Asian Journal

Asian Research Consortium of Research in

Banking
and
Asian Journal of Research in Banking and Finance
Vol. 7, No. 6, June 2017, pp. 155-171. Finance
ISSN 2249-7323 www.aijsh.com
A Journal Indexed in Indian Citation Index
DOI NUMBER: 10.5958/2249-7323.2017.00056.6

Intellectual Capital Efficiency and Financial Performance

in Indian Banking Sector

Dr. Raman Deep Singh*

*Assistant Professor,
Department of Commerce,
Sri Venkateswara College,
University of Delhi,
India.
ramandeepjrf@gmail.com

Abstract
The present study empirically examines the relationship between intellectual capital components
(human, structural and physical capital) and financial performance measures (profitability and
market valuation) of Indian banking sector. The value added intellectual coefficient (VAIC TM)
model has been employed to measure the intellectual capital efficiency. The correlation and panel
regression models have been used in order to analyze the relationship. The results found that IC has
a significant effect on profitability but not showing any association with market valuation. The
study also evinced that individually, human capital, a major constituent of IC does not have any
significant role in increasing the market valuation of the banks. The structural and physical capital
significantly influences profitability of banks. The top level managers should give much emphasis
to human resources for increasing the profitability and market valuation of the banks.

Keywords: Intellectual capital, Human Capital Efficiency, Structural Capital Efficiency, Capital
Employed Efficiency, Profitability and Market Valuation.

1. Introduction
The knowledge has become the key source of competitive advantage in the modern economy, but it
is not fully reflected in the accounting measures of the companies. The conventional accounting
measures may mislead the investors and other stakeholders to take right decisions at the time of
allocating the resources (Firer and Williams 2003). The efficient utilization of intellectual capital

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can help the organizations to attain the desired growth (Huang and Liu, 2005). The importance of
intellectual capital becomes particularly apparent for an economy like India which is emphasizing
towards rapid technological advancement and knowledge driven economy. In management decision
making process, traditional financial measures will not work as main drivers to fulfill the needs and
requirements of new companies as now IC has become the main driver for the competitive
advantage. The gap between book value and market value of companies in the stock market, often
referred as hidden value, is mainly because of intellectual capital (hereafter IC) and the biggest
proportion of this hidden value is attributed to IC. The demand for disclosure and reporting of IC
has increased in the recent time due to the fact that conventional measures of financial performance
are no longer able to explain the market value of the companies (Ballow et al., 2004).

1.2 Intellectual Capital

The concept of IC is still in its infancy stage and alien to many because it is difficult to measure in
expressed terms. There are various definitions of intellectual capital and most of the researchers are
of the opinion that intellectual capital is a non-monetary asset which is without physical substance
and can generate future benefits for the firms. Stewart (1997) defined IC as “packaged useful
knowledge”. According to Sullivan (2000) intellectual capital could be defined as knowledge that
may be converted into profit. Many researchers (Andriessen, 2004; Bontis, 2001; Kim, et al.,
2010and Rudez & Mihalic, 2007) are of the view that intellectual capital is the possession of
knowledge, applied experience, organizational technology, customer relationships and professional
skills that provide the firm with a competitive edge in the market.

1.2.1 Components of Intellectual Capital

In spite of lack of a universal definition for IC, the classification of intellectual capital has been
undertaken by many researchers and consensually three major categories have been accepted.

Sveiby (1997) proposed the classification of IC into three sub-categories as follows:

(1) Employee (individual) competence;

(2) Internal structure; and

(3) External structure.

Edvinsson (1997), Edvinsson and Malone (1997) and Bontis (1998) adopted the three
categorizations of IC and named them as follows:

(1) Human capital;

(2) Organizational capital; and

(3) Customer capital

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1.2.1.1 Human Capital

The human capital is seen as the foundation of an organization as in the current environment
success relies on the individual‟s knowledge, ideas, skill and talent. Human capital is the
knowledge that employees take with them when they leave the organization (Baker, 2008). It
includes the knowledge, skills, experiences and abilities of people (Ricceri, 2008). Human capital
can be defined as knowledge that an individual possess and through which he makes his
contribution in the organization.

1.2.1.2 Structural Capital

Structural capital, also known as organizational capital is the backbone of the organization (Burr &
Girardi, 2002). Structural capital is formed by intellectual efforts of the employees and belongs to
the organization. Structural capital is the corroborative infrastructure for the human capital.
Management may find it easier to explain to the investors the importance of human capital than the
need to enhance the structural capital in the organization (Chan, 2009b).

