Bank of baroda - www.bankofbaroda.com

Bank of baroda - www.bankofbaroda.com

Larger banks and employee productivity

It has become a fad to argue that a shakeout is inevitable in the Indian banking sector because only the larger banks can get to rule the roost. This is seen as necessary in the light of our opening up the banking sector in 2009. Is it true?.

GONE ARE the days when Indian banking automatically reminded us of nationalised banks. Such was their dominance over other banks. Even today they are a force to reckon with but they are no longer the uncrowned king. They have formidable rivals.

Even the statutory State Bank of India (SBI), which is India’s top commercial bank has a formidable rival. Any laxity on its part may lead to the said rival overtaking it. It is against this backdrop its keenness to merge its associate banks with itself is to be viewed. {SBI though may be inclined to draw comfort from the fact that the so-called formidable rival (read, ICICI Bank) has been the most affected of the Indian banks in the meltdown that the US financial market has been witnessing now).

With the Indian banking sector all set to open up next year, it is not only the statutory SBI or the nationalised banks, which are pulling up their socks. All the commercial banks are pulling their socks up too. It is in this backdrop, this article takes a look at the functioning of the nationalised banks in the country. To analyse the performance of the nationalised banks, just a couple of parameters have been reckoned. They are: business per employee and profit per employee. For the purpose of this analysis, SBI and its associate banks have not been considered.

The data used for the analysis has been drawn from the publication, ‘A profile of banks 2007-08’ brought out by the Reserve Bank of India (RBI). Data relating to 2007-08 has been used for the purpose of analysis.

Business per employee

As for business per employee, the Oriental Bank of Commerce (OBC) tops the list of the top three banks with each of its employees accounting for (Indian Rupees) INR 924.38 lakhs of business (vide the following Table). Employees of Corporation Bank and Bank of Baroda follow OBC in terms of business generated per employee.

This is a pleasant surprise because OBC and Corporation Bank were nationalised in the second phase (in the year1980). Bank of Baroda, which was nationalised in the first phase (in the year 1970), is a distant third. Ironically, Bank of Baroda is the largest of the three in terms of business (deposits plus advances). In fact its business is more than the business of OBC and Corporation Bank put together. For the information of the readers, OBC is ahead of Corporation Bank by at least INR 37,000 crores in terms of business.

Are we to conclude from the data that larger banks need not be superior in terms of employee productivity? One school of thought has it that only larger banks will be able to withstand competition once the banking sector is opened up. Union Finance Minister P Chidambaram also endorses this view. In the light of what the following Table conveys, we should take this view with a pinch of salt.

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