insights towards cash identified with their everyday life.
The Financial Literacy exhibits how a grown-up settles on monetary choices. This mastery will help an
individual form a monetary guide to characterize their pay, their costs, and their liabilities. This subject
likewise influences women, who contribute altogether too monetary development and dependability.
Women framing almost 50% of the populace are not contributing towards the development of the economy
regardless of their massive potential of commitment towards the development of the economy as cited in the
Public Sample Survey Organization's (NSSO) Employment and Unemployment (2009-10). Recently because
of the monetary emergency and the need to engage themselves, Women have understood the need to procure
monetary information with the goal that they can autonomously meet their monetary objectives. It has been
seen through investigations in the past that females presently have become more participative in family
speculation and monetary choice making. Despite the way that women currently have become all the more
monetarily autonomous and dynamic yet at the same time they are not completely engaged to take free
monetary choices because of absence of information and certainty.
The present female is not, at this point thought about an auxiliary resident and has built up a craving to
effectively take an interest in financial turn of events what's more, thus a powerful urge and need for
monetary instruction is unequivocally felt by community of women in general.
Low monetary proficiency has left women not ready for an extreme monetary emergency like the Covid
pandemic, as per research by the TIAA Institute. Indeed, even among the individuals who report having high
information about individual budget, very low percent responded to inquiries regarding crucial monetary
ideas effectively. While these may seem like individual issues, they broadly affect the whole populace than
recently accepted. One should simply take a look at the financial emergency of 2008 to see the monetary
effect on the whole economy because of unfortunate job scenario during the COVID-19 emergency.
Monetary education is an issue with expansive ramifications for financial wellbeing and an improvement. It
can help lead the path to a worldwide economy that is serious and solid.
OBJECTIVE OF THE STUDY AND METHODOLOGY
The aim of this secondary research is to evaluate the importance of financial literacy in women with the help
of review of literature. So, the secondary sources of information were used in this paper.
LITERATURE REVIEW
A lot of accessible exploration papers have been assessed regarding the matter of the investigation. A short
rundown of a portion of the examination papers checked on is introduced here. It has been found from
different papers that women are not able to face financial challenge. According to the perceptions made by
Wang in his investigation (1994), he found that ladies are more traditionalist financial backers when
contrasted with men and furthermore they are offered safer ventures.
There is proof from past investigations that women are less certain at the point when the area is more male
situated (Beyer and Bowden, 1997). It has been seen that monetary proficiency is the key factor which
impacts choices of finances. It was found by Eckel and Grossmann(2001) that skill and (over) confidence
may sway speculation conduct if women see themselves as less proficient in the field of finances. It was
found by R.L. Clark et al. (2006) that while settling on speculation decision choices, gender contrasts exist
and ladies will in general make safer speculations as contrasted with men. It was likewise seen by the
scientist that ladies were more disposed to the monetary proficiency programs and were quicker on
expanding their insight and adjust their saving behaviors.
342
Contemporary Issues in Banking, Insurance and Financial Services
NCAER (2008) in their examination found that the families make investment funds what's more, venture
choices and furthermore the level of monetary security is additionally chosen by them. Scarcely any
specialists found that members have a genuinely decent arrangement of the fundamental mechanics of the
arrangement however they have deficient information to separate among various speculation choices.
From some previous researches it has been gathered that women have low information, pay and training in
comparison to men. This examination pointed that the more established members are bound to make
individual commitments. Nonetheless, training is maybe the most critical determinant of monetary education
(Dvorak and Hanley 2010). Dawar&Wadhwa (2011) in their examination saw that by and large men rule
with regards to speculations. Ladies are discovered to be moderate in causing speculations as they too have
less information on monetary market. The examinations likewise affirmed that venture choices are aggregate
choices which depend on the data also, information accumulated from various sources (Bramabhatt et. al.
(2012).
In an investigation by M. Krishna Moorthy et.al.in 2012, it was seen that age, pay, schooling mentality
towards retirement and clearness of objectives in life has a positive bearing on speculation conduct of
people. It is additionally the pay level which straightforwardly influences the saving also, use conduct of
people. His perceptions and discoveries could be used for creating monetary instruction designs by the
monetary instructors to exhort customers in regards to retirement arranging. In an examination in 2013 which
depends on illustrative exploration, it was finished up that unmarried ladies are not slanted towards venture
however; it is the hitched ladies who take activities in making speculations. The moderately aged ladies by
and large pick land as their favored decision of Investment Avenue. The ends in the investigation can be
used by brokers government and monetary establishments for presenting such plans of venture dependent on
the training level, pay level and age with the target of securing and activating funds (Jamuna&Kavitha,
2013).
Past research has tracked down that monetary education can have significant ramifications for monetary
conduct: individuals with low monetary education are bound to have issues with obligation (Lusardi and
Tufano 2009), more averse to take part in the financial exchange (van Rooij, Lusardi, and Alessie 2007),
more averse to pick shared assets with lower charges (Hastings and Tejeda-Ashton 2008), less inclined to
aggregate abundance and oversee abundance viably (Stango and Zinman2007; Hilgert, Hogarth, and
Beverly 2003), and less inclined to get ready for retirement (Lusardi and Mitchell 2006, 2007a, 2009)
There has been some advancement in women’s monetary information and trust over the most recent eight
years, anyway ladies actually stress over their monetary future and don't know what they need to do
(Prudential, 2008). The certainty level of a woman in her capacity to have choices is the effect between
knowing something and taking care of business. (Establishment, 1998) Financial Barriers Women face
numerous hindrances to monetary prosperity Ladies frequently concentrate their energies more on childcare
and homegrown duties while men center around being the provider (Branigan, 2004). Mostly women are in
lower paid places that have restricted advantages. This makes them resign with around a large portion of the
retirement reserve contrasted with men (Knight, 2009).
Most of them let their spouses handle their accounts. They will just sign monetary reports that their spouses
hand them undeniably (Knight, 2009; Bach, 2002; Frankel, 2008).
CONCLUSION
The literature survey has indicated that any improvement in financial literacy will significantly affect
purchasers and their capacity to accommodate their future. Ongoing patterns are causing it every one of the
more basic that purchasers to comprehend fundamental accounts since they are being approached to bear a
greater amount of the weight of venture choices in their retirement accounts—all while interpreting more
unpredictable monetary items and alternative .The degree of monetary proficiency may shift with training
343
Contemporary Issues in Banking, Insurance and Financial Services
and pay levels, yet proof shows that profoundly taught shoppers with major league salaries can be similarly
as uninformed about monetary issues as less-instructed, lower-pay customers (however, when all is said in
done, the last will in general be less monetarily educated). Also, it appears customers are reluctant to learn.
Without financial literacy on these abilities prompts monetary ignorance. Monetary ignorance prompts
spending confound, higher costs than pay, amassing of obligations, helpless FICO assessment, being
casualties to monetary cheats, and other negative outcomes.
One can comprehend the significance of financial literacy by understanding the four segments of monetary
proficiency better. Budgeting is a fundamental ability that helps in procuring monetary information for
arranging and overseeing cash. It is quite possibly the main parts of financial literacy. It is important to keep
a tab on one's ways of managing money. Ideal cash the board will help in making a noteworthy monetary
arrangement. The noteworthy arrangement will help in following the costs, isolating the pointless ones and
help in going through cash astutely. Along these lines, one can save more. The basics for budgeting are that
pay must be more prominent than the costs. The distinction between the two (pays and costs) is the thing that
helps in reserving up as investment funds. Budgeting helps in getting ready for short, medium and long haul
costs. It empowers people to save likewise. Henceforth, one doesn't need to settle on any of their objectives.
Along these lines, budgeting is indispensable for monetary security and freedom.
Debt is only one's acquiring. One is going through cash that isn't theirs. For instance, if an individual
acquires cash from the bank or uses a charge card or takes a momentary credit. All these become part of the
Debt. For the most part, Debt is seen in a negative viewpoint. Which makes understanding Debt vital. In any
case, not every person can purchase a house or vehicle or pay educational expenses with money. In such
situations acquiring or taking a credit is the lone way out. In any case, the main thing is to separate between
bad Debt and good Debt. Likewise, one ought to consistently plan to save them from bad debt however much
as could reasonably be expected.Rather than holding the cash inactive in a ledger, one can redirect it to
monetary instruments. Investing is tied in with creating and developing abundance to appreciate a protected
and upbeat future. It is tied in with placing cash in a road that will help in producing huge returns over the
long haul. Ventures will help in creating extra month to month pay and critical returns. One can likewise
accomplish their monetary objectives simultaneously assign assets towards retirement saving. A portion of
the generally utilized speculation choices are values, debt instruments, common assets, land, and gold.
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REFERENCE
Bach, D. (2002). Smartwomenjinish rich. New York: Broadway Books.
Bemasek, A., & Bajtelsmit, V. L.(2002). Predictors of women's involvement in household financial decisionmaking. Journal of the Association for Financial Counseling and Planning Education, 13(2),39-48.
Branigan, E. (2004). His money or our money: Financial abuse of women in intimate partner relationships.
Coburg: Coburg Brunswick Community Legal and Financial Counseling Centre Inc.
Commission, F. L. (2008). National research priorities for financial literacy and education.Results of the
national research symposium on jinancialliteracy and education (pp. 1-28). Washington DC: United States
Department of the Treasury and United States Department of Agriculture.
Eikmeier, B. J. (2007). Trends drive opportunities for financial planning for women. Journal of Financial
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GJRA - GLOBAL JOURNAL FOR RESEARCH ANALYSIS Volume-4, Issue-7, July-2015 • ISSN No
2277 – 8160
https://sjes.springeropen.com/articles/10.1186/s41937-019-0027-5#citeas
344
Contemporary Issues in Banking, Insurance and Financial Services
Rural Exposure towards the Atal Pension Yojana of Financial
Inclusion in Fazilka District of Punjab
Aman Bishnoi
Research Scholar, Punjabi University, Patiala
Email – amanbishnoi86@gmail.com
Dr. Shailinder Sekhon,
Professor, Punjabi University, Patiala, Email – shailinder@pbi.ac.in
Abstract:
Financial inclusion is a method of ensuring that everybody has access to appropriate financial services at a
reasonable cost in a just and equitable way. Atal Pension Yojana's purpose is to ensure better future and
financial independence by encouraging them to invest in scheme. The primary data is collected from the
rural area of the Fazilka District of Punjab to check the awareness and perception level. Data has been
collected through the schedule and multistage sampling has been used and statistical tools such as mean,
standard deviation, skewness and kurtosis, chi-square, ANOVA t-test were applied. The study found that
people are aware to a high extent about the contribution limit; age bracket; pension allotment, exit time and
those who are post-graduate in the study area have a good thought about the motive and working of APY.
Government and Financial institutions and education institutes have to develop better financial literacy
programmes and motivate the rural masses to include everyone in the mainstream.
Keywords: Financial Inclusion, APY, multistage sampling, ANOVA
INTRODUCTION
In April 2005, the word financial inclusion was first used in the Annual Policy Statement by Y. Venugopal
Reddy, RBI governor. Financial inclusion is essential to the social agenda of poverty alleviation and income
inequality. Financial inclusion is a method of ensuring that everybody has access to appropriate financial
services provided by society divisions in general and deprived communities, such as the poorest sections and
particularly low-income groups that have been financially excluded, at a reasonable cost, by recognized
institutions in a just and equitable way (Chakrabarty, KC. 2011).
Atal Pension Yojana (APY):
On June 1, 2015, the Prime Minister, Mr. Modi, launched the “Atal Pension Yojana” scheme. The scheme is
an expansion of Swavalamban, which had been unveiled in 2010. It was created to provide financial
protection to individuals, particularly those in the no-income age group, as the word "pension" implies
income during a non-productive life stage. The program is only for citizens of the country between the ages
of 18 and 40, with a focus on the unorganised industry, and it is managed by PFRDA through NPS. (Sandeep
& Sharma. 2018).