1.2.1.3 Relational Capital

Relational capital refers to external relations of an organization with other organizations, customers
and suppliers. Few examples of relational capital are reputations, image, branding, customer loyalty
and satisfaction, commercial power and environmental activities of the firm. Beattie & Thomson,
(2007) defined Relational capital as all the resources linked to the external relationships of the firm
with customers, suppliers and R&D partners.

2. Review of Literature
Intellectual capital is viewed as strategic resource which permits to generate value added for the
company (Riahi-Belkaoui; 2003; Youndt et al. 2004). This classification of IC as a strategic
resource provides anticipated relationship between intellectual capital on one hand and financial
performance on the other hand. Thus, many researchers in their studies have examined the effect of
intellectual capital and its component (human capital, structural capital and capital employed) on
the financial performance respectively.

Baye et al. (2014) in a study which was conducted on 60 Cameroon companies came up with the
findings that capital employed efficiency was the only component which had a significant effect on
profitability of the financial institutions. It was also found from the study that human and structural
capital was not playing any significant role in increasing the profitability of the companies.

Deep and Narwal (2014) considered a sample of 100 textile companies listed on the Indian stock
exchange and found that IC was significant related with profitability of the companies. The study
also evinced that the relation of IC with productivity and market valuation was found to be non-
significant.

Rezaei (2014) examined the companies listed in Tehran stock exchange and found that the IC had a
significant relation with price earning (PE) ratio and revenue growth (RG) respectively. The human

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capital was significantly related with EVA index and P/E ratio respectively. The author concluded
that the Companies listed in Tehran Stock Exchange were not sensitive to intellectual capital.

Shaban and Kavida (2013) analyzed 22 Indian IT companies to determine the relationship between
IC and financial performance. The results found that a significant relationship existed between IC
and profitability, whereas IC had no significant relationship with productivity and market valuation.

Latif et al. (2012) analyzed the relationship of IC components with financial performance measures
in Pakistani Islamic banks. The results found that human capital was had a significant relationship
with financial performance of the Islamic banks .The physical capital was having a significant
relationship with financial performance measures respectively.

Pal and Soriya (2012) analyzed the relationship of IC components with financial performance
measures for companies in the pharmaceutical and textile sector of India. The Intellectual capital
was found to have a significant relationship with profitability in both the sectors. It was also found
that the reflection of the IC was not proportionally observed in the financial performance of the
companies.

Rehman et al. (2011) considered the Modaraba sector of Pakistan to determine the relationship of
IC with financial performance and divulged that human and structural capital efficiency was having
a significant relationship with financial performance measures (ROE and EPS). The study
confirmed that more investment on efficient employees leads to more Human Capital Efficiency
(HCE) which ultimately results in higher financial performance of the companies.

Calisir et al. (2010) studied 14 IT companies of Turkey to determine the relationship of IC with
economic and financial performance. From the findings it was observed that human capital
efficiency (HCE) was the most significant predictor of profitability of the company. The result also
found that capital employed efficiency (CEE) was the significant predictor of both productivity and
return on equity.

Salamudin et al. (2010) took a sample of Malaysian companies and found that the book value of the
assets played a dominant role in Malaysian corporate valuation. The intangible assets showed a
significant relationship with financial performance of the company. The authors were of the view
that intangible assets were important strategic assets for the companies.

Abdulai et al. (2009) took a sample of 83 West African software companies and found a significant
association between intellectual capital components and competitive capabilities of firms and
between competitive capabilities and firm performance. The results also analyzed that firms that
have high level of human capital have high competitive capabilities.

Ghosh and Mondal (2009) examined 80 Indian pharmaceutical and software companies and came
up with the result that IC was having a significant relationship with profitability. The findings also
revealed that profitability and market to book value ratio also had a significant relationship. The
authors were of the view that Indian investors are not influenced by intellectual capital performance
of the companies.

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2.1 Objective of the Study

Traditional financial reporting is not able to provide the useful information to satisfy the needs f of
the stakeholders (Bozzolan et al., 2003). There are many previous studies which have been carried
outside India and have reported significant relationship between intellectual capital and financial
performance (Rezaei, 2014; Mehri et al., 2013; Komnenic and Pokrajcic, 2012; Clarke et al., 2011;
Zeghal and Maaloul, 2010; Sharabati et al., 2010; Tan et al., 2007and Chen et al., 2005). If the
above contention holds true, then it would be highly applicable to India also. Thus, examining the
effect of IC in increasing the financial performance in Indian banking sector may offer additional
information regarding intellectual capital as a value driver. The present study measures intellectual
capital efficiency and also analyzes its relationship with financial performance measures in Indian
Banking sector.

