A study of the impact of investment in technology

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Banking organization is generally a highly regulated industry and government restrictions on financial activities by banks have varied over time and location. The definition of Bank varies from country to country. The Banking system remains, as always the most dominant segment of financial Sector the pace of transformation has been more significant in recent times with technology acting as a catalyst liberalization and deregulation process started in 1991-92 has made sea changes in the banking system from a totally regulated environment. The banking sector has gradually moved into a marked driven competitive system.

Current Scenario of Banking India

The Banking system in India is significantly different from that at other asians nations because of the country's unique geographic, social and economic characteristics. The banking scenario in India has already gained all the momentum, with the domestic and international banks gathering pace .The focus of all banks in India has shifted their approach to (cost) determined by revenue miners profit to survive in the long run. It is initial to focus on saving previously, banks focused on the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks shifted their approach to the 'profit' model, which that bank aimed at higher profit maximisation. The banking industry is stated for growth in future with a more qualitative rather than quantitative approach. The bank's assets are estimated to grow at an annual composite rate growth of 13.4 %. The Indian banks are hopeful of becoming a global brand of they are the major source of financial sector revenue and profit growth. The profit pool of the Indian banking industry is probable to arrangement from US $ 4.8 billion in 2005 to US $20 billion in 2010 and further to US $ 40 billion by 2012. This growth and expansion pace would be driven by the chunk of middle class population .The increase in the number of private banks; the domestic credit marked of India is estimated to grow from US $ 0.4 trillion in 2004 to US @ 23 trillion by 2010.

Global Banking Scenario

The global banking industry showed some improvement in performance during 2009-10, after with using tumultuous period of large income losses and write downs in the wake of global crisis in 2008-09. Through the large scale monetary and fiscal stimulus measures led economic recovery and the revival equity markets helped the global banking industry in terms of strengthening capital liquidity and improving profitability. Despite the improvements in terms of capital, liquidity and profitability witnessed by the global banking industry in 2009-10 concerns remain over. Various downside risks. The global banking industry continued to face significance challenged to cleaning the quality of assets and profitability preserving financial stability over the long term required implementing carefully designed framework that is effective and gain public support over time. The current sets of global bank capital standards are called Besel-II. In some countries such as Germany, bank have historically owned major stated in Industrial Corporation while in other countries such as the United State Banks are prohibited from owning non-financial companies. In Japan banks are usually the nexus of cross-share holding entity known at the keiretsu. In Iceland banks had very light regulation prior to the 2008 couple. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general mark change, industry trends and economic fluctuation. It has been a challenge for banks to effectively set their growth strategies with the recent economic market.

1.1 Investment on Technology Development

In the last decade the world has witnessed an unprecented expansion of business into global markets. Information technology (IT) has been the major enables that has helped multinational corporations (MNC) to integrate their worldwide operations. The effective use of it in foreign subsidiaries is of vital importance to MNCs (Rahe, 1992, Kedia and Bhagat, 1991) in achieving economics of scale as well as competitive advantage, which are critical in today's worldwide markets. The banking industry has been a major player in expansion into global markets. In this decade alone, bank spending on IT has risen rapidly from some $14 bn in 1990 to $20bn in 1995. The rapid proliferation of IT in the banking industry has risen rapidly from some $14 bn in 1990 to $ 20bn in 1995. (Teixeira, 1995). The diffusion of IT has begun to derive benefits in terms of productivity (starchman, 1994), increases transnational throughout (Karr, 1996): and overall profitability (Teixeira, 1995).

The commercial banking business has changed dramatically over the past 10 years, due in large part of technological change. The technological changes relating to telecommunications and data processing have spurred. Financial innovations that have altered bank products and services and production processed. For example the ability to use applied statistics cost-effectively (via software and computing power) has markedly altered the process of financial intermediation.

The TFP growth over entire period (1995-2006) was driven by technical change as compared to efficiency change showing that technology and innovation had a greater impact. Than efficiency change or the catch-up effect.

It is central to Banking. This is one of the major reasons why new and private and multinational Banks have been able to survive, thrive and adapt in an increasingly competitive space. These banks were able to leverage on low-cost channels such as ATMs and Net-Banking to the optimum levels contributing to reduced operating cost banks have realized that shifting customer access to lower cost channel can help bring down operating costs.

1.2 Employee compensation

Compensation is what employees receive in exchange for their contribution to the organization. Generally, employees offer their services for three types of rewards. Pay refers to the base wages and salaries employees normally receive. Compensation forms such as bonuses, commissions and profit sharing plans are incentives designed to encourage employees to produce results beyond normal expectation. Benefits such as insurance, medical, recreational, retirement, etc., represent a more indirect type of compensation. So, the term compensation is a comprehensive one including pay, incentives, and benefits offered by employers for hiring the services of employees. In addition to these, managers have to observe legal formalities that offer physical as well as financial security to employees. All these issues play an important role in any HR department's efforts to obtain, maintain and retain an effective workforce.