REVIEW OF LITERATURE
Hannig & Jansen (2010) studied that the financial crisis has revealed that financial innovation can have
catastrophic structural implications. Greater financial inclusion offers opportunities for improving financial
stability. Evidence shows that savers and borrowers with low incomes prefer to maintain sound financial
conduct during financial crises, hold deposits in a safe position, and pay back their loans. Kunt et. al(2013)
analyzed that in countries where women face legal limitations in their ability to work, to run a household, to
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Contemporary Issues in Banking, Insurance and Financial Services
choose where to live, and to obtain an inheritance, women are less likely to own an account relative to men
and to save and borrow. The study also confirms that manifestations of gender norms, such as the level of
violence against women and the incidence of early marriage for women, contribute to explaining the
variation in the use of financial services between men and women, after controlling for other individual and
country characteristics.Ajide (2015) explained that the importance of financial inclusion as a suitable
strategy for poverty reduction in rural communities was demonstrated by both short and long-run
interactions. Low literacy in remote areas does not allow people to understand the financial services they
have around them which can act as an opportunity for banks to widen the customer base by educating rural
masses. Monetary authorities should drive rural financial inclusion. The study has reinforced the importance
of financial development as a true tool for reducing poverty. Deb (2016) found that financial inclusion
projects in northeast India have so far not grown rapidly. Several of the causes of failure of the formal
financial inclusion frameworks are the basic features of the state in this field and the prevalence of many
unofficial financial systems.
Gattoo & Akhter (2019) observed that financial inclusion has taken on a vital position in emerging
economies' public policy dialogue. Access to financial services improves quality of life and helps the less
fortunate people to raise and diversify their wages and boost their social and economic conditions. Most of
the vulnerable rely on money lenders that limit them to participate in mainstream financial structures.
Economic theory postulates concerning the breakdown of financial markets in percolate deprived and remote
areas are of informational asymmetries, difficulties in contract crafty and enforcement, higher transaction
costs. The demand side aspects may be in low demand for such services, arising from illiteracy, fewer
investment opportunities in rural areas, and difficult loan contracts. Bhattacharjee & Rengma (2020) found
that most of the respondents under the two different professions have registered APY scheme. It was also
found that they have favorable attitude towards different aspects of APY scheme. However, it was observed
that some respondents have not yet registered the scheme as they are not familiar with the banking system
and also due to low rate of interest of the scheme. Z-test also showed significant difference in the attitude
towards the benefits through APY scheme between government and private employees.




OBJECTIVES OF THE STUDY
To study the awareness level of rural masses towards APY.
To analyze the perception of rural people regarding the APY.
Hypothesis
HO1 – considering the demographic profile of respondents, there is no significant difference in the
awareness level among masses regarding APY.
HO2– There is no significant difference in the perception of respondents regarding the impact of APY.
RESEARCH METHODOLOGY
The study is analytical in nature. Empirical data were collected to evaluate the extent of financial inclusion,
especially in the villages of Fazilka district of Punjab, with the aid of APY implementation. To achieve the
objective of the present study, the schedule was developed. The schedule is filled by the researcher itself to
ease the respondents. The author filled the schedule just to reduce the communication gap and to minimize
the error in the information. The scale which is being used here ranges between (5) Very High Extent (4)
High Extent (3) Moderate Extent (2) Some Extent (1) Not At All.
Sampling Design: For the fulfillment of the research objective, multistage and purposive sampling has also
been implemented to carry out the data for analysis. At first, the Fazilka district has been selected. In the
Fazilka district, there are five administrative blocks (Fazilka, Abohar, Jalalabad, Arniwala, and Khuiya
346
Contemporary Issues in Banking, Insurance and Financial Services
Sarwar) that are selected and then the villages are selected from these blocks. Moving forward the data is
collected from the households from those who are in unorganized sector. The sample size is 150 households.
Analytical Tools and Techniques Used: Relevant statistical tools were used for interpreting the data
according to the requirements of the analysis. Following the study's objectives, various methods are used for
data analysis. Statistical tools such as mean, standard deviation, skewness and kurtosis, chi-square, ANOVA
t-test, and post-hoc were applied as and where they fit for the information gathered.
RESULTS AND DISCUSSIONS
Table 1 presents the responses about awareness and perception of Rural People regarding APY. The
perceptionhas been measured on 5-point Likert scale i.e. 1) N.A.A. (2) S.E (3) M.E (4) H.E (5) V.H.E. The
chi-square test of significance enables us to determine the extent to which theoretical probability distribution
coincides with the empirical sample distribution. Also, the clarity of interpretation offered with the analysis
will further help to establish a link with the variables.
It is clear from the data given in table 1 that the mean score of the respondents regarding Awareness about
the contribution limit in Atal Pension Yojana is 3.933, which is more than the average standard score 3 at 5
points Likert scale. However, it is observed during this study that there is the least variation in the opinions
of the respondents of APY as the standard deviation is (0.67503). Further, the negative value of skewness (0.632) shows that the opinions of the respondents are toward the higher side of the mean. Here, the positive
value of kurtosis (1.134) that results from distribution is leptokurtic. The computed value of chi-square is
(132.773) with a p-value 0.000, which shows that the opinions of the respondents regarding financial literacy
are not equally distributed.
The Awareness regarding the age bracket of 18-40 years for subscribers is at adequate level as the mean
score of the respondents is 3.6200, which is more than the average standard score. However, it is observed
during this study that there is the least variation in the opinions of the respondents of APY as the standard
deviation is (0.92446). Further, the negative value of skewness (-0.978) shows that the opinions of the
respondents are toward the higher side of the mean. Here, the positive value of kurtosis (1.252) that results
from distribution is leptokurtic. The computed value of chi-square is (120.200) with p-value 0.000, which
shows that the opinions of the respondents regarding financial literacy are not equally distributed.
Table-1 Awareness regarding APY
STATEMENTS
Mean
Std.
Deviation
Skewness
kurtosis
Chisquare
P-value
Awareness regarding the
contribution limit in APY.
Awareness regarding the age
bracket of 18-40 years for
subscribers.
Awareness regarding the
scheme is for the unorganized
sector.
Awareness regarding the
provision pension will be
allotted after 60 years.
Awareness regarding the
provision that a subscriber can
exit before the age of 60.
3.973
.67503
-.632
1.134
132.77
.000
3.620
.92446
-.978
1.252
120.20
.000
2.966
1.14351
-.180
-.771
31.00
.000
3.446
.95914
-.864
.449
109.53
.000
3.0267
.98952
-.433
-.292
71.133
.000
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Contemporary Issues in Banking, Insurance and Financial Services
Awareness regarding that in
case of death; the spouse can
continue the account.
Awareness regarding the
penalty in case of default.
3.107
1.0436
-.826
-.471
93.20
.000
2.7667
1.0644
-.028
-.924
42.20
.000
The mean score of the respondents is 2.9667 about awareness regarding scheme in the unorganized sector.
The analysis shows that mean score is almost near the average standard score 3 at 5 points Likert scale.
However, it is observed during this study that there is variation in the opinions of the respondents of APY as
the standard deviation is (1.14351). Further, the negative value of skewness (-0.180) shows that the opinions
of the respondents are toward the higher side of the mean. Here, the negative value of kurtosis (-0.771) that
results from distribution is leptokurtic. The computed value of chi-square is (31.000) with p-value 0.000,
which shows that the opinions of the respondents regarding financial literacy are not equally distributed.
The analysis shows that the mean score of the respondents is 3.4467 regarding awareness regarding the
provision pension will be allotted after 60 years.The score is more than the average standard score. However,
it is observed during this study that there is the least variation in the opinions of the respondents of APY as
the standard deviation is (0.95914). Further, the negative value of skewness (-0.864) shows that the opinions
of the respondents are toward the higher side of the mean. Here, the positive value of kurtosis (0.449) that
results from distribution is leptokurtic. The computed value of chi-square is (109.533) with p-value 0.000,
which shows that the opinions of the respondents regarding financial literacy are not equally distributed over
5 points Likert scale.
The analysis shows that the mean score of the respondents is 3.0267about wareness regarding the provision
that a subscriber can exit before the age of 60.It is more than the average standard score 3 at 5 points Likert
scale. However, it is observed during this study that there is the least variation in the opinions of the
respondents of APY as the standard deviation is (0.98952). Further, the negative value of skewness (-0.433)
shows that the opinions of the respondents are toward the higher side of the mean. Here, the negative value
of kurtosis (-0.292) that results from distribution is leptokurtic. The computed value of chi-square is (71.133)
with a p-value 0.000, which shows that the opinions of the respondents regarding financial literacy are not
equally distributed over 5 points Likert scale.
The analysis shows that the mean score of the respondents is 3.1067 awareness regarding the death when the
spouse can continue the account. There is a variation in the opinions of the respondents of APY as the
standard deviation is (1.04366). Further, the negative value of skewness (-0.826) shows that the opinions of
the respondents are toward the higher side of the mean. Here, the negative value of kurtosis (-0.471) that
results from distribution is leptokurtic. The computed value of chi-square is (93.200) with a p-value 0.000,
which shows that the opinions of the respondents regarding financial literacy are not equally distributed.
The mean score of the respondents is 2.7667 about Awareness regarding the penalty in case of default.
However, there is a variation in the opinions of the respondents of APY as the standard deviation is
(1.06448). Further, the negative value of skewness (-0.028) shows that the opinions of the respondents are
toward the higher side of the mean. Here, the negative value of kurtosis (-0.924) that results from distribution
is leptokurtic. chi-square is (42.200) with a p-value 0.000, which shows that the opinions of the respondents
regarding financial literacy are not equally distributed.
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Contemporary Issues in Banking, Insurance and Financial Services
To evaluate and analyze the significance of the scheme the study focus on the variables likes: APY is
helpful as a financial security in old age, APY is helpful in building habit of saving in young age, APY is
beneficial for people to take care his family in old age, APY is helpful in increasing the habit to understand
the financial benefits of investment, APY is helpful for tax benefits under 80CCD. The scale which is being
used here ranges between (5) V.H.E (4) H.E (3) M.E. (2) S.E. (1) N.A.A. The minimum score for the
perception level regarding the APY can be 5 and the maximum can be 25.
Descriptive statistics for knowledge among respondents regarding various constituents of APY on the basis
of their different education levels are represented in table 2. The results reflect that the mean value highest in
the case of postgraduate respondents i.e. 17.3077. Thus it clearly furnishes that villagers who are more
educated have good knowledge with regard to various constituents of the scheme APY.
Further, the calculated values of standard deviation for different education group are as follow up to matric
1.65868, 10 + 2 levels 2.14449, graduation 2.04046 and post-graduation 1.89250. As far as the standard error
of mean is concerned, the calculated values are as follows 0.30801, 0.39153, 0.25309, and 0.37115 for up to
matric, 10 + 2, graduation and those who are postgraduate respectively.
Table 2: Perception of respondents regarding APY: Educational Qualification - Wise Distribution
No. of respondents
Mean
Std. Deviation
Std. Error
29
30
65
26
150
15.5862
15.4333
16.1538
17.3077
16.1000
1.65868
2.14449
2.04046
1.89250
2.04890
.30801
.39153
.25309
.37115
.16729
Upto Matric
10+2
Graduation
Post-Graduation
Total
Anova Results
Between Groups
WithinGroups
Total
POST HOC RESULTS
Sum of
Squares
59.099
566.401
625.500
Df
Mean Square
F
Sig.
3
146
149
19.700
3.879
5.078
.002
Education Qualification Education
Qualification
UptoMatric
10+2
Graduation
Post Graduation
10+2
Graduation
Post Graduation
Upto Matric
Graduation
Post Graduation
Upto Matric
10+2
Post Graduation
Upto Matric
10+2
Graduation
349
Mean Difference
Std. Error
Sig.
.15287
-.56764
-1.72149*
-.15287
-.72051
-1.87436*
.56764
.72051
-1.15385
1.72149*
1.87436*
1.15385
.51292
.43984
.53196
.51292
.43474
.52775
.43984
.43474
.45705
.53196
.52775
.45705
.991
.570
.008
.991
.350
.003
.570
.350
.060
.008
.003
.060
Contemporary Issues in Banking, Insurance and Financial Services
ANOVA results show the value of the F-test is less than 0.05. Hence, it can be said that there is a significant
difference between the mean values of knowledge among respondents regarding APY based on their
different education levels.
Post hoc results for knowledge among respondents regarding various constituents of APY on the basis of
their education level reports that the mean difference is significant. The mean difference is more significant
in the case of post-graduation level when compared with those who studied up to matric 10 + 2, graduation.