2.2 Hypotheses Development

To determine the relationship of value added intellectual coefficient (VAIC TM) with financial
performance of companies in the Indian baking sector, the following hypotheses have been
formulated:

H01 : Value added intellectual coefficient (VAICTM) has a significant effect on profitability in
Indian banking sector.

H02 : Value added intellectual coefficient (VAICTM) has a significant effect on market
valuation in Indian banking sector.

Human capital is considered to be the only one active and the most important variable of value
creation for the firm. The following two hypotheses are to analyze the relationship between HC and
financial performance measures:

H03 : Human capital efficiency (SCE) has a significant effect on profitability in Indian banking
sector.

H04 : Human capital efficiency (SCE) has a significant effect on market valuation in Indian
banking sector.

In order to find out the relationship of the structural capital with financial performance measures,
the following hypotheses have been formulated:

H05 : Structural capital efficiency (SCE) has a significant effect on profitability in Indian
banking sector.

H06 : Structural capital efficiency (SCE) has a significant effect on market valuation in Indian
banking sector.

The intellectual capital cannot create wealth on its own without the help of physical capital,
therefore, the following two hypotheses have been formulated to examine the relationship between
physical capital and financial performance:

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H07 : Capital employed efficiency (CEE) has a significant effect on profitability in Indian
banking sector.

H08 : Capital employed efficiency (CEE) has a significant effect on market valuation in Indian
banking sector.

3. Research Methodology

3.1. Sample Size and Database of the Study

The purpose of the present study is to measure intellectual capital efficiency and finding the
relationship of intellectual capital and its components (i.e., HCE, SCE and CEE) with financial
performance measures (i.e., profitability (ROA) and market valuation (MB) respectively) in the
Indian banking sector. The Indian banking sector has been chosen for the study and 83 banks has
been selected for the study. The data has been collected from the CMIE Prowess database for a
period of 10 years i.e., from 2004-05 to 20013-14. For measuring intellectual capital efficiency, the
study has applied Value Added Intellectual Coefficient (VAICTM) model developed by Prof. Pulic
(2000). For determining the relationships between the variables, correlation and Panel regressions
models have been employed in the study.

3.2 Computation of Variables

To carry out the analysis in the present study, VAICTM model have been used for the measurement
of intellectual capital. The dependent variables of the study are return on asset and market
valuation, which have been used as proxies for companies‟ financial performance. Two control
variables i.e. firm size and firm leverage have been applied in the study for examining their effect
on financial performance respectively. A brief explanation and calculation of all the variables used
in the study is given below.

3.2.1 Independent Variables

For the study, VAIC™ model developed by Prof. Ante Pulic (1998, 2000a) has been employed to
measure the intellectual capital efficiency. Prof. Pulic (2001) emphasized that amongst several
methods of IC calculation, the VAICTM is an accepted, standardized and comprehensive model to
evaluate the IC performance of the organizations.

3.2.1.1. Value Added Intellectual Coefficient (VAICTM): The value added intellectual coefficient
(VAICTM) has been used to measure the efficiency of the intangible assets of the firm. The detailed
analysis of the calculation of VAIC is as follow:

Value added intellectual coefficient (VAIC) includes three independent variables:

(1) HCE, indicator of human capital efficiency.

(2) SCE, indicator of structural capital efficiency.

(3) CEE, indicator capital employed efficiency.

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The first step towards calculating HCE, SCE and CEE is to calculate Value Added of the firm. It is
calculated as

VA = W + I + T + NI

Where,

W = Wages and salaries

I = Interest expenses;

T = Taxes paid and

NI = Profit after tax.

Alternatively, VA can be calculated by deducting operating expenses from operating revenues

(Pulic 1998).

After computing value added of the firm, human capital efficiency (HCE), structural capital
efficiency (SCE) and capital employed efficiency (CEE) is calculated step by step.

