ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

TECHNOLOGICAL IMPLEMENTATIONS-PATH OF GROWTH: A COMPARATIVE

STUDY OF PUBLIC AND PRIVATE SECTOR BANKS
DR. BIMAL ANJUM
Professor& Head of Department
Department of Business Administration
RIMT-IET, Mandi Gobindgarh, Punjab
DEEPIKA
Research Scholar, PTU

Punjab

ABSTRACT

Technology has been one of the most important factors for the development. Information and
communication technology is the major advent in the field of technology which is used for
access, process, storage and dissemination of information electronically. Indian Banking
industry is fast growing with the use of technology in the form of ATMs, on-line banking,
Telephone banking, Mobile banking etc., plastic card is one of the banking products that cater to
the needs of retail segment has seen its number grow in geometric progression in recent years.
This growth has been strongly supported by the development of in the field of technology. The
Paper is concerned with the Comparative study of the Profitability of the Indian Banking Sector
,and the impact of Technological Investment on the Profitability of the Public and Private Sector
Banks for three financial years i.e 2009,2010 and 2011. The information processed and analyzed
is based upon the Various Reports of the Indian Banking Association (IBA).

in the international market with respect to technology and therefore most banks are still looking
at investing in IT. PricewaterhouseCoopers (PwC) in its recent report has revealed that most
banks in India have expressed it is the right time to invest in technology. Almost 55% of the
banks PwC spoke to, feel that it is the right time to invest in technology while 27% want to wait
till the downturn and 18% felt technology warrants investments irrespective of downturn.
The banking sector in India is spending about 46% of its technology budgets on business
continuity. While 32% are being allocated to adding new products, product functionality or new

34

INTRODUCTION: The banking sector in India has a long way to go to match up with its peers

www.indianresearchjournals.com

KEYWORDS: Technology, growth, profitability, trend analysis

______________________________________________________________________________

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

features and 22% is being spent on new technology that will change business process. According
to the report, the core issues being faced by the banking sector are identifying and retaining good
clients, managing customer services expectations, optimizing operational costs and beating
competition. The PwC report suggests that banks should take up automation that will have a
combination of centralized networks, operations and a core banking application and will enable
banks to offer 24X7 services using lesser manpower. Moreover, the banks need to look at
business intelligence (BI), business process re-engineering and customer relationship
management (CRM) that caters to operational and analytical businesses.
N Chandrashekaran, chairman, CII BANKing Tech Summit 2009 and COO & ED at Tata
Consultancy Services, said, It is important for the banks to adapt new technologies that can
brings down the cost of transactions and at the same time bring business continuity .
In the world of banking and finance nothing stands still. Apart from traditional business, banks
now a days provide a wide range of services to satisfy the financial and non financial needs of all
types of customers from the smallest account holder to the largest company and in some cases of
non customers.
RESERVE BANK'S EARLY INITIATIVES
As a central bank in a developing country, the Reserve Bank of India (RBI) has adopted
development of the banking and financial market as one of its prime objectives. "Institutional
development" was the hallmark of this approach from 1950s to 1970s. In the 1980s, the Reserve

technology is the key for improving in productivity, the Reserve Bank took several initiatives to
popularize usage of technology by banks in India.
Periodically, almost once in five years since the early 1980s, the Reserve Bank appointed
committees and working Groups to deliberate on and recommend the appropriate use of
technology by banks give the circumstances and the need. These committees are as follows:
-Rangarajan committee -1 in early 1980s.

www.indianresearchjournals.com

Bank focused on "improvements in the productivity" of the banking sector. Being convinced that

35

-Rangarajan committee -11 in late 1980s.

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

-Saraf working group in early 1990s.