Limitation of the Study and Recommendation For Future Research
The Present study has focused only on the awareness and perception of the villagers of Fazlika District. To
recognize the study’s reliability, it's noteworthy to emphasize the restrictions it's performed within. A sample
of 150 people is selected and their selection in the sample made randomly. The present research only focuses
on the rural area, other areas like slum areas in urban requires the financial inclusion facility, have not been
included in this research study.
CONCLUSION
The present study has been conducted to know the level of awareness and perception of rural masses toward
the scheme of financial inclusion i.e. Atal Pension Yojana. Through the analysis, it has been found that rural
masses of Fazilka district are aware. But people of rural areas in Fazilka are aware to some extent regarding
a moderate extent about tax benefit. While analyzing, the perception based on age and education, the study
shows that those who are post graduate in the study area have a good thought about the motive and working
of Atal Pension Yojana. Government and Financial institutions have to develop better financial literacy
programs to all and everyone and motivate the rural masses to include everyone in the mainstream of
financial inclusion. It can also be suggested that financial education should be provided in the schools with
the collaboration of schools and financial institutions so that from the beginning, children would have the
habit of saving and investment.
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Appendix I
Schedule
Respected,
Sir/Madam
I humbly invite you to respond with respect to the respective questions. Your precious time would
take a very short time. It is very important for my study to know your opinion. I appreciate your support and
look further to your helpful reply. Survey answers will not only be coded but will also be exclusively private
and will under all cases not be revealed or exchanged with any person or agency.
A) PERSONAL DATA.
1. Name - ………………………………………
2. Age - ………………………………………...
3. Gender - …………………………………......
4. Occupation - ………………………………….
5. Family's Annual Income - ……………………..
6. Educational Qualification - ………………………………….
8. How many members are there in your family? ………………
9. A number of girl children aged below 10 years in your family. …………….
10. To what extent you are aware of the following statements related to
B) Scheme –Atal Pension Yojana(APY).
10. To what extent you are aware with the following statements related to Atal Pension Yojana (APY)?
Sr. Statements
V.H.E H.E. M.E. S.E. NAA
No.
1.
Awareness regarding the contribution limit in
APY.
2.
Awareness regarding the age bracket of 18-40
years for subscribers.
3.
Awareness regarding the scheme is for the
unorganized sector.
4.
Awareness regarding the provision pension will
be allotted after 60 years.
5.
Awareness regarding the provision that a
subscriber can exit before the age of 60.
6.
Awareness regarding that in case of death; the
spouse can continue the account.
Awareness regarding the penalty in case of
default.
11. To what extent do you agree regarding the following statements of Atal Pension Yojana(APY)?
Sr.
Statements
V.H.E H.E. M.E. S.E. NAA
No.
1.
2.
3.
4.
5.
APY is helpful as a financial security in old age
APY is helpful in building habit of saving in
young age
APY is beneficial for people to take care his
family in old age
APY is helpful in increasing the habit to
understand the financial benefits of investment
APY is helpful for tax benefits under 80CCD
352
Contemporary Issues in Banking, Insurance and Financial Services
Financial Literacy and Financial Inclusion: A Review of Literature
Dr. Manoj Kumar, Assistant professor
Department of commerce, MDU, Rohtak
Ms. Annu, Research scholar, Department of commerce, MDU, Rohtak
Abstract
At present financial literacy and financial inclusion are becoming matter of discussion around the world. To
provide access to financial products and services is Financial inclusion whereas to ensure awareness about
these products and services is financial literacy. Financial inclusion helps to enable peoples to have the
ability and tools to manage and save the money. Financial inclusion is an important goal of an economy. In
order to achieve inclusive development and growth of an economy, it is necessary that financial services
should be expand to all the sections of society. It is tried to find out in this research paper is financial
literacy is responsible for a particular level of financial inclusion in a country. This paper carries out the
conclusion based on the review of existing literature focusing on the relation of financial literacy and
financial inclusion. The objective of this study is to find that whether there exists a relation between the
financial literacy and financial inclusion. The study also discusses the initiatives taken by Indian government
towards and financial literacy and financial inclusion.
Keywords: financial literacy, financial inclusion, government initiatives, financial exclusion.
INTRODUCTION
In the recent years, the increasing complexity of the financial market has provided a great importance to the
financial literacy as it becomes very difficult to a common man to make informed decisions. Financial
literacy is as much important for developed countries as it is for developing countries. For economic growth
of a country financial development is recognized as a significant determinant (livine, 2005). To promote
financial inclusion, financial development and to achieve financial stability, financial literacy becomes a
need. Because individual who are not aware and familiar about the financial products and services, will not
demand them (Ramchandran,2012). The financial literacy can be considered a first step to alleviate poverty
and enhance the development in the developing countries like India. Financial literacy and financial
inclusion come together because financial inclusion can be dangerous with lack of financial literacy. It is
observed in micro finance institutions that poor people and farmers take loans and unable to repay and
sometimes they commit suicide due to debt problems (Ramchandran, 2012). Increasing financial inclusion
makes a significant contribution to the development of the financial system by increase in the liquidity,
trading size, and financial product range in the financial markets (Bayer et al., 2017). Financial inclusion can
be considered a key enabler to reduce poverty and boost prosperity. According to World Bank “financial
inclusion means that individual and businesses have access to useful and affordable financial products and
services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a
responsible and sustainable way”. Rangarajan committee defined financial inclusion as “the process of
ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such
as the weaker sections and low-income groups at an affordable cost”. Marginalised and underprivileged in
the society can connect to the mainstream economy with the help of financial inclusion (Draboo, 2020).
Financial inclusion: It refers to the process of promoting affordable, timely and adequate access to a wide
range of regulated financial products and services and broadening their use by all segments of society
through the implementation of tailored existing and innovative approaches including financial awareness and
education with a view to promote financial well-being as well as economic and social inclusion.
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Contemporary Issues in Banking, Insurance and Financial Services
Financial Exclusion: In 1993, geographers coined the term financial inclusion, who were worried about
limited access to banking services. In developing countries bank branch closures Illiteracy is one of the
crucial drivers of financial exclusion. Financial exclusion can be defined as “the inability of individuals,
groups and communities to access and use appropriate and affordable personal, business and organisational
financial products and services”. Participation of every people is a must in any financial activity for a well
financial system. Financial exclusion, when it applies to lower income consumers or individuals in financial
hardship, becomes of more concern in the community. Financial exclusion refers to groups with low socioeconomic status in advanced economies, who are unable to properly manage their financial affairs.
Developing economies, financial inclusion is often even more basic by aiming to improve access to formal
financial services for large parts of the population.
OBJECTIVE OF THE STUDY
To study the relation between financial inclusion and financial literacy; and
To study the status of financial inclusion and literacy in India.
RESEARCH METHODOLOGY
This study is descriptive in nature and it is based on secondary information obtained from diverse sources
like published articles, research papers, newspaper, reports of government agencies etc.
REVIEW OF LITERATURE
Bongomin et al., (2020) examined the mediating effect of social network in the relationship between
financial inclusion and financial literacy of poor by microfinance banks in the developing countries. The
social network found to be significantly and positively mediated the relationship and financial inclusion is
also directly affected by the financial literacy.
Grohmann and menkhoff (2020) tested a potential impact of financial literacy on financial inclusion while
controlling for potentially competitive factors. With a cross country analysis using regression they found that
a financial literacy and financial inclusion found a relation of causality that moves from financial literacy to
financial inclusion.
Ravikumar et al., (2020) analyzed the impact of financial literacy on awareness about financial products and
financial inclusion. Financial literacy is found to have significant effect on awareness about financial product
and services and financial inclusion and it have more impact on financial inclusion by mediating the
awareness about financial products and services.
Ghosh (2019) conducted a study entitled ‘financial literacy and financial inclusion unbundling the nexus’
with the objective to know the impact of financial literacy centers on the ownership and access to bank
account by controlling other confounding variables. By using the household and district level data the study
found that financial literacy has a significant role in improving the account activity but it has less impact on
access to bank accounts. Other variables like bank characteristics influences the financial inclusion through
the financial literacy centers, delivery method of financial literacy is also relevant in impacting financial
inclusion and financial literacy channels (mobile, landline, TV/DVD, agent) have a significant role in
improving financial inclusion.
Rahmawati et al., (2019) in their study tried to find the relationship between financial literacy, financial
inclusion and family economic education among university students in Indonesia. The study found the
sufficient financial literacy and high financial inclusion and a significant positive relationship between both
variables. Also, family economic education is positively related with these two variables.
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Contemporary Issues in Banking, Insurance and Financial Services
Barry and Chandan (2019) reviewed the existing literature related with financial literacy and financial
inclusion and found a positive correlation between both but degree of correlation varies among different
studies. Some studies found that low degree of correlation and some found high degree of correlation.
Sinha and Gupta (2018) conducted a study with the objective to know that financial literacy level of an area
is influenced by the financial inclusion of that area. That study found that population in select districts was
less financially literate. Financial literacy of respondents of rural area is low in comparison to urban area and
financial inclusion is also low in rural area. Financial inclusion index is found to be significantly related with
financial literacy. Some other factors like educational background, income and occupation are found to be
significantly related with financial literacy.
Babych et al., (2018) conducted a study entitled ‘financial inclusion, financial literacy and financial
education’ to review the current state of the financial inclusion and financial literacy in the Georgia and
policy initiatives and strategy documents by government to improve financial access to SMEs and household
and also focused the cause for the low level of financial literacy and financial inclusion among poor, young
and rural population. The study found that in spite of having adequate access, a significant part of population
is underserved especially poor and rural population because of less likely to have accumulated saving and
low score of financial literacy. The indicators of financial access have increased for household whereas these
are unchanged for SMEs since 2012.
Kapadia and Madhav (2018) in their study discussed the various initiatives taken by financial institutions
towards improvement of financial literacy and tried to establish an association between theory and practice
in context of financial inclusion and financial literacy. In India, for unleashing fortune at the bottom of
pyramid financial exclusion is being recognized as leading barrier and it is group of multiple barriers and to
overcome these barriers is a challenge to financial inclusion.
Bongomin et al. (2018) examined in their study that cognition plays a moderating role in the relationship of
financial literacy and financial inclusion from a perspective of developing countries and both financial
literacy and cognition also affect directly to the financial inclusion in an economy.
Iqbal and Sami (2017) conducted a research named ‘role of banks in financial inclusion in India’. In this
study, it is tried to examine the present status of financial inclusion and how financial inclusion effect on
economic growth of India. Impact of credit deposit ratio, number of bank branches, and ATM growth rate
(indicators of financial inclusion) on GDP growth rate was analyzed with the help of multiple regression
analysis. The study found that the credit deposit ratio of banks and number of bank branches have significant
positive impact of an GDP whereas ATM have not significant impact and concluded that financial inclusion
have an association with development of a country.
Joseph (2014) in their research tried to find the banking habits, awareness level and major source of
information about financial products and services. The study found that most of the respondents use bank
account just because of ATM facility and security. Only 10% and 12% people are attracted by prompt
service and credit facility. Most of people found to choose public sector banks over the private sector banks
and majority have saving account rather than recurring account because of convenience. News-paper, family
friends and relatives were the major source of information.
Trivedi and Trivedi (2014) said that financial literacy is a pre requisite for the financial inclusion by
examining the association between them. Less financially literate individuals were found less financially
included. They also discussed the government initiatives to improve the financial literacy consequently
financial inclusion.
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Contemporary Issues in Banking, Insurance and Financial Services
Atkinson and messy (2013) explain that awareness about the financial products and services is pre -Requisite
of financial inclusion. Individuals who are highly financially literate are more financially included. Women
were less financially knowledgeable than men and as compared to men, women were more prospective
financial consumers. Improved financial knowledge of women may help them to become financially
included.
Ramachandran (2012) in their study entitled financial literacy and financial inclusion discussed the
significance of financial literacy and initiatives taken by various government and government authorities
around the world. The study found the financial literacy is demand side and financial inclusion is supply side
of financial products and services.
Status of financial inclusion and financial literacy in India
In overall world 69% population have a bank account. But financial inclusion varies according to income
level of an economy. 90% share of this population belongs to high income economies whereas low- and
middle-income economies have below average ownership of bank account (Grohmann and menkhoff, 2020).