Human capital efficiency is the ratio of value added (VA) of the firm to the total salary and wages
spent by the firm on its employees. It is calculated as:

HCE = VA / HC

Where,

HCE = Human Capital Efficiency,

HC = Wages and Salary,

VA = Value Added of the Firm

For calculating value of SCE, it is firstly necessary to calculate the value of structural capital (SC)
of the firm. The SC of the firm is the difference between value added (VA) and human capital (HC)
of the firm. It is calculated as follows:

SC = VA - HC

Where,

SC = Structural Capital,

VA = Value Added,

HC = Wages and Salary

Having calculating the SC, the SCE is expressed as:

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SCE = SC/VA

Where,

SCE = Structural Capital Efficiency

SC = Structural Capital,

VA = Value Added,

It is important to note that there exists a proportionate inverse relationship exists between HC and
SC.

The final step is to calculate the capital employed efficiency (CEE) of the firm. The IC can‟t
operate independently and it needs to function with physical capital in order to create value for an
organization. It is the ratio of the value added to the total amount of capital employed. It is
calculated as:

CEE = VA/CE

Where,

CEE = Capital Employed Efficiency,

VA = Value Added,

CE = Capital Employed

Finally, VAICTM is obtained by adding HCE, SCE and CEE:

VAICTM = HCE + SCE + CEE………………………………... (i)

Where,

HCE = Human Capital Efficiency

SCE = Structural Capital Efficiency

CEE =Capital Employed Efficiency

3.2.2. Dependent Variables

In the present study, two traditional financial performance measures has been used as dependent
variables i.e., profitability (ROA) and Market to book value (MB) of the company respectively. The
calculation of each dependent variable is as follows:

3.2.2.1. Return on Assets (ROA): It reflects the profitability of the company. It measures how
efficiently a company can manage its assets to produce profits during a period. It is calculated as:

ROA = Net Income/Average Total Assets………………….. (iii)

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3.2.2.2. Market to Book Value (MB): It compares a company's current market price to its book
value. It describes the degree to which a company‟s market value exceeds its book value. An
average of 12 months has been considered, to represent the given year and avoid any particular
effect of the month on stock prices of the company and calculated as:

MB = Market Capitalization (average share price x number of

outstanding common shares) /Book Value of Common Stock…………………………. (v)

3.2.3 Control Variables

The present study has employed two control variables i.e. SIZE and Debt-Equity ratio (DER) ratio
to control for their effects on financial performance. The calculation of these control variables are
as follows:

3.2.3.1. Debt Equity Ratio (DER): It compares a company's total debt to total equity to indicate as
to what proportion of equity and debt the company is using to fund its assets. It is used as a proxy
for Leverage of the company. It is calculated as:

DER = Total Debt/Total Equity…………………………… (vi)

3.2.3.2. Total assets (SIZE): It is measured by the natural log of total assets, is used in present
study to control for the impact of size on financial performance. It is calculated as:

SIZE = Log (Total Assets) = Firm Size…………………….. (viii)

3.3. Regression Models for Analysis

In order to achieve the research objectives, the following models have been developed for carrying
out the analysis:

 ROA = αit + β1VAICit + β2DERit + β3SIZEit + εit…………………………………….……,,,,.……………(i)

 MB = αit + β1VAICit + β2DERit + β3SIZEit + εit…………........………………………………………….…(ii)

 ROA = αit + β1HCEit + β2SCEit +β3CEEit + β4DERit + β5SIZEit + εit………………………(iii)

 MB = αit + β1HCEit + β2SCEit +β3CEEit + β4DERit + β5SIZEit + εit…………….……..……(iv)

Where, α= Constant term; VAIC = Value Added Intellectual Coefficient; ROA = Return on Assets;
MB = Market valuation; HCE=Human capital efficiency; SCE= Structural capital efficiency, CEE=
Capital employed efficiency; DER = Debt Equity Ratio; SIZE = Market Capitalization and ε =Error
term.

4. Results and Discussions

4.1 Descriptive Statistics

The descriptive statistics shown in Table 1depicts that the average value of VAIC is 10.584
indicating that each rupee invested in IC generates around 10.584 rupees in the return for the banks.

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It reveals that Indian banks are efficiently utilizing its intellectual capital. The average value of
ROA of is 0.029 shows that banks in India get around 3 percent return on the asset of the company.
Next, the table provides average value of MB ratio and shows that MB ratio is 1.176 indicate that
investors consider the banks in excess to book value of its total assets. The average value of DER is
1.550 indicates that there is more use of debt in comparison to its equity capital. The average size
of the banks on the basis of total assets is 28756 crores with a very large value of standard deviation
indicating that there is large variation in the values of the size of the banks.