-Vasudevan working group in late 1990s.
-Barman working group in early 2000s.
Based on the recommendations of these committees and working groups, the Reserve Bank
issued suitable guidelines for the banks in

1980s, usage of technology for the back office

operations of the banks predominated the scene. It was in the form of accounting of transactions
and collection of MIS. In the inter-bank payment systems
Two momentous decisions of the Reserve Bank in the 1990s changed the scenario for ever there
are:
a) The prescription of compulsory usage of technology in full measure by the new private sector
banks as a precondition of the license and
b) The establishment of an exclusive research institute for banking technology institute for
development and Research in Banking Technology.
As the new private sector banks came on the scene as technology-savvy banks and offered
several innovative products at the front office for the customers based on technology, the
demonstration effect caught on the reset of the banks. Multi channel offerings like machine
based (ATMs and pc-Banking), card based (credit/Debit/Smart cards), Communication based

in India. The IDRBT has been instrumental in establishing a safe and secure, state of the art
communication backbone in the form of the Indian Financial NETwork (INFINET) as a closed
user group exclusively for the banking and financial sector in India.
CHANGING FACE OF BANKING SERVICES
Liberalization brought several changes to Indian service industry. Probably Indian banking
industry learnt a tremendous lesson. Pre-liberalization, all we did at a bank was deposit and
withdraw money. Service standards were pathetic, but all we could do was grin and bear it. Post-

www.indianresearchjournals.com

(Tele-Banking and Internet Banking) ushered in Anytime and Anywhere Banking by the banks

36

liberalization, the tables have turned. It's a consumer oriented market there.

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Technology is revolutionizing every field of human endeavor and activity. One of them is
introduction of information technology into capital market. The internet banking is changing the
banking industry and is having the major effects on banking relationship. Web is more important
for retail financial services than for many other industries.
Retail banking in India is maturing with time, several products, which further could be
customized. Interest rates are coming down and market has seen some innovative products as
well. Other retail banking products are personal loan, education loan and vehicles loan.

REVIEW OF LITERATURE
Ballabh (2001) analyzed challenges in the post-banking sector reforms. With globalization and
changes in technology, financial markets, world over, have become closely integrated. For the
survival of the banks, they should adopt new policies/strategies according to the changing
environment.
Kumar (2006) studied the bank nationalization in India marked a paradigm shift in the focus of
banking as it was intended to shift the focus from class banking to mass banking. Internationally
also efforts are being made to study causes of financial inclusion and designing strategies to
ensure financial inclusion of the poor disadvantaged. The banks also need to redesign their
business strategies to incorporate specific plans to promote financial inclusion of low income
group treating it both a business opportunity as well as a corporate social responsibilities.
Financial inclusion can emerge as commercial profitable business.

shift in scope, content, structure, functions and governance. The information and communication
technology revolution is radically and perceptibly changing the operational environment of the
banks.
Madhavankutty (2007) concludes the banking system in India has attained enough maturity and
is ready to address prudential management practices as comprehensively as possible, which an
integral part of policy is making. Banking in India is poised to enter yet another phase of reforms
once the door opens further to foreign players in 2009. This requires further improvement in
technology management, human resource management and the ability to foresee rapid changes in

www.indianresearchjournals.com

Laxman, Deen and Badiger (2008) examined that banking industry is undergoing a paradigm

37

the financial landscape and adopt quickly. At present, there is a huge hiatus between the top

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

management earnings of state owned banks and private, as well as foreign banks. Banks have to
lay down sound risk management strategies and internal capital adequacy assessment committees
to ensure that they do not diverge from the prudential requirements.
Nair (2006) discusses the future challenges of technology in banking. The author also point out
how IT posses a bright future in rural banking, but is neglected as it is traditionally considered
unviable in the rural segment. A successful bank has to be nimble and agile enough to respond to
the new market paradigm and ineffectively controlling risks. Innovation will be the key
extending the banking services to the untapped vast potential at the bottom of the pyramid.
Singh (2003) analyzed profitability management of banks under the deregulated environment
with some financial parameters of the major four bank groups i.e. public sector banks, old private
sector banks, new private sector banks and foreign banks, profitability has declined in the
deregulated environment. He emphasized to make the banking sector competitive in the
deregulated environment. They should prefer non-interest income sources.
Singla (2008) examines that how financial management plays a crucial role industrialists growth
of banking. It is concerned with examining the profitability position of the selected sixteen banks
of banker index for a period of six years (2001-06). The study reveals that the profitability
position was reasonable during the period of study when compared with the previous years.
Strong capital position and balance sheet place. Banks in better position to deal with and absorb
the economic constant over a period of time.
Shroff (2007) gives a summary of how Indian banking system has evolved over the year. The
paper discusses some issues face by these systems. The author also gives examples of

system.
Subbaroo (2007) concludes the Indian banking system has undergone transformation itself from
domestic banking to international banking. However, the system requires a combination of new
technologies, well regulated risk and credit appraisal, treasury management, product
diversification, internal control, external regulations and professional as well as skilled human
resource to achieve the heights of the international excellence to play its role critically in meeting
the global challenge.