Even around the world in many advance economies, 2 billion people do not have any access to financial
account and at the most basic level they are financially excluded (Demirgüç-Kunt et al., 2018). As per the
report of global Findex or World bank’s global financial inclusion database (2017), bank account of adults in
India increased from 53% (in 2014) to 80%. In 2014, only 43% women have bank accounts whereas findex
report (2017) estimated 77% Indian women have bank accounts. Still 190 million Indian adults have not a
bank account. After china, India is second in term of unbanked population.
In the year 2014, S&P global financial literacy survey found that only 33 % of adults are financially literate
around the world but there were variations in the financial literacy among various countries. In Some
countries like Canada, Finland, Australia, Denmark, Israel, Norway, Germany, Netherlands, United
Kingdom and Sweden adults were found financially literate whereas in south Asian countries financial
literacy was very low. In major advanced economies, 55% of adults were financially literate as in Canada,
France, Germany, Italy, Japan, the United Kingdom, and the United States but in these countries, rate varies
widely as 68% in Canada and 37% in Italy. Whereas in major emerging economies (BRICS) on average 28%
adults were financially literate. In BRICS countries rate also varies as 24% in India and 42% in south Africa.
The level of financial literacy was found higher in the rich countries and there was also a gender gap in
financial literacy in both emerging and advanced economies. In comparison to 30% of women, 35% of men
were financially literate. Rich adults were more financially skilled in comparison to poor because out of
poorest 40%, 23% of adults was financially literate whereas out of richest 60%, 31% was financially literate
in emerging economies. In India more than 76% adult population is financially illiterate.
Relationship between financial literacy and financial inclusion
According to Dr Subbarao, Reserve Bank Governor of India:
Financial literacy stimulates the demand side – making people aware of what they can and should demand.
Financial inclusion acts from the supply side – providing in the financial market what people demand”.
Social inclusion and wellbeing of the community can be enhanced by Raising financial literacy. Financial
literacy is demand side and financial inclusion is supply side (biswas and gupta, 2018., Ramachandran,
2012., berry and Chandan, 2019., babych et al., 2018). Highly financially literate peoples found to save
more, more aware about financial products and more responsible borrowers. Financial literacy is related with
education and income. There can be a relation of causality from financial literacy to income level and reverse
causation may be possible low-income level may be a reason for low financial inclusion, thus indirectly to
low level of financial literacy (Babych et al., 2018). To improve financial inclusion, financial literacy can be
an intervening variable (Rahmawati et.al., 2019).
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Contemporary Issues in Banking, Insurance and Financial Services
Government initiatives towards to increase the financial inclusion and financial literacy in India:
government of India introduced the various schemes to promote the financial inclusion from time to time.
These are as follows: Pradhan Mantri Jan Dhan Yojana (PMJDY), Pradhan Mantri Vaya Vandana Yojana,
Atal Pension Yojana, Pradhan Mantri Mudra Yojana(PMMY), Pradhan Mantri Suraksha Bima Yojana,
Stand Up India Scheme, Sukanya Samriddi Yojana, Credit Enhancement Guarantee Scheme for Schedules
Castes, Varishta Pension Bima Yojana, Jeevan Suraksha Bandhan Yojana, Venture Capital Fund for
Scheduled Castes Under The Social Sector Initiatives.
Reserve bank of India started ‘project financial literacy’. Various financial literacy centers are opened by
banks to spread awareness about financial products and to improve financial literacy. RBI websites provides
a link to financial education containing material. This material is available in English, Hindi and other
languages, and comprises various comic books on money and banking for children, films, games on financial
education, messages on financial planning, and link to access the Banking Ombudsman Scheme. RBI also
started financial literacy week on annual basis. RBI organises various awareness programmes to create
awareness that how various Government Sponsored self-employment schemes can benefit you which
involves bank loans and subsidy by Government agencies like KVIC, DICs and SC/ST corporations. To
improve credit delivery and to expand the reach of financial inclusion national strategy for financial
inclusion is documented for the period 2019-24.
SEBI (Securities Exchange Board of India) organises various investor education programmes and workshop
through investors association all over the country to spread the financial literacy. To undertake financial
education to numerous target sections viz. school students, college students, home makers, middle income
group, retired personnel, working executives, self-help groups etc. SEBI boarded financial education on a
nationwide campaign. Resource person are empanelled by SEBI throughout the India to organise workshops
on various financial aspects.
IRDA (Insurance Regulatory and Development Authority) has also taken various initiatives to increase
financial literacy. IRDA organises various awareness programs to convey the rights and obligations of
policyholders and what channels are available to redress the disputes. Annual seminars are also organised by
IRDA for policy holder’s protection. To create a central repository of grievances across the country and to
provide for various analyses of data indicative of areas of concern to the insurance policyholder, IRDA
creates an Integrated Grievance Management System (IGMS).
NSFE (National strategy for financial education) is released by RBI by consulting the financial sectors
regulators like SEBI, IRDAI, PFRDA and other ministries of government of India. NSFE 2020-25 is
approved in June, 2020 to disseminate the financial education in the country. It intends to empower the
different sections of the population to manage their money better and to plan for the future.
CONCLUSION
It can be concluded from this study that financial literacy and financial inclusion are different but related to
each other. These are related but what type of relation exists between them is not specified. According to
some researches, financial literacy is a pre requisite for financial inclusion and it is demand side aspects of
financial inclusion. Some researchers find a relation of causality between them moving financial literacy to
financial inclusion and this causation may be reverse that low level of financial inclusion may be responsible
for low financial literacy. A few studies found that relationship between them may be moderate and mediate
by the pother variables and financial literacy can be an intervening variable for financial inclusion. It can be
seen level of financial literacy is low in India and financial inclusion is increased in recent years due Pradhan
mantri jan dhan yojana announced. As per the report of ministry of finance, in march 2020 number of
beneficiaries of this programme were 380 million. But till march 2017, 40% of account under this scheme
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Contemporary Issues in Banking, Insurance and Financial Services
was in operative or dormant account and in 2020, this percentage is declined but till not all accounts are in
operation. Financial inclusion is not really reached if someone just owns an account, as the account should
also be actively used, and even used in a rational way. Financial inclusion should be measured in more
comprehensive way. Unless a common man becomes a wise investor, it will be a distant dream to create
wealth for investor and economy.
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Ghosh, S. (2019). Financial Literacy and Financial Inclusion Unbundling the Nexus.Money, banking and
finance. Economic & Political Weekly, 4(13), 75-82.
Chakrabarty, K. C. (2013). Keynote address on financial inclusion. Mumbai
Iqbal, B.A. & Sami, S. (2017). Role of banks in financial inclusion in India. Contaduríay Administración,
62, 644–656.
Joseph, D. (2014). A Study on Financial Inclusion and Financial Literacy. International Journal of Business
and Administration Research Review, 2, (4), 126-134.
Levine, R. (2005). Finance and growth: Theory and evidence, in Philippe Aghion and Steven Durlauf, eds.:
Handbook of Economic Growth (Elsevier Science, The Netherlands).
Babych, Y., M. Grigolia, and D. Keshelava. 2018. Financial Inclusion, Financial Literacy, and Financial
Education in Georgia. ADBI Working Paper 849. Tokyo: Asian Development Bank Institute. 1-31.
Ramachandran, R. (2012). Financial literacy and financial inclusion. 13th Thinkers and Writers Forum. 1-16.
Demirgüç-Kunt A., Klapper L.F., Singer D., Van Oudheusden P., The global findex database 2014:
Measuring financial inclusion around the world, The World Bank Policy Research WP 7255 (2015).
Kapadia, S. B., & Madhav, V. (2018). Financial Literacy and Financial Inclusion in India Revised Paper,
(January-2018) Originally meant for- 2nd Policy Forum on Financial Literacy and Financial Inclusion.
International Journal of Pure and Applied Mathematics, 118 (18), 1133-1150.
Aggarwal, P., Kureel, R. C., & Yadav, S. (2017). A Study on Future Plan for Increasing Financial Literacy
Among People. Global Journal of Finance and Management, 9(1), 29-38.
Grohmann, A., Kluhs, T., & Menkhoff, L. (2018), Does Financial Literacy Improve Financial Inclusion?
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OECD/INFE Evidence, Policies and Practice”, OECD Working Papers on Finance, Insurance and Private
Pensions, No. 34, OECD Publishing.
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Trivedi, P. & Trivedi, S. (2014). Financial Literacy an Essential Prerequisite for Financial Inclusion. GRA GLOBAL RESEARCH ANALYSIS, 3(3), 28-30.
Ravikumar, T., Girish, S., Rajesh, R., & Halaswamy, D. (2020). Nexus Among Financial Literacy,
Awareness About Financial Products and Financial Inclusion: Evidence From Rural Tamilnadu, India.
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Bongowin et al., (2020). Analyzing the relationship between financial literacy and financial inclusion by
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https://www.moneycontrol.com/news/trends/1-in-every-5-jan-dhan-accounts-active-now-4919441.html
https://trak.in/tags/business/2012/06/14/indians-financial-literacy-survey/
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Workplace Spirituality and IT Sector: Practices & Policies
Vani Jain
Research Scholar, Dept. of Commerce,M.D.U, Rohtak
Email Id: jainvani24@gmail.com
Dr. R.R. Saini
Professor, Dept. of Commerce,M.D.U, Rohtak
Abstract
Spiritualism at Workplace is such a unique, remarkable, and multi-dimensional concept. According
to this, there is a meaning or purpose attached to an individual’s work and one feels connected to
the community and aligned with the objectives of the organization. In this paper, the concept of
workplace spirituality has been explained along with its dimensions. Further, in this conclusive
research, the discussion is made concerning the practices which an organization can use to inculcate
spiritualism in their workplace. It has discussed the practices which can be applied by both parties individuals as well as management. Additionally, the authors tried to mention the few companies
which have inculcated this concept successfully to provide an amicable environment to their staff.
The results of the study indicated the benefits of inculcation of workplace spiritualism into
organizations in terms of materialistic as well as non-materialistic values. In the end, this paper
contributed by providing a stronger theory base for this concept.
Keywords – Spirituality, Workplace Spirituality, Organizational Behavior, Practices & Policies, IT
Sector
INTRODUCTION
Most of the studies conducted on this very topic confirmed that workplace spiritualism gained
momentum in the early 1990s. The factors like the breach of psychological contract among
employees and management due to changing business environment, continuous questioning by
baby boomers regarding the significance of their existence, the substitution of churches to
workplaces, etc. evolved this concept of Workplace Spirituality (Ashmos and Duchon, 2000;
Giacalone and Jurkiewicz, 2003 and Neal, 2018). It helped this phenomenon in becoming the
megatrend of the business world. It transformed the thinking, living, and most noteworthy of all,
working patterns of the individuals. Work and Workplace, respectively, are a very important part of
every person’s life, as it provides a sense of identity & purpose of their lives as well as gives a
source of livelihood. It is the work through which an employee can express his inner self at his
workplace.
Spirituality coordinates the various aspects of human life with society and believes in total harmony
with the inner self of individuals and surroundings. It is the food for the soul. It has been observed
that being doesn’t enter the company only physically or mentally, he comes as a whole being
(Sparrow & Knight, 2006).
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Contemporary Issues in Banking, Insurance and Financial Services
One of the remarkable and valuable denotations was stated by Ashmos and Duchon in 2000,
Spiritualism at the workplace was reckoned as the “recognition that employees have an inner life
that nourishes and is nourished by meaningful work that takes place in the context of community.”
Giacalone and Jurkiewicz (2003) explained Spiritualism at Workplace is a “framework of
organizational values evidenced in the culture that promotes employees’ experience of
transcendence through the work process, facilitating their sense of being connected to others in a
way that provides feelings of completeness and joy.” Kinjerski and Skrypnek (2004) proposed the
six-dimensional definition of workplace spiritualism inclusively, physical, affective, cognitive,
interpersonal, spiritual & last was mystical.