Table 1: Descriptive Analysis

VAIC ROA MB DER SIZE

Mean 10.584 0.029 1.176 1.550 28756.32
Std. Dev. 5.760 0.013 1.128 1.403 45052.48
Median 9.712 0.010 0.950 1.162 822.46
Minimum 0.224 -0.040 0.000 0.327 0.362
Maximum 65.460 0.112 9.141 12.232 1018765

4.2 Correlation Analysis

To find out the initial association between independent and dependent variables, correlation
analysis have been employed and have been shown in table 2. The table presents the correlation of
value added intellectual coefficient (VAICTM) and other variables used in the study. The table
shows that IC is having a significant relationship with profitability (ROA) and a positive relation
with market valuation MB at a non-significant level. The matrix also reveals that IC is having a
significant association with the DER and SIZE of the banks indicating that banks having more debt
and having large capitalization tends to have more intellectual capital.

Table 2: Correlation Analysis

VAIC ROA MB DER MCAP

VAIC 1.000
ROA 0.375* 1.000*
MB -0.526 0.677* 1.000
DER 0.543* -0.632* -0.518 1.000
SIZE 0.678* -0.684* -0.543 0.590* 1.000

4.3. Regression Analysis

4.3.1. Unit Root Test

As data used in the study of panel nature which consists both the characteristics of time series and
cross sectional data, the assumption of stationary need to be checked before running the regression
models. The stationarity of the data in this study has been checked by applying unit root test. Levin-
Lin-Chu test (2002) has been applied to check the stationarity of the data. Table 3 presents the
results of the unit root test and found that value of t-statistics is found to be significant for all the
variables, hence, there is no unit root in all the data series which implies stationary of data series.

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Table 3: Unit Root Test

Variables Test-statistics (at levels)

VAIC -55.537*
HCE -27.345*
SCE -28.517*
CEE -17.390*
ROA -35.693
MB -45.698*
DER -58.892*
SIZE -32.780*

4.3.2. VAIC and Financial Performance

Table 4 shows the result of regression models for all the explanatory variables, when profitability
and market valuation has been used as dependent variables, the fixed effect model and random
effect model have been used for the regression because of panel data. To select between both the
models (Fixed effect model and random effect model), the Hausman Chi-square test has been used
(Hausman, 1978). When the value of Hausman test statistic is found significant, fixed effect model
is applied. While in case the Hausman test statistic is found to be insignificant, then random effect
model is employed in the study.

The values of adjusted R2 show that the model is capable to explain about 64% of the variance for
the profitability model and 46% for the market valuation model respectively. It implied that the
model has the capacity to explain about 64% of the variance in the profitability model and 46% for
the market valuation model respectively.

Table 4: Regression Results of IC and Financial Performance

Dependent Variables
Return on Assets Market Valuation
Fixed effect Random effect Fixed effect Random effect

C 0.032* 0.024* 4.730* 3.990

(4.975) (7.471) (4.194) (4.360)
VAIC 0.018* 0.003* 0.011 0.001
7.373) (8.019) (0.842) (0.005)
DER -0.003* -0.002* 0.050 0.071
(-5.315) (-5.476) (0.528) (0.876)
SIZE -0.006* -0.004* -0.691* -0.528
(-3.430) (-4.803) (-2.812) (-2.668)
Adj. R2 0.641 0.123 0.465 0.012
F-value 8.140* 35.974* 8.726* 2.666
Hausman test X2 (3) 9.224* X2 (3) 7.859*
Note: * represents level of significance at 1 percent respectively. Values of t-statistics are provided in parenthesis below the
co-efficient.

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Table 4 presents the result of regression model 1 in which profitability has been used as a
dependent variable. From the result, it is found that VAIC had a significant relationship with
profitability of the banks. This result supports hypothesis H1 indicating that IC had an important
role to play in increasing the profitability of the organization. These findings support some previous
studies (Pal & Soriya 2012; Ghosh & Mondal 2009; Gan & Saleh 2008) where it was found that IC
plays a significant role in increasing the profitability. Table 4 also depicts the results of regression
model 2 in which market valuation has been selected as dependent variable. The result divulged
that IC has no significant association with market valuation of the banks. This finding led to
rejection of hypothesis H2, implying that IC had no contribution in increasing the market value for
the shareholders. This result is supported by some previous studies carried out different researchers
(Vafaei et al., 2011; Wang, 2008; Abdolmohammadi, 2005 and Chen et al. 2005) who found that IC
had no significant relationship with market valuation. The Debt is having a positive impact on the
market value of the both the companies but at insignificant level. The control factors such SIZE is
showing significant negative association with profitability and market valuation of the banks.