38

technology and product innovations is bringing about structure change in the Indian banking

www.indianresearchjournals.com

comparable banking system for other countries and the lesson learnt. The application of

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Uppal and Kaur (2007) analysis the efficiency of all the bank groups in the post banking sector
reforms era. Time period of study is related to second post banking sector reforms (1999-2000 to
2004-05). The paper concludes that the efficiency of all the bank groups has increased in the
second post banking sector reforms period but these banking sector reforms are more beneficial
for new private sector banks and foreign banks.
DATA ANALYSIS
The Improved Technology and the huge Investment in Technology leads the Indian Banking
Industry to the new highs but on the other hand cut throat competition forces it to strike
balance between the Expenditures and the Income .So here we are having some important
indicators of profitability by which we will analyze how far the Indian Banking Sector is able to
manage it and whats the picture if we compare the public and Private sector banks on the basis
of management of their Profitability.
Table No.1.1

Banks /Particular and

Years

2009

2010

2011

Changes in
2009-10
(%)

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

Nationalised Banks

34078

38961

51565

4883

14.33%

12604

32.35%

SBI and Associates

20088

25283

29146

5195

25.86%

3863

15.28%

Public Sector Banks

55504

66075

82965

10571

19.05%

16890

25.56%

Private Sector Banks

3939

4715

5600

776

19.70%

885

18.76%

New Private Sector Banks

17840

18136

22006

296

1.66%

3871

21.34%

Total Private Sector Banks

21779

22851

27606

1072

4.92%

4755

20.81%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

With the increased investment in technology the Operating Expenditures had undergone a significant
Change .In case of Nationalized Banks where there was much scope of technological investments this
percentage is increasing more than double with effect from financial year 2010-11. SBI and its
Associated had followed the same trend in the year 2009-10.Overall public Sector Banks had a increase
of 49.47% from the year 2009 to 2011. The percentage is again very high in case of New Private Sector
Banks and Total Private Sector Banks Showing the impact of Technological Investment in Indian Banking
Sector.

www.indianresearchjournals.com

(Crores)

39

Operating Expenditures

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Table No.1.2
Total Expenditure

(Crores)

Banks /Particular

2009

2010

2011

Changes in
2009-10

Nationalized Banks
SBI and Associates
Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

155449
81858
248950
16773

171667
91511
278015
18791

201428
96164
314118
20368

16218
9653
29065
2018

61964

55265

64354

78737

74057

84722

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

11.79%
11.67%
12.03%

29761
4653
36103
1577

17.34%
5.08%
12.99%
8.39%

-6698

-10.81%

9088

16.45%

-4680

-5.94%

10665

14.40%

10.43%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

Total Expenditures followed by the Operating Expenditures had shown the same trend. Again the
Nationalized Banks are leading all Banks in 2010-11 with an increase of 17.34% as compare to 2009-10
with 10.43%. However there was decline in the total expenditures in Private sector banks in the year
2009-10 .Public Sector Banks have shown continue increase in expenditures with 12.99% in 2010-11 as
compared to 11.67% in last year.Private sector banks have shown a tremendous increase in 2010-11
with increase of 14.04% as compared to 2009-10.