Spirituality can be defined as something different than being religious or it is way more than having
faith in Godly figures. It is more than ringing the bells or enchanting the mantras loudly. Religious
practices are like the first step of the ladder and one has to go a long way. To taste the deeper
experience of spiritualism, one has to take a leap jump inside. All the researchers have mentioned
different ideologies behind spirituality. The most acceptable and sensible was mentioned in the
research paper of Fourie, 2014. According to him, it is deduced that spirituality belongs to the
following five dimensions, namely:
A. Convictions, attitudes, and perceptions
B. Transcendental experiences
C. Significance and meaning of human existence
D. Belief in the paranormal
E. Religious behavior and practice.
Hence, all the above dimensions collectively show that workplace spiritualism is surely a multidimensional phenomenon. Its objective is to develop values, ethics, morals, respect, and social
justice in all the individuals at the workplace.
OBJECTIVE OF THE STUDY
To find out and describe the practices & policies for the inculcation of spiritualism into the
workplace which can be adopted by an individual and the management in the corporate world.
RESEARCH METHODOLOGY
It is a conceptual study based on secondary information. Most of the authors supported
incorporating spirituality into the respective workplaces. Successful implementation proved to be a
boon for all corporations. For this current study, the authors studied more than 25 papers on
workplace spiritualism to enrich the existing knowledge base. All the published papers were
analyzed in-depth to portray the outline of the present study. This qualitative study describes the
companies which inculcated spiritualism into their firms as well as suggests the ways & benefits of
such inculcation in the present scenario.
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Workplace Spiritualism in the Indian Corporate World
In today’s competitive environment, many enterprises understand the value of their human
resources. They try to do what is best for them. Incorporation of spiritualism is one of the steps
which every firm is taking to reduce the stress levels of their employees, for retaining them, and for
creating a strong bond with their workforce. Few Indian companies have already taken steps in this
direction. Some of them are mentioned here – A firm Aarti International situated in Punjab, India
respects all religions and often arranges spiritual programs that improve the core values of all the
employees belonged to diverse religious backgrounds. Another enterprise situated in Mumbai in
India, Excel Industries, believes in divine light and portrays Spirituality as “Self-improvement and
world service”. They start their day with Morning Prayer and also take their lunches together at the
same time to integrate the sense of community. Primal Healthcare in Mumbai, also, imbibes
spiritualism in their day-to-day routine by the way of offering prayers and having yoga and
meditation sessions (Neal, 2018). Many firms in India like the above examples are including
different ways of inculcation of spiritualism to have a healthy and stable workforce in the long
run.
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Inculcative Practices & its benefits of Workplace Spiritualism for an individual
Spirituality brings awareness to an individual with which the person gets more creative and calm
day by day. The spiritual employee can easily cop up with every change in the surroundings. He/she
certainly reacts differently in adverse situations too. They have many inherited qualities like
honesty, self-disciplinary, trustworthiness, and happiness and they are also intuitive, which are
advantageous to every enterprise. An employee can practice spirituality in the following ways –
One can learn a few easy to advanced techniques of meditation.
Simple Breathing exercises can be done at home or in the workplace.
Zumba, Aerobics, Yoga, Sports, or Swimming – all the physical exercises bring positive and
rejuvenated energy to the work field. It helps in the evaporation of stress too.
Relaxation Exercises can be practiced; it enhances the working potential of an individual.
Any Creative sides of an individual can be explored – dance, painting, music, theatre, or poetry –
can be done daily or on a regular interval basis.
An individual can also join or connect to any Spiritual Based Institution. For example, in India,
there are many institutions like Art of Living, Brahma Kumaris, Osho, Sadguru, etc. which teach
the ways of meditations and helps in introducing spiritualism in one’s life.
With regular implementation of the above practices, the individual gets more stable in his life; his
level of patience grows higher, which substantially affects his ways of decision making. The
decision-making by a person whose mind is balanced has far-reaching effects on their projects or
others. They do work more creatively and gracefully. One’s faith in any God or Universe stops one
from doing any fraud or wrong actions. An individual’s positive attitude and calmness guide him to
take the right action and simultaneously, the right path. In an organization, where all or most of the
employees are spiritual in any way, that enterprise surely gains lots of benefits without much
hindrances. Their employees work with maximum potential by themselves without needing much
motivation.
Inculcative Practices & its benefits of Workplace Spiritualism for the management
In any corporate sector, workplace spirituality is very beneficial to be incorporated. There are
various benefits like – increase in job satisfaction which leads to low employee turnover ratio,
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Contemporary Issues in Banking, Insurance and Financial Services
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better performance attracts huge profits, increased commitment & fewer conflicts helps in employee
retention and co-operative environment (Bell et al., 2012; Chawla &Guda, 2010; Mukherjee, 2018
and Iqbal, 2019). And, to achieve these above-said benefits, management adopts the following
practices and molds their policies, to incorporate spiritualism at their respective workplaces.
Mandatory Morning Classes for Yoga & Meditation to be executed at the workplace for the entire
workforce.
Organizing Training Programs to teach employees a few mind-balancing techniques or simple
meditative techniques to live a more healthy life. It also enhances the awareness of individuals. It
can also be practiced before meetings (Altaf & Awan, 2011).
Form Support Groups in the enterprises so that employees can better understand the morals, ethics,
and values of each other and support them in the ups and downs of their life, mentally and
spiritually.
Arrange such programs in which employees can channelize their creative energies into some artistic
expressions and management can also invite a skilled teacher to help them explore the new fields.
Building a Separate Multi-Faith Room on the workplace premises. This should be accessible to all
employees. It could be a Prayer, Silence, or Meditation room. Employees feel more connected &
grateful to the organizations when their faiths are respected by the management.
Organize Musical Outings dedicated to spiritualism or Groups for Reading Spiritual Books.
Companies can also schedule 5-10 minutes of group dancing or laughter sessions. It can be
arranged at the start of the day or in short breaks.
A healthy and Spiritual environment surely helps the organization by gaining all the materialistic as
well as non-materialistic benefits. These above-said practices integrate cooperation, cohesiveness,
interconnectedness and create aesthetically amiable surroundings for everyone. It surely helps in
tapping the maximum potential of the workforce which supports the end objective of any firm i.e.
wealth maximization.
There can be many other practices like having open discussions clarifying the concept in more
detail etc., as the phenomenon is too vast itself. No practice is right or wrong, it depends upon the
efficiency of the management to adopt a suitable practice to their environment. And any number of
the above practices can be applied to a workplace, there is no such limitation. However, it is
suggested to choose the practice according to the nature of their employees in a particular
workplace.
CONCLUSION
This paper came up with different ideas to incorporate spirituality into the corporate world. In the
beginning, it introduces the phenomenon of spiritualism and workplace spirituality. Then, it
describes all the potential and actual ways through which spirituality can be incorporated in the
business world along with the examples of the companies which have already inculcated in their
workstations. It also shares the advantages of such incorporation in the corporate sector. In the
future implications of the study, authors suggest other researchers find out the other potential ways,
as well as detailed work, can be done to find out the impact of the above-said practices on each
individual. Last, the authors believe that the best suitable practices should be chosen by the
management according to their company surroundings.
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363
Contemporary Issues in Banking, Insurance and Financial Services
StockSplit and Shareholders’Wealth – An Investigation using
Event Study Methodology
Dr. Shaili Gupta
Associate Professor, TIMT, Yamuna Nagar,
Email: shaili85@gmail.com
Prof. Bhag Singh Bodla
University School of Management, K. U. Kurukshetra
Abstract
Generally, the stock split strategy is aimed to make scrip more liquid and affordable to the average
investor because with this corporate action the face value of the shares will reduce and number of
shares would increase. There arise needs to examine impact of this action on stock prices. This
paper is an attempt to investigate such type of announcement effect with the help of Event Study
methodology. The reference period for the study ranges from 2005-2016. The study is based on 44
stock split announcements of Indian Banking & IT industries. The results show that there is
significant difference between Average Abnormal Returns before the announcement and after the
announcement of stock splits.
Keywords: Stock Split, EMH, AAR, CAAR, Event Window, Estimation Window, Run up Window
INTRODUCTION
The goal of corporate entities is to maximize the value of Shareholders’Wealth in the firm. The
financial management can achieve this goal through the investment, financing and dividend
decisions. Stock market reacts to various corporate announcements. This phenomen on is reflected
from abnormal stock returns of firm surrounding the announcement. The magnitude of abnormal
return provides a direct measure of unexpected change in security holders wealth associated with
the event. However,theeffect of announcements varies from market to market & depends upon
characteristics of the firm under study. Thus the effect of corporate announcements is an important
empirical matter in capital market, influencing the movement of shareprices.
Efficient Market Hypothesis (EMH) is concerned with the financial information market with special
applicability on stock market. The informational efficiency of Indian stock market is concerned
with two dimensions of price adjustment to new information, the speed and quality (direction &
magnitude) of the adjustment.
According to EMH, any event which does not contain any information should not affect price and
abnormal returns on or surrounding the announcement date. The information content of public
disclosures could be observed through stock market reaction and trading volume changes around
the date of announcement. Stock market reaction represents investors’ belief about the firm value &
trading volume indicates investor behavior on firm’s shares. Both measures aim at estimating public
announcements in formation content & information asymmetry.
The event study methodology is based on the assumption that capital markets are efficient such as to
estimate the impact of new information on anticipated future prices of firms. In capital market with semi
strong efficiency one can assess the impact of an event on value of firm by calculating abnormal returns.
364
Contemporary Issues in Banking, Insurance and Financial Services
REVIEW OF LITERATURE
Some of the more frequently quoted research studies on the subject under reference are reviewed
here. Murray (1985), examines the short-term and long-term impact of stock dividend on liquidity.
The notable finding of the study is that trading volumes declined in the month in which the stock
dividends were distributed.
Lakonishok and Lev (1987), investigate the liquidity hypothesis for 20-year period (1963-82) by
examining trading volume changes after stock dividend announcement and find that trading volume
do not increase as a result of stock dividends.
Beaver (1968), Ball and Brown (1968), Morse (1981), and Bamber and Cheon (1995) argue that
earnings announcements accompanied by high trading volumes and abnormal returns around the
announcement window convey more information to investors than announcements which generate
low trading volumes and insignificant stock returns.
Patric (2003), investigates the stock splits and the liquidity in the case of the Nasdaq-100 index
Trading Stock and find that the average daily turnover before the split is 23.95 percentage and after
the split is 22.81percentage. T-test for the difference in mean failed to reject the hypothesis that the
turnover before the split comparing the number of traders before and after the split.
Mishra (2006) examines the market effect of stock splits, proves a negative effect on price and
return of stock splits, rejecting signalling hypothesis to which splits suggest positive information to
markets. Hence, stock splits have reduced the wealth of the shareholders.
Amitabh Gupta and Gupta O. P (2007) investigate that stock splits are associated with positive
abnormal returns around the announcement. Further, their investigation shows that there is no
announcement effect related with stock splits in India.
Shirur (2008) study the impact of bonus issue & stock splits during the period of 2006 to 2008 for
Indian Companies & find that market is not efficient and also support the Liquidity theory for stock
splits.
Webb & Yu Susana (2009) find positive significant demand from retail investors during the period
of 2000 to 2006 for ETF splits based on QQQ (Cubes i.e. ETF for Nasdaq 100 index).
Pooja (2013) finds no announcement effect for shareholders’ wealth and liquidity based on their
study of 27 companies for stock split announcement in India for the period of 2008 to 2009.
Malhotra, et. al. (2014) examine reduction in the liquidity ratio after the announcement is
evidenced, though insignificant. All the three liquidity measures seem to be inconsistent with the
enhanced trading liquidity expectation. The study supports Signalling Hypothesis and Cash
Substitution Hypothesis.
Theliteraturereview made here about the impact of the stock split announcements gives mixed
evidences of semi-strongform efficient market across the globe. The question of “how wealth
changes with announcements” remains unresolved because the studies’indicate both positive as
well as negative effects of announcements. The present study examines the change in shareholders’
wealth around stock split announcement in emerging sectors of the Indian economy (i.e. Banking &
IT Sectors) to investigate the stock market reaction using event study methodology. Moreover, this
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Contemporary Issues in Banking, Insurance and Financial Services
study uses both parametric and Non-parametric tests to examine the significant changes around
stock split announcement which helps in improving the results of the study.