VAIC Components and Financial Performance

Table 5 shows the results of regression coefficients for model 3to 8 which have taken HCE, SCE
and CEE to be explanatory variables, while using profitability (ROA) and market valuation (MB)
as dependent variables.

Table 5: Regression Results of IC components and Financial Performance

Dependent Variables
Return on Assets Market Valuation
Fixed Effect Random effect Fixed effect Random effect

C -0.002 -0.008 3.323* 4.262

(-0.341) (-2.343) (2.237) (2.928)
HCE 0.007* 0.000 -0.000 -0.004
(0.833) (0.292) (-0.013) (-0.298)
SCE 0.072* 0.060 2.127 0.463
(13.887) (14.231) (0.982) (0.246)
CEE 0.454* 0.413* 0.632* 0.693*
(1.117) (1.098) (1.285) (1.645)
DER -0.003* -0.003* 0.093 0.001
(-5.715) (-6.745) (0.901) (0.010)
SIZE -0.010** -0.005 -0.861* -0.545*
(-6.694) (-7.508) (-2.871) (-2.723)
Adj. R2 0.742 0.296 0.466 .021
F-value 12.371* 65.850* 8.434* 2.226
Hausman test X2 (3) 44.628* X2 (3) 34.280*
Note: * represents level of significance at 1 percent respectively. Values of t-statistics are provided in parenthesis below the
co-efficient.

From the table, it is analyzed that human capital efficiency (HCE) had a significant relationship
with profitability but not with and market valuation. This result supports the hypothesis H3 and
rejects hypothesis H4, indicating that HCE is significantly contributing to increasing the
profitability and but not playing any significant role in increasing the market valuation for the

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shareholders. When the impact of SCE on profitability and market valuation is studied, it is found
that SCE was having a significant contribution in increasing the profitability (ROA) of the banks
and not having any significant relationship with market valuation (MB). The finding supports
hypotheses H5 and rejects H6, implying that SCE had a relationship with profitability and no
association with market valuation. The logic behind the rejection of H 6 may be that SC is a difficult
concept to understand in comparison to HC.

Table 5 also depicts that physical capital plays a very significant role in increasing the profitability
and market valuation respectively. These findings support H7 and H8 implying that physical capital
is significantly contributing in profitability and market valuation of the banks. The CEE is found to
be the highly significant predictor amongst all the models applied in the study. Amongst the control
variables, leverage (DER) is found to have a significant negative impact on profitability and having
a insignificant positive impact on the market valuation, while the firm size (SIZE) shows a
significant negative relationship with profitability and market valuation implying that larger size of
the banks contributes but negatively to the financial performance.

5. Conclusion
This study contributes to existing literature on the relationship between IC and financial
performance in several ways. The study found that IC is significantly associated with profitability
of the banks. The study also evinced that no conclusive evidence is found to support an association
between IC and market valuation in the banking sector.

When the effect of IC components on financial performance was analyzed, the study revealed that
human capital has a significant relationship with profitability but not with and market valuation.
The human capital is the only active component in the organization and the heavy usage of
technology in the modern time has not diminished the significance of human capital. It is strongly
advised to top level management to provide proper trainings to the employees so that efficiency of
the employees is increased. The study also evinced that structural capital of does not have
significant impact on market valuation implying that Indian investors are not aware about the
importance of structural capital of the banks. It is suggested to have more R&D expenses; more
patents and trademarks; new and better technologies which will increase the financial performance
and will also improve the image in the eyes of the shareholders. It is also divulged from the results
that investors give more emphasis to tangible assets to increase the financial and market
performance of the organization. In this fast technological era, all banks will face acute competition
from its rivals from all over of the world; a heavy emphasis on physical capital is not a good for
India‟s longing to become a knowledge driven economy where IC is a key driver for the growth.
The study suggests that Indian banks needs to have more emphasis on the intellectual capital
development.

In the view of the above, it is strongly advised to policy makers, managers and government to take
more active role in development of IC at macro as well as micro level. The government may
educate and should make efforts to increase the awareness of IC amongst the investors at large. The
intellectual capital disclosure may be made a mandatory requirement for the banks which will allow
IC statements to become a part in the annual report of every listed bank. The top level managers

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should give much emphasis to human resources for increasing the profitability and market
valuation of the banks.

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