Table No.1.3
Provisions and Contingencies

2010
2011

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

Nationalized Banks

20198

23506

31616

3308

16.38%

8110

34.50%

SBI and Associates

11515

12403

21041

889

7.72%

8638

69.64%

Public Sector Banks

32231

37604

55165

5372

16.67%

17561

46.70%

Private Sector Banks

New Private Sector
Banks
Total Private Sector
Banks

2390

2545

2858

156

6.51%

313

12.29%

10937

13516

12261

2579

23.58%

-1255

-9.28%

13327

16061

15119

2734

20.52%

-942

-5.87%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

Increased Contingencies had made the Profitability picture vague in case of SBI and Associates in the
year 2010-11.However it was nominal in the last year .Improved Technology leads to uncertainty
because of complicacies involved as shown in case of Public sector banks with increase in it by
46.70%.However the same % is decreasing in the case of Private Sector Banks with total decrease of
5.87% .

www.indianresearchjournals.com

2009

40

Banks /Particular

(Crores)

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Table No.2.1
Net Profit (Crores)
Banks
/Particular

2009

Nationalized Banks

21618

SBI and Associates

Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

2010
2011

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

25793

31388

4175

19.31%

5595

21.69%

11896

12433

11863

537

4.51%

-570

-4.58%

34373

39257

44901

4884

14.21%

5644

14.38%

2409

2312

3101

-97

-4.01%

789

34.11%

8459

10799

14610

2340

27.67%

3811

35.29%

10868

13111

17712

2244

20.65%

4600

35.09%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

Public Sector Banks have shown a tremendous growth of 21.69% in 2010-11 .New Private Sector Banks
Net Profit Increased with 35 % in the year 2010-11 as compare to 2009-10. However the SBI Group is
following the reverse trend showing the decline of 4.58% in the Profit Margin as compared to the
financial year 2009-10.But the Overall Growth of Public and Private Sector banks Shows the Positive
Impact of Improved technology on the Profitability of Indian Banking Sector.

Table No.2.2

Nationalized Banks
SBI and Associates
Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

2009

2010

2011

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

7.47
6.98
8.11
5.86

8.90
7.23
9.67
6.57

10.90
8.55
11.53
7.09

1.43
0.25
1.56
0.71

19.15%
3.56%
19.24%
12.14%

2.00
1.33
1.86
0.52

22.48%
18.35%
19.23%
7.87%

7.44

8.47

9.80

1.03

13.80%

1.33

15.68%

6.37

7.18

7.95

0.81

12.72%

0.77

10.72%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

Technological changes leads the nationalized banks on the path of improved business per employee in
case of nationalized banks followed by New Private Sector banks.There is increase of 22.48% as
compared to last year .SBI and associates also following the same way with the increase of 18.35%
against 3.56% of last year.However there is decline in case of private sector banks of as compared to last
year

41

Banks
/Particular

www.indianresearchjournals.com

Business Per Employee (Crores)

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Table No.2.3

Profit Per Employee (Crores)

Banks /Particular

2009

2010
2011

Nationalized Banks
SBI and Associates
Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

4.48
4.39
4.68
5.22

5.38
4.83
5.54
3.98

6.44
5.88
6.71
4.91

0.90
0.44
0.86
-1.24

20.05%
10.01%
18.38%
-23.76%

1.05
1.05
1.17
0.93

19.56%
21.80%
21.12%
23.45%

5.58

7.46

9.93

1.88

33.71%

2.47

33.04%

5.33

5.09

6.51

-0.24

-4.50%

1.42

27.90%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

More investment in Technology leads to the cost cutting and leads to the improved Percentage in case
of Profit per employee .Nationalized Banks shows a tremendous growth in case of Profit per employee
with increase of 20.05% in the year 2009-10. The overall performance of Public sector banks is also
satisfactory in the year 2010-11 with increase of 19.56%.New Private Sector banks done exceptionally
good and had increased their profit per employee by 33.71 and 33.04% respectively for both the
financial years.

Table No.2.5

Nationalized Banks
SBI and Associates
Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

2009

2010
2011

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

172347
89196
273088
18790

192768
97954
305983
20497

237889
109828
366318
23299

20420
8758
32894
1708

11.85%
9.82%
12.05%
9.09%

45122
11874
60335
2801

23.41%
12.12%
19.72%
13.67%

66282

62310

73528

-3972

-5.99%

11218

18.00%

85071

82807

96827

-2264

-2.66%

14020

16.93%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

The major chunk of the Income is composed of the Interest Income ,which again gives us satisfactory
results here .As there is 19.72% more interest Income comparative to the last years 12.05%.Same in the
case of Private Sector banks with increase of 16.93% as compared to decline of 2.66% in last year . but
Public sector banks outperform here.