RESEARCH OBJECTIVES & METHODOLOGY
Thepresentstudyisaimedtoempiricallyanalyzetheimpactofstocksplitannouncementonshareholder’swe
alth. This research is analytical & empirical in nature. The Event Study methodology which was
originally introduced by Ball & Brown (1968) & Fama et. al (1997) & Mackinlay (1997) and the
same has been applied in this study to determine abnormal returns, average abnormal returns &
cumulative average abnormal returns. To achieve the objectives, daily basis secondary data is used.
The data pertaining to stock prices and stock indices is sourced from Capitaline Data Base, BSE
website, NSE website, Money Control.com & related financial web sites. The time period for this
study is from January 2005 to December 2016. The analysis is done by taking sample of companies
listed onNSEfrom Banking &ITSectors.These sectorsareconsidered because of its major contribution
in GDP & major representative of BSE 500 and S&P CNX 500 Indices. In total, there were 44
stock split announcements by listed Banking & IT companies during the reference period. A
comparative analysis has been done for stock volatility during 10 days before event announcement
& 10 days after event announcement. The actual reruns of the stocks have been compared with
expected stock returns based on market Index (Nifty500). Market Model has been used to find the
extent of abnormal returns given by a stock in the event window of 21 days and with clean period
of 120 days. Event Window of 21 days and Estimation Period of 120 days is considered. Run up
windows is as under: -10;-1, -1;+1, -2;+2, -3;+3, -4;+4, -5;+5,-7;+7.
The descriptive statistics namely mean return, standard deviation of returns, Average Return
(AR), Average Abnormal Return (AAR), Current Average Abnormal Return (CAAR), and Market
Model based OLS Regression re worked along with Cross Sectional t-test, CDA t-test, Paired t-test
and Wilcoxon Paired Sample Signed Rank Test which were applied to draw inference about the
significance of returns. The study strives to test the following hypothesis:
H1:
Stock split Announcement creates shareholder’swealth.
i.e. AAR≠0 & CAAR≠0
H2:
There is significant difference between Average Abnormal Returns before and after
the announcement of stock split.
A brief of the Theoretical Framework for OLS Regression analysis and various tests is given
as under:
Independent variable: Stock Split Announcements Moderating variable: Share Prices
Dependent variables: Abnormal Returns, Average Abnormal Returns and Cumulative Average
Abnormal Returns Abnormal Return (AR), Average Abnormal Returns (AAR) and Cumulative
Average Abnormal Returns (CAAR) are
worked out asfollows:
ARit =Rit- αit-βi Rmt
Where, AR= Abnormal Returns R = Security Actual Returns
α = Constant value
β = Market Sensitivity to Security
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Contemporary Issues in Banking, Insurance and Financial Services
𝑛
1
𝐴𝐴𝑅𝑡 = ∑ ARit
𝑁
𝑖=1
Where, AAR = Average Abnormal Returns
N= No. of announcements in the sample
𝑇
𝐶𝐴𝐴𝑅𝑇 = ∑ AARt
𝑡=−10
Where, CAAR = Cumulative Average Abnormal Returns
Cross-Sectional Test
Test statistics are conducted to calculate the AAR and CAAR during the event window resulted
from the announcement of events. If calculated level of t-value of AAR or CAAR goes beyond the
critical t-value, the null hypothesis is rejected representing the significant impact of announcement
on the securities. It means it can be concluded that prices of security is inefficient in the market at
its semi-strong form. Brown and Warner (1985) explained that the cross-sectional test is subject to
event-induced volatility. Thus, the test has lowpower.
A simple test for testing H0: AAR=0 is given by
Where,
The Crude Dependence Adjustment Test (CDA)
This test is based on the single variance estimated from estimation window for each sample
company. After that all variances of sample companies are used to get the aggregate standard
deviation. This aggregate figure is used to discount the average abnormal returns and cumulative
average abnormal returns for testing of potential dependence of returns across the sample. Brown
and Warner (1980, 1985) explain that the test as Crude dependence adjustment test uses a single
variance estimate for the entire sample. To comprise the dependence across firms’ average
residuals, in event time, Brown and Warner (1980) propose that the standard deviation of average
residuals should be estimated from the time series of the average abnormal
returnsovertheestimationperiod.Estimationofpreeventstandarddeviationofdailyabnormalreturnscanbecalculatedfrom following formula:
AAR 
 i,ARpre

10
jt
120
n
367
pre
2
Contemporary Issues in Banking, Insurance and Financial Services

Where
i,pre = Standard deviation of abnormal returns of security i estimated from pre- event measurement
period.
n = Number of days in pre- measurement period
AARpre = Average of abnormal return of security i estimated from pre- event measurement period.
Aggregate pre- event standard deviation is computed as follows:N
N ,pre 
 i, pre
2
i1


N2
i, preis applied on AAR of each day. The t- test for AARs is as follows
AARt

t stat 
AARt
N,pre
For testing CAARs, The t –test formula is:-
CAARt t statistic =
CAARt
N,pre
Nt
Where ‘Nt’ = the absolute value of event day ‘t’ plus 1 (e.g. for event day -10, the absolute value is
10 and Nt=11). A testable hypothesisisset- H1: The null hypothesis being tested is abnormal returns
on & around events are less than ore qual to zero.If AARt/CAARt are greater than zero &
statistically significant it shows that the stock prices on an average reacted positively to event
announcement.Thus lead to raise the wealth of shareholders. If the t-test statistic is greater in
absolute value than1.64 or 1.96 or 2.58, the relevant abnormal return is statistically significant at
10% or 5% or 1%respectively.


PAIRED T TEST: As a parametric, this is used to test the significant difference between two
dependent samples taken from normal population with same distribution. T-test is based on the
assumption that variances of samples are equal. In paired sample t-test, every problem is considered
twice, resulting in pairs of interpretation.
𝑡=
x−μ0
s/√𝑛
Wilcoxon Paired Signed Rank Test: As nonparametric, this is used to test the significant
differences between two dependent samples from population with same distribution. This test
considers both direction and magnitude of differences.
RESULTS OF DATA ANALYSIS
‘Event study’ approach was applied to investigate the effect of Stock Split announcement on stock
returns in India’s stock market. The results are presented in table 1 about AAR, related t-statistics,
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Contemporary Issues in Banking, Insurance and Financial Services
for each day in the event window. The first column in the table 1 gives the event day while the
second gives the average abnormal returns (AAR) on the event day. The t – statistic values
corresponding to the AARs are given in the third and fourth columns.
Further the average abnormal returns were cumulated over the event window to assess the net
magnitude of the overall returns. The cumulative average abnormal returns (CAAR) for each day
during the day t(21) event window and their corresponding t-statistics are presented in further
columns of Table 1. The results indicated that CAAR was 2.321% on announcement day which is
found significant at 1% through CDA t-statistic. The pattern of results reveals that CAAR on 2ndday
prior to announcement till 2nd day after the announcement were found significant at 1% level of
significance. The table under reference shows that the null hypothesis of zero abnormal returns
during the event window is accepted.
Tables 1 show a pattern of positive average abnormal returns for six days and negative on four days
during the 10-day pre-announcement window, starting from day t(-10) to day t (-1). All the AAR
values were statistically insignificant except for 4th day prior to announcement at either 1% or 5%
level of significance when examined by different methods. ARR was seen nearly-0.09% on
announcement day t(0), which also resulted insignificant. However, during the post-announcement
window from day t(1) to day t(10), the pattern of positive AARs changed to negative pattern as the
same were negative for eight days and positive for only two days. Out of the negative eight days for
AARs, the day t(+3), t (+5) ) & t (+7) indicate constant and significant AAR at 1%, 5% & 10% level of
significance when examined by different methods. But, the positive AAR during post
announcement window proves to be insignificant. The decline in share prices were found
significant for 3 days out of 8 days declines. It may be inferred from the price behaviour emerging
after stock split that the announcement gave negative signal to investors but same results were not
significant.
Further the average abnormal returns were cumulated over the event window to assess the net
magnitude of the overall returns. The cumulative average abnormal returns (CAAR) for each day
during the day t(21) event window and their corresponding t-statistics are presented in Table 1. The
results indicated that CAAR was 2.321% on announcement day which is found significant at 1%
through CDA t-statistic. The pattern of results reveals that CAAR on 2ndday prior to announcement
till 2nd day after the announcement were found significant at 1% level of significance. The table
under reference shows that the null hypothesis of zero abnormal returns during the event window is
accepted.
The resulted CAAR is in continuation, CAAR values over various size event windows were calculated to
determine the important periods for investment perspective. The CAAR values and their corresponding tstatistic and Corrado's rank statistic values across these event windows are presented in Table 2. For preannouncement event windows (-10;-1) and (-1; 0) the CAAR values are 2.41% and 0.63% respectively. For
post announcement event windows there is higher return of 1.84% during smaller event window of nine days
i.e. (-4; +4) than other event windows. Parametric & non-parametric testing proved almost all returns as
insignificant. The AAR values of 0.034 percent on day t(-10), 0.589 percent on day t(-2), and 0.721 percent on
day t(-1) indicate that an investor can gain a substantial CAAR of 2.411 percent if the shares of the issuing
company are purchased ten days prior to the announcement day and sold one day before the announcement
day. The resulted values across almost all the windows are statistically insignificant indicating that the null
hypothesis of zero cumulative abnormal returns during this event window is accepted.
369
Contemporary Issues in Banking, Insurance and Financial Services
Table 1: AAR, CAAR and related test statistics for Stock Split Announcement
1
2
3
4
5
6
7
Event Window
AAR %
CS- t
CDA-t
CAAR%
Positive:Negative
-10
0.034
0.093
0.076
0.034
18:26
CDA tStatistic
0.023
-9
-0.157
-0.264
-0.353
-0.123
19:25
-0.087
-8
-0.011
-0.034
-0.026
-0.134
19:25
-0.101
-7
-0.099
-0.217
-0.223
-0.233
20:24
-0.186
-6
-0.328
-0.957
-0.737
-0.561
19:25
-0.477
-5
0.066
0.115
0.15
-0.494
22:22
-0.454
-4
1.545
**2.033
*3.477
1.051
22:22
1.057
-3
0.05
0.139
0.112
1.101
23:21
1.238
-2
0.589
1.176
1.326
1.69
24`:20
**2.195
-1
0.721
1.316
1.621
2.411
24`:20
*3.835
0
-0.09
-0.178
-0.203
2.321
25`:19
*5.220
1
-0.225
-0.493
-0.506
2.096
23:21
*3.334
2
-0.134
-0.296
-0.301
1.962
24`:20
*2.548
3
-0.823
**-2.023
***-1.851
1.139
21:23
1.281
4
0.204
0.47
0.459
1.343
19:25
1.351
5
-0.859
**-2.440
***-1.933
0.484
19:25
0.444
6
0.004
0.011
0.008
0.487
20:24
0.414
7
-0.741
**-2.088
***-1.666
-0.253
19:25
-0.201
8
-0.069
-0.219
-0.154
-0.322
20:24
-0.241
9
-0.333
-0.595
-0.75
-0.655
21:23
-0.466
10
-0.35
-0.663
-0.787
-1.005
21:23
-0.682
Average-OA
-0.048
Average-PRA
0.241
Average-POA
-0.311
* represents
significant at 1% level ofsignificance; ** represents significant at 5% level of
significance; *** represents significant at 10% level of significance
Table 2 CAAR across Various Run up Event Windows
Run Up Event Windows
-10 ;-1
-1; 0
-1;+1
-2;+2
-3;+3
-4;+4
-5;+5
-7;+7
-10;+10
%age CAAR
2.41
0.63
0.41
0.86
0.09
1.84
1.04
-0.12
-1.01
CDA
***1.6 (sign at .10)
0.8
0.5
0.8
0.1
1.3
0.7
-0.1
-0.5
Pre and Post stock split issue CAAR values were also worked out company-wise which are
370
Contemporary Issues in Banking, Insurance and Financial Services
presented in table 3. The table reveals 24 companies with positive values of CAAR and 20
companies with negative values in pre-announcement window, whereas in post stock split window
there are 18 with positive and 26 with negative CAARs. Average of CAARs during pre- stock split
and post-stock split announcement are found .024 and -.034 respectively. It means investors got
higher returns during pre-announcement than in post stock split announcement. It could be due to
information leakage for announcement. Post announcement negative CAAR conveyed a negative
signal to the market which failed to prove the signalling hypothesis.