Increasingly organizations are under pressure to improve bottom line performance as well as leverage competitive opportunities in the market place. An organizations human resource contribute directly to the implementation of its operating and strategic objectives (Becker and Gerhast , 1996). Research HRM has identified a number of practices including "employee participation and empowerment and job redesign and performance contingency incentive compensation as influential in improving organizational performance (Dclancy and Huiclid, 1996, P.949). For example youn dt et. Al. (1996) examined HRM practical in the manufacturing sector and found results that were different than a study conducted by Delaney and Daty (1996) in the banking sector wrights et al. (2003) examined the effects of selection and staffing, training, pay for performance measure including organizational commitment workers' compensation, shrinkage, and productivity. The found significant relationships between HR practices and organizational commitment and both were related to operating expenses. Huang (2001) examined three types of firm level strategic orientation (with attendant variation in HRM practical and its effect or organizational financial performance morale, and overall performance.

The important role of compensation in managing organizations and controlling employee has been recognized through history. Fedrick Taylor viewed compensation and performance-based pay as one at the primary role management had at its disposal to increased productivity and reduce turnover (pulebohn, Ferris, S. Stodd, 1995).

The potential importance of compensation systems as an influence on organizational performance, and the need to more meaningfully investigate their motivational characteristics; have been stressed by number of behavioral scientists in the last JECAFE (e.g. Haire, Ghiselli & porter, 1963) opuahl & Dunnette, 1966). These efforts have culminated in Lawler's (1971) recent book which is largely devoted to the motivational impact of compensation an employee performance. (Source -The motivational impact of a compensation system on employee performance-by Donald P Schwal) Executive compensation is one of the most critically evaluated aspects of a firm. Driving their attention is the debate into what exactly are the consequences of executive pay. Since a majority of prior compensation research has aggregated industries into a single omnibus sample, it has been difficult to defect compensation effects that are likely industry specific. Accordingly, we focus on high technology industry and examine how CEO incentive compensation affects the competitive behavior. (Source-El sevier) For as long a organizations have existed rewards have been recognized as major motivator of employees as well as an important tool and expense for organizations.

Growth of Banks

Rationale of the study

Review of Literature

2.1 IT/Software Investment

2.2 Employee Compensation





Huang, W.H.

Huang examine the importance of how organizational recovery responses to other-customer failure influence a customer's service evaluations of the firm and summed that employee compensation has the strongest effect on non-complainants in the low Employee Effort scenario.


Namasivayam et al.

Namasivayam et al.in their study on US hotel industry examines relationship between compensation practices and performance of the hotels and identified a significant positive relationship between compensation practices adopted by hotels and their performance.


Offstein, E.H. and Gnyawali, D.R.

Offstein, E.H. and Gnyawali, D.R. analysed CEO compensation in pharmaceutical firms, and concluded that both short and long-term incentives of a CEO are positively related to firm competitive aggressiveness and diversity of competitive moves undertaken by the firm.

2.3 Growth

3. Objectives

The objectives of the Study are:-

To study the trends of investment Technology/Software, in Indian Bank organization. To compare trends of investments in Technology/Software in different type of Banks.

To study the trends of employee compensation in Indian Banking Sector. To compare employee compensation trends in different types of Banks.

To analyses the impact of investment in Technology/Software and Bank growth.

To explore the impact of employee compensation on Bank Performance.

To investigate the relationship between employee PBIT/Total income-Bank performance.

4. Hypotheses

The study will be guided by the Following hypothesis:

H1 There is no significant difference in investment trends in different sector bank.

H2 No significant difference in employee compensation trends in different sector Bank.

H3 Investment in technology/software significantly Relate with growth.

H4 Bank performance increase with increase in employee compensation.

5. Methodology

5.1 Data Collection

The sample size will be collected from these banking organizations. The data will be collected from CMIE Data base. Data analyses will be performed with the help of SPSS 16 to find out the relationship between independent variable investment on software/technological development and employee compensation and dependent variable growth in income of some banking organization.

5.2 Data Analysis

The collected responses will be administrated on different statistical tools i.e. correlation, factor analysis, regression analysis. The correlation of different factors will be explored to understand the significance of each independent variable.

6. Results

The results will be obtained on the basis of the data analysis through the above methods.

7. Discussion

The discussion will be written on the basis of the results obtained after statistical analysis and also with related literature.

8. Conclusion

The study will be concluded with the implications and limitations of the study.

9. Research Plan