42

Banks
/Particular

www.indianresearchjournals.com

Interest Income (Crores)

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Table No.2.6
Interest Expanded (Crores)
Banks /Particular

2009

2010
2011

Nationalized Banks
SBI and Associates
Public Sector Banks
Private Sector Banks
New Private Sector
Banks
Total Private Sector
Banks

Changes in
2009-10

Changes in
2009-10 (%)

Changes in
2010 -11

Changes in
2010-11 (%)

121371
61770
193447
12834

132706
66229
211940
14076

149863
67018
231153
14768

11336
4458
18493
1242

9.34%
7.22%
9.56%
9.68%

17157
789
19213
692

12.93%
1.19%
9.07%
4.92%

44123

37130

42347

-6994

-15.85%

5218

14.05%

56957

51206

57115

-5752

-10.10%

5910

11.54%

(Source: Performance highlights of Public and Private Sector Banks from 2009-11, IBA Bulletin, Mumbai)

There is a decline in Interest expanded in case of Public sector banks and on the other hand there is
huge jump in the case of private sector banks in the same item.
CONCLUSION
The Indian Banking Industry in Technological advancement is still in gestation phase .However the
Private Sector banks Outperform the Public Sector Banks in some fields . Nationalized banks are
performing well as indicated by the various positive figures in case of Net Profit ,Profit Per Employee
and Business Per Employee .But still RBI has to take various steps so that the Public Sector Banks
(Nationalized and SBI &its Associates ) becomes able to manage their profitability by striking the
balance between technological Investments(Expenditures )and Incomes.

REFERENCES
Ballabh, J. (2001): The Indian Banking Industry: Challenges Ahead, IBA Bulletin, 23 (4 & 5): 8-10.

Kumar, T. S. (2006): Leveraging Technology Foreign Banks Financial Inclusion, Bankers

Conference Proceedings (Nov.): 44-152.
Laxman R., Deene, S. and Badiger, S. (2008): Changing Dimensions of Banking Sector in India,
edited book by R.K Uppal: Paradigm Shift in Indian Banking, New Delhi: 70-80.
Madhavankutty, G. (2007): Indian Banking Towards Global Best Practices, Bankers Conference
Proceedings (Nov.): 84-86.
Muniappan, G. P. (2002): Indian Banking: Paradigm Shift A Regular Point of View, IBA Bulletin,

www.indianresearchjournals.com

Kaveri, V. S. (2001): Prevention of NPAs-Suggested Strategies, IBA Bulletin, 23(8):7-9.

43

24(3): 151-155.

ASIA PACIFIC JOURNAL OF MARKETING AND MANAGEMENT REVIEW

Vol.1 Issue 1, SEPTEMBER 2012, ISSN 2319-2836

Nair, K. N. C. (2006): Banking on Technology to Meet 21st Century Challenges, Contributions, II,
Banknet India: 6-11.
Shroff, F. T. (2007): Modern Banking Technology, Contributors, Vol. 4, Banknet Publications.:
44-49.
Singh, R. (2003): Profitability Management in Banks under Deregulated Environment, IBA
Bulletin, 25(7): 19-26.
Singla, H. K. (2008): Financial Performance of Banks in India, The ICFAI Journal of Bank
Management, 7 (1): 50-62.
Subbaroo, P. S. (2007): Changing Paradigm in Indian Banking, Gyan Management, 1(2):151-160.
Uppal, R. K. and Kaur, R. (2007): Indian Banking Industry: Comparative Performance Evaluation
in the Liberalized and Globalized Era, Gyan Management, 2 (2):3-24.
Vashisht, A. K. (2004): Commercial Banking in the Globalized Environment, Political Economy
Journal of India, 13(1 & 2): 1-11.
Wahab, A. (2001): Commercial Banks Under Reforms: Performance and Issues Edited Book,

44

www.indianresearchjournals.com

Deep & Deep Publications, New Delhi.