S. No
Table 3:Company-Wise Pre and Post Announcement CAAR
Sample
Pre
Post CAAR S.N
Sample
Companies
CAAR
o
Companies
1
Federal 13
2
HDFC 11
3 Kotak Mahindra 10
4
SBT 08
5
City Union 07
6
South Indian 10
7 St Bank of Bikaner
08
8 St Bank of Mysore
08
9
Axis Bank 14
10
J & K Bank 14
11 Corporation Bank
14
12
Canara Bank 14
13
ICICI Bank 14
14 Punjab Natl.Bank
14
15 St Bk of India 14
16 Bank of Baroda 14
17 Karur Vysya Bank
16
18
KPIT Tech.
19
LCC Infotech
20 Hexaware Tech.
21 HCL Infosystems
22
Geometric
23 Cranes Software
24
Cyient
Pre
CAAR
0.043
-0.014
0.051
0.141
-0.036
0.106
0.046
0.054
-0.012
0.077
0.018
0.053
0.050
-0.108
25
26
27
28
29
30
31
KPIT Tech
ICSA (India)
TanlaSolutions
Tricom India
Take Solutions
Dynacons Sys.
FCS Software
Post
CAA
R
0.112 0.127
-0.040 -0.090
-0.092 -0.082
0.111 -0.157
-0.004 -0.013
0.115 -0.063
0.274 0.125
-0.076
0.058
32
Allied Digital
0.095
-0.123
0.013
-0.191
-0.026
0.034
-0.041
-0.094
33
34
35
KLG Systel
-0.147
Genesys Intl.
0.165
Redington India 0.028
-0.080
-0.059
0.006
-0.049
-0.033
0.032
-0.045
0.008
-0.030
36
37
38
Coral Hub
Glodyne Techno
Vakrangee
0.125
-0.048
0.265
-0.061
-0.493
-0.186
0.027
-0.002
-0.040
0.005
0.014
0.016
39
40
41
Zylog Systems
MPS Infotecnics
R Systems Intel
-0.031
0.173
-0.044
-0.049
0.080
-0.049
0.051
-0.078
0.063
0.064
0.013
-0.051
0.095
-0.092
-0.111
0.010
-0.008
-0.066
0.227
0.028
42
43
44
R S Software (I)
Tech Mahindra
8K Miles
Positive CAAR
Negative CAAR
Average CAAR
-0.176
-0.013
0.043
24
20
0.024
-0.186
-0.023
-0.170
18
26
-0.034
Also, a non-parametric test namely Wilcoxon Paired Signed Rank test was applied to check the
robustness of results. The outcomes of these two tests are presented in table 4. The table indicates
positive mean difference for referenced variables which refers that, the return and risk before stock
split announcement were higher than post announcement. However, the above mentioned null
371
Contemporary Issues in Banking, Insurance and Financial Services
hypothesis is rejected at 5 per cent for AAR; because p-value is more than 0.5. The same results as
given by paired t-test were obtained on the application of non-parametric test stated above as
depicted in same table 4. Thus, the above analysis offers that there was significant difference
between AAR during before and after the announcement.
Table 4: Paired t-test & Wilcoxon Paired Sign Test
PAIRS
Paired t-test
Wilcoxon Paired
Sign Test
Mean
T
p-value
T
Critical
Difference
Statistic
value
Before AAR - After
0.574
2.421 **0.039
N=10; 8 @ 5%
AAR
T= 6
for
n=10
**Significant at 5%.
Acceptance/
Rejection of
null
hypothesis
Rejected
CONCLUSION
The present paper was aimed to analyse the Shareholders’ wealth on and around the announcement
of stock split in India. For this a sample of 44Banking & IT stock split announcements during the
period of January 2005 to December 2016 were considered. The results indicate that stock split
announcement does not affect the wealth of shareholders. ARR was seen nearly -0.09% on
announcement day t(0),which also resulted insignificant. However, during the post-announcement
window from day t(1) to day t(10), , the positive AAR proves to be insignificant. The decline in share
prices were found significant for 3 days out of 8 days declines. It may be inferred from the price
behaviour emerging after stock split that the announcement gave negative signal to investors but
same results are not significant. The resulted CAAR was 2.321% on announcement day which is
found significant at 1% through CDA t-statistic.
Due to insignificant negative AAR & CAAR after the announcement; stock split conveys negative
signal to the market. Thus, it has been concluded that Indian stock market is efficient in semistrong form. The result “Increasing trend of AAR before the announcement and decreasing trend of
AAR after the announcement” shall be tested with effect of insider trading through strong form of
Market efficiency. Moreover Signalling hypothesis fails to prove positive signal of stock split to the
market.






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Contemporary Issues in Banking, Insurance and Financial Services
Intellectual Capital Performance of CNX Nifty Companies
Ms. Suman, Ph.D. Scholar (UGC - JRF),
Email: sumanmann1115@gmail.com
Dr. Satpal, Associate professor,
Dept. of Management Studies, DCRUS&T, Murthal, Sonipat, Haryana, India
Abstract
As compared to physical assets, the value of financial assets has increased exponentially in recent years,
showing that intangibles are becoming more important in terms of contributing to economic growth. The
growing disparity between stock and book valuations of companies provides evidence for this phenomenon.
The aim of this study is to assess the intellectual capital (IC) of publicly traded companies in India over a
three-year period (2017-2019). Financial services, mining, and electricity companies had the highest VAIC
ratings, according to the results. Study found interesting result is that 70% of the sample companies are bad
performers, with an average VAIC score of less than ten. The results of this study are very promising, and
they may be of particular interest to politicians, business leaders, and academics. When IC development is
aligned with national priorities and accounted for in national accounts, it can often contribute to better policy
execution.
Keywords: Intellectual Capital, Performance Analysis, value added intellectual coefficient model, India
INTRODUCTION
In the modern era of the information economy, intangible assets (intellectual assets) are seen as significant
sources of competitive advantage and primary determinants of firm value. In order to create value more
efficiently, companies are increasingly relying on intangible assets rather than tangible assets (financial
capital). In this information period, efficient management of intangible assets (intellectual capital) is much
more important to gain a competitive advantage. Intellectual capital is also advantageous because it helps
businesses raise profitability by allowing them to better use intangible resources over tangible resources.
According to Goh (2005)”though physical resources is necessary for the knowledge-intensive industries to
operate in this competitive era but it is intangible assets (resource) that provide the best quality of services to
the consumers and customers” (p.386).
The concept of IC still being an evolving field of research, there is a problem of plurality in its definition and
in measurement. Intellectual capital comprises of knowledge, competency, experience, skills, computer
programmes and all other non physical or intangible resources of an organization. Some important
definitions are-“Intellectual Capital is the sum of everything every-body in a company knows that gives it a
competitive advantage” (Stewart, 1997; cited in Ruckdeschel, 1998); Intellectual Capital is the “intellectual
material – knowledge, information, intellectual property, experience – that can be put to use to create
wealth” (Stewart, 1997; cited in Ruckdeschel, 1998); “IC consists knowledge, skills, innovations, hidden
assets which are not fully recorded on the balance sheet of a company and thus includes what is in the head
of companies employees and what is retained by the organization when they leave”(Ross et al.,1997).
Mouritsen et al. (2002) “IC is not a conventional accounting or economic term. It may be an effect; it may be
a departmental strategy; it may be a Mathematical formula”. Rastogi (2003) IC may be accurately viewed as
“the holistic or meta-level capabilities of an enterprise to coordinate, orchestrate, and deploy its knowledge
resources towards creating value in pursuit of its future vision”.Zeghal and Maaloul (2010) “IC is the sum of
all knowledge a company is able to use in the process of conducting businesses to create value for the
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Contemporary Issues in Banking, Insurance and Financial Services
company”. Lee (2010) IC is “the resource that comes from the knowledge, experience and transferable
competencies of its staff, from the organization’s ability to innovate and manage change, from its
infrastructure, and from relationships between stakeholders and partners”. Gavious and Russ (2009) IC is
“the enhanced value of a firm attributable to assets, generally of an intangible nature, resulting from the
companies’ organizational function, processes and information technology networks, the competency and
efficiency of its employees and its relationship with its customers”.
Since the analysis is being performed in the sense of Indian companies, it is appropriate to identify
intellectual assets according to Indian accounting standards. As per AS26, “An intangible asset is an
identifiable non-monetary asset, without physical substance, held for use in the production or supply of
goods and services, for rental to others, or for administrative purpose”. In this analysis, the performance of
intangible properties (intellectual assets) of Nifty companies listed on the NSE was evaluated. The study also
aims to determine which portion of intellectual capital (intangible assets) is the most significant indicator of
a firm's success.
The remnants of the paper is organised as follows: the second section describes the literature review and
explains the research gap. The study's objectives were explained in the third section. The research approach
used in this study is described in the fourth section, followed by the findings and interpretation, and the
study's conclusion is described in the fifth section. The research consequences are depicted in the sixth
section, and the limitations are clarified in the final section, along with the potential scope for further
research.
REVIEW OF LITERATURE
Several analytical studies on the subject of intellectual assets (IC) and the evaluation of their efficiency
performance in India and abroad have been illustrated. Firer and Stainbank (2003) explored the correlation
between value added efficiency and traditional measures of performance of 65 companies scheduled on the
JSE Securities and discovered a favorable connection between IC and profitability (ROA) and productivity
(ATO). Mavridis (2004) used the VAIC technique to analyse the value-based performance of 141 Japanese
banks and discovered that banks that use more intellectual capital (human capital) than physical capital have
the best value added coefficient. In a similar vein, Goh (2005) discovered that foreign banks are more
efficient than Malaysian domestic banks in terms of value added coefficient. Muhammad and Ismail (2009)
examine the performance of 18 Malaysian financial sector companies' intellectual capital and conclude that
the banking sector is more effective in terms of using intellectual capital than the other financial sectors
(insurance and security brokerage firms). Ting and Lean (2009) utilized the value added coefficient proposed
by Pulic to assess the value-based performance of the Malaysian financial sector, and the findings show that
the best performing financial institutions relied more on intellectual capital than tangible capital (physical
capital). Joshi et al. (2010) use VAIC methodology to scan the efficiency of intellectual capital in 11
Australian banks, concluding that some banks depend more on human capital efficiency (HCE) than physical
capital and systemic capital efficiency. Joshi et al. (2013) utilize the value added intellectual coefficient
(VAIC) paradigm to explore the relation between value added efficiency, its attributes, and financial sector
performance in Australia. They discovered that there is no connection between intellectual capital
performance and business performance (in terms of ROA) and that performance is heavily influenced by
human capital efficiency. Musali and Ismail (2014) conclude that Saudi banks invest very little in intellectual
ability (assets), resulting in very low IC performance. Similarly, Zia ul Haq (2014) examined the intellectual
capital output of 21 commercial Pakistani banks and discovered that private sector banks use their
intellectual capital more efficiently than government banks. Ulum (2014) used the MVAIC model to assess
the efficiency of Indonesian banks' intellectual resources, concluding that state banks outperform private
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Contemporary Issues in Banking, Insurance and Financial Services
banks in terms of IC usage. All financial sector businesses, according to Ahmad and Ahmed (2016), depend
more on human capital efficiency than physical and systemic capital efficiency.
According to Buallay (2017), the performance of intellectual capital is higher in companies with higher
performance. Ozkan et al. (2017) explored the IC performance of 44 Turkish banks and found that bank
profitability (ROA) is unaffected by intangible asset investments, and that bank performance is primarily
determined by capital employed efficiency rather than structural capital. Chowdhury et al. (2018) argue that
human capital has a greater effect on textile companies' overall intellectual capital performance than other
capital efficiency steps. According to Mohammed and Irbo's (2018) report, the IC performance of selected
banks has decreased over time (from 20.70 to 5.63 in terms of VAIC score). Recently, Bayraktaroglu et al.
(2019) attempted to improve and modify the original value added coefficient methodology by adding some
new and lacking intangible assets (capital) components, and discovered that as companies raise R&D
expenditures, the impact of structural capital on market efficiency (profitability) in Turkish manufacturing
firm’s increases as well.
In India, Kamath (2007) utilized value added coefficient methodology (VAIC) to calculate the intangible
asset efficiency of the Indian banking sector from 2000 to 2004 and discovered that foreign banks
outperform domestic banks in terms of value added performance. Kamath (2008) were using the value added
intellectual coefficient (VAIC) model to estimate the value of intellectual capital in the Indian
pharmaceutical industry over a ten-year period, from 1996 to 2006. According to the VAIC ranking,
domestic companies are better at utilising their intellectual resources (IC) than foreign companies. In terms
of value-based performance, Kamath (2010) evaluated the performance of intellectual capital of private
sector banks in India over a five-year period (2002-2007) and found that HDFC bank, UTI bank, and ICICI
bank are the best performers, while Ratnakar bank, Lord Krishna bank, and Sangli bank are the worst
performers (IC efficiency). Mondal and Ghosh (2012) found that value creation efficiency has a positive and
significant impact on profitability (ROA) (ROE) and productivity (as measured by ATO). The study shows
that investment in intellectual capital and its determinants, especially human capital, has a positive and
significant impact. In comparison to other IC determinants, structural capital plays the smallest role in
improving business efficiency. Profitability and investment in intellectual capital are positively linked,
according to Shaban and Kavida (2013), and CEE indicates a strong and important relationship. Datta and
Ahmed (2015) assessed the value added performance of 50 Indian public sector enterprises and discovered
that the value added coefficient has no impact on earnings per share.
Purohit and Tandon (2015) found no significant relationship between business profitability (ROA) and value
added efficiency (VAE). On the other hand, they discovered that investing in intellectual capital helps firms
increase their productivity (ATO) and market value (M/B) in a positive and significant way. Furthermore,
Kamath (2015) utilises the VAIC methodology to determine the value added coefficient and finds that the
service sector is more efficient in terms of IC than the manufacturing sector. Tandon et al. (2016) analysed
the efficiency of CNX Nifty firms' intellectual capacity (assets) and discovered that the VAIC score of
financial services, mining, and energy firms is higher than the other Nifty sectors, indicating a positive and
important relationship between value added and corporate success. Singh et al. (2016) conducted a
comparative analysis of Indian public and private sector banks, comparing the intellectual capital output of
selected banks, and discovered that private sector banks had higher intellectual capital efficiency than public
sector banks. In India, Mohapatra et al. (2019) discovered that private banks are more effective than public
banks in terms of average performance ranking. and more Weqar and Haque (2020) examined the
performance of intellectual capital in central public sector companies and discovered that, over a nine-year
span, human efficiency played a momentous role in improving the output of selected companies (20092018).
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Contemporary Issues in Banking, Insurance and Financial Services
According to the preceeding literature studies, few studies have been conducted in India, and the majority of
the studies are sector/industry specific (banking sector, IT sector, pharmaceutical sector, healthcare sector,
central public sector, etc.) by various scholars (Kamath, 2015; Maji and Goswami, 2016; Weqar and Haque
2020), and there is a gap (Nifty companies). To close this gap, an pragmatic analysis of the intellectual
capital performance of CNX Nifty companies is needed.
OBJECTIVES OF THE STUDY
To analyze the factors of intellectual capital for the period 2016-17 to 2018-19 using a pulic original model
(VAIC) and to assess the performance of intellectual capital of selected Indian companies for the period
2016-17 to 2018-19.
RESEARCH METHODOLOGY
Data Collection and Sample: The current study's sample data is entirely based on secondary data, which
was collected from a diversity of sources, including annual reports (especially P&L accounts and balance
sheets) of the respective sample companies, as well as the Prowess database, over a three-year period
spanning 2016-17 to 2018-19. The NIFTY 50 companies that are represented by CNX Nifty are the sample
for this analysis. The CNX Nifty is a diversified stock index that represents the Indian economy's 13 major
sectors.
Value added intellectual coefficient: To measure the performance of intellectual capital in selected firms,
this study used the value added intellectual coefficient (VAICTM) and its three essential elements
(components), namely HCE, SCE, and CEE. Ante Pulic (1998, 2000) created the value added intellectual
coefficient methodology, which details the value creation efficiency of a firm's assets (tangible and
intangible). The data for the estimation of the value added coefficient is collected using annual financial
statements (VAIC). Many previous studies (Clarke et al., 2011; Soriya and Narwal, 2012; Maji and
Goswami, 2016; Mohammed and Irbo, 2018) have used this approach to assess a company's value creation
performance (IC). To begin, we use the following equation to determine value added.
Value added (VA) = OUTPUT- IN
Where,
OUTPUT = total revenue generated by a firm
IN = total of all operating expenses (except employees cost) which is not well thought-out as cost (Clarke et
al., 2011; Maji and Goswami, 2016)
This study calculates value added by utilizing following formula:
Step 1
Value added (VA) = W+I+T+NI
........………………………. (1)
Where,
W = total wages and salaries of the employees
I = interest expenses
T = corporate taxes
NI = profits after taxes
In next step, we calculate the components of value added coefficient (HCE, SCE & CEE) by applying
following formula:
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Contemporary Issues in Banking, Insurance and Financial Services
Step 2
Human capital efficiency (HCE) = VA/HC
………………………………….. (2)
Where,
Human capital (HC) includes overall wages and salaries of the employees of a firm and it is considered as an
investment instead of cost for the firm (Nazari and Herremans, 2007).
Step 3
Structural capital efficiency (SCE) = SC/VA
…. ……………………………… (3)
Where,
Structural capital (SC) is defined as the difference between value added and human capital.
SC = VA-HC
Step 4
Now we calculate the capital employed efficiency of a firm by using the following equation.
Capital employed efficiency (CEE) = VA/CE
………………………………… (4)
Where,
Capital employed (CE) is the book value of the net assets of the firm. It can also be calculated by applying
the following equation (Mohammed and Irbo, 2018)
CE = Total assets – intangible assets (TA-IA)
Step 5
After calculating all the determinants (HCE, SCE & CEE) of the intellectual capital (VAIC), finally we
calculate the overall value added intellectual coefficient by utilizing the following equation:
VAIC = HCE+SCE+CEE
………………………………………. (5)
ANALYSIS AND RESULTS
Table 1 shows the average VAIC scores of the sample companies from 2016-17 to 2018-19. The companies
are ranked according to their VAIC values, from largest to smallest. Top performers (VAIC greater than 30),
normal performers (VAIC greater than 10 but less than 30), and weak performers (VAIC less than 10) are
the three groups. ICICI Bank, IDFC Ltd and Coal India are among the crest performers in terms of IC ranks,
accounting for 12% of the sample firms. In terms of IC performance, about 16% of companies perform
below average.
Table 1.Measurement of VAIC and Its dimensions (Average score of CNX Nifty companies: 2016-17 to
2018-19)
Company Name
1 ICICI Bank Ltd
2 IDFC Ltd
3 Coal India
4 NMDC Ltd
5 DLF Ltd
VAIC
56.80
51.19
37.85
34.91
32.21
378
CEE
0.07
0.10
0.31
0.49
0.11
HCE
55.75
50.79
36.58
33.45
31.14
SCE
0.98
0.30
0.97
0.97
0.96
Performance
Top performers
Top performers
Top performers
Top performers
Top performers
Contemporary Issues in Banking, Insurance and Financial Services
6 Sesa Sterlite Ltd
7 GAIL (India) Ltd
8 Reliance Industries Ltd
9 Indusind Bank Ltd
10 Axis Bank
11 Jindal Steel & Power Ltd
12 Cairn India
13 Bajaj Auto
14 ITC Ltd
15 Bank of Baroda
.16 Hindustan Unilever Ltd
17 Oil & Natural Gas Corp. Ltd
18 Ultra tech Cement Ltd
19 Power Grid Corp. of India Ltd
20 HDFC Bank
21 Ambuja Cements Ltd
22 NTPC Ltd
23 Punjab National Bank
24 HDFC Bank Ltd
25 Housing Development Finance Corp. Ltd
26 Bharti Airtel
27 Sun Pharmaceutical Industries Ltd
28 Tata Power Co. Ltd
29 Maruti Suzuki India Ltd
30 Hero Motorcycles
31 Grasim Industries
32 Asian Paints Ltd
33 Kotak Mahindra Bank Ltd
34 Tata Steel Ltd
35 Hindalco Industries Ltd
36 ACC Ltd
37 Cipla
38 Bharat Petroleum
39 Lupin Ltd
40 Larsen & Toubro Ltd
41 Mahindra & Mahindra Ltd
42 United Spirits Ltd
43 Bharat Heavy Electricals
44 Dr. Reddy’s Laboratories
45 Tata Consultancy Services Ltd
46 Tata Motors Ltd
47 Infosys Ltd
48 HCL Technologies
49 Tech Mahindra Ltd
50 Wipro Ltd
Source: Computed by the authors.
29.20
15.45
14.16
13.70
13.02
12.95
12.80
11.52
11.34
10.88
9.92
9.38
9.28
9.22
9.08
9.05
9.00
8.86
8.72
8.65
8.28
8.27
8.15
7.90
7.01
6.95
6.87
6.55
6.43
6.31
6.17
5.84
5.51
4.82
4.71
4.65
4.48
4.37
4.23
3.32
3.25
3.16
3.08
3.01
2.72
379
0.43
0.22
0.13
0.08
0.07
0.15
0.14
0.61
0.44
0.06
2.19
0.32
0.21
0.10
0.08
0.28
0.14
0.15
0.07
0.11
0.21
0.16
0.11
0.22
0.65
0.21
0.74
0.09
0.17
0.11
0.27
0.27
0.15
0.35
0.28
0.32
0.17
0.90
0.23
2.39
0.17
0.87
0.69
0.93
0.77
27.82
14.31
13.11
12.70
12.03
11.90
11.74
9.35
9.99
9.94
5.41
8.18
8.21
8.24
1.91
7.91
7.99
7.86
7.79
7.67
7.22
7.32
7.18
6.85
8.13
5.93
5.33
5.65
5.45
5.67
5.12
4.80
4.61
3.75
3.71
3.62
3.61
3.24
3.34
1.78
2.51
2.22
1.91
1.69
1.58
0.95
0.92
0.92
0.92
0.92
0.89
0.93
1.56
0.91
0.88
2.32
0.88
0.85
0.87
7.09
0.86
0.87
0.85
0.87
0.86
0.85
0.79
0.86
0.83
-1.77
0.82
0.80
0.81
0.81
0.52
0.78
0.76
0.74
0.72
0.72
0.72
0.70
0.23
0.66
-0.84
0.56
0.08
0.47
0.39
0.37
Top performers
Average performers
Average performers
Average performers
Average performers
Average performers
Average performers
Average performers
Average performers
Average performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Poor performers
Contemporary Issues in Banking, Insurance and Financial Services
Financial services, mining, and energy firms have shown to have the preeminent outcomes. The results
reveal some fascinating information, dispelling the misconception that IC is only applicable in knowledgeintensive industries like IT, pharmaceuticals, and banking. However, some of the top IT companies have the
lowest VAIC ratings. The findings are in line with a recent study by Tandon et al. (2016), which looked at
the IC performance of 30 companies listed on the Bombay Stock Exchange (BSE). Another interesting result
is that 70% of the sample companies are bad performers, with an average VAIC score of less than ten. This
makes a compelling argument for these companies' IC output to increase. Finally, HCE is found to be a
significant constituent of VAIC, demonstrating the significance of human assets in the value creation
process.
CONCLUSION
Management of IC may provide considerable benefits to a company, including assisting in the development
of business strategy, process design, and competitive advantage. Due to the value of IC, the current study
used Pulic's VAIC technique to quantify the IC of publicly traded companies in India for the span of three
years (2016-17 to 2018-19). Study found interesting result is that 70% of the sample companies are bad
performers, with an average VAIC score of less than ten. This makes a compelling argument for these
companies' IC output to increase. At last, HCE is found to be significant dimensions of VAIC, demonstrating
the significance of human assets in the value creation process.The results of this study are very promising,
and they may be of particular interest to politicians, business leaders, and academics. When IC development
is aligned with national priorities and accounted for in national accounts, it can often contribute to better
policy execution.Future research should concentrate on defining and analyzing the current IC measurement
techniques used by Indian businesses. Alternative IC quantity methods may also be tested in order to find a
widely applicable standardised measurement process.

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