Human Resources Development And Its Impact Business Essay

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Banking sector in India has undergone tremendous change in its operations in the last decade owing to a highly competitive scenario; it is pertinent to note that banks need to differentiate themselves from each other. They need to have employees who are passionate about their work and strive to take their organization to greater heights. In the competitive environment, employees of any business organization are the key factor for deciding the success of the firm, in general, and banks in particular. They are the initiators and controllers of all major activities. The banking industry is highly competitive. The key to a bank's success is having the best people. In fact, people are the main commodity. Banks don't manufacture anything; they offer a service. Human Resources are core to the success of the bank. It's the HR team that hires, motivates, and develops the people that offer that service.HR is responsible for people issues across the whole company. The main objective of human resources management is to utilize the human resources in a most optimal manner so that targets can be achieved very effectively and efficiently. This paper sets out to explore the development of Human Resource Management (HRM) in the Banking sector. It briefly discusses the literature on management strategy and employee relations and the rise of Human Resource Management. Human resources have a significant bearing on the profitability, efficiency and overall organizational effectiveness.

Keywords: Human Resources Management, Profitability, Efficiency

Introduction

Success stories of flourishing business organizations have been scripted on contributions made by engaged employees. They profoundly express themselves physically, cognitively and emotionally during performance various role in the organization. They act as a drivers of financial and market success. They give stellar performances by trying to stretch themselves and continuously strive to outperform by setting new standards of excellence. Owing to this, enhancing employee engagement has gained momentum in business organizations across the globe. Engaged employees drive more profits by being productive, focused in their goals and efforts, and enjoy work and continue to stay with the company (Gallup, 1999). Increased contributions of engaged employees towards their job and organization have been instrumental in making it an Endeavour of every business organization. The adage that "people are our greatest asset" has been a recurrent theme in many businesses and organizations through history. This is no less true for a banking sector. Indeed, people are, without doubt, believes that bank's most important resource. Banking business relies heavily on the expertise, experience and sound judgment of the staff. Bank's effectiveness crucially depends on its credibility, and this in turn largely comes down to the quality of its staff. Therefore, managing human resources effectively is a critical element in maintaining an effective and credible banking system. Human resource is the most important component of an organization. From the point of view of an individual enterprise, they represent the total of inherent abilities, acquired knowledge, skills and aptitudes contained in employees of the enterprise. The human resource is given increasing significance in modern organization. Obviously, a majority of the problems in organizational setting are human and social rather than physical, technical and economic. The failure to recognize this fact causes great loss to the nation, enterprise and the individual. People at work comprise a large number of individuals of different sex, age, education standards and groups. These people at work exhibit not only similar behavior patterns and characteristics to a certain degree, but they also show many dissimilarities. Each individual who works has his own set of needs, drives, goals and experiences. Management, therefore, must be aware not only the organizational needs but also needs and goals of employees. In present scenario under liberalization, privatization and globalization the banking sectors are facing stiff competition. It has become very difficult to achieve the objectives and pre decided performance standards. To do so the skilled and motivated employees are strongly needed. They can give more output per person. Banking service is related to the topic of the study. Deposits Mobilization and proper utilization of resources affects economic growth of a nation. Banks play very important role in the economic life of the nation. Although banks create no new wealth but their borrowing, lending and related activities facilitate the process of production, distribution, exchange and consumption of wealth. In this way they become very effective partners in the process of economic development. Deposits Mobilization and proper utilization of resources affects economic growth of a nation. Today, modern banks are very useful for the utilization of the resources of the country. The banks are mobilizing the savings of the people for the investment purposes. The savings are encouraged and saving rate increases. If there would be no banks then a great portion of a capital of the country would remain idle.

Statement of Problem

After independence, the development of banking sector picked up momentum. Since 1991, public and private sector banks are co-exiting and providing banking service to the customers. They are playing very important role for overall economy development. In service sector, involvement of human element is of very high and this is application in banking service too. Attitude, interest, motivation, skills and knowledge, behavior, promptness, response to call etc. all are related to employees. These factors affect the individual and organizational performance. Hence, the concept of human resources management in banking sector has great significance in present time. In present stiff competitive situation, it has become difficult to attract customers, retain and motivate them for further business. When employees give better performance then only the profitability of the banking unit will go high. Therefore, the output per person matter a lot. So the importance of human resources management has been felt everywhere. Due to motivated and talented manpower the banking sector is giving good results every year. The importance of manpower cannot be ignored in present competitive situation. Over and above the output given by them contribute a lot in the progress of the banking sector. The need is that banks should make every effort on a continuing basis to bring down the cost and improve productivity. However, no serious, systematic and conscious efforts are being made by the banks to improve productivity and operational efficiency. It is believed that after liberalization PSBs witnessed substantial losses in their market share deposits and are still losing, will have a tough time for retaining their position in the coming times. So, there is a need to have a look on productivity, the central element of the problem of prosperity of economy in the Public Sector Banks.

Review of Literature

Varde (1979) has made a distinction between effectiveness, efficiency and productivity of banks and has pointed out that efficiency of a bank could be classified into four categories viz. (i) manpower efficiency; (ii) operational efficiency; (iii) commercial efficiency; and (iv) efficiency of ancillary business. Efficiency of each of these four categories can be measured separately, and this efficiency in turn has got a positive influence on the productivity of the respective category. Subramanyam (1985) measured Total Factor Productivity (TFP) by using index number approach and addressed some of the conceptual issues and their growth on accounting implications. In this study Divisia index was shown to be preferable over Laspayers index. Hansda(1995) had been constructed a composite index to judge the relative performance of 28 public sector banks during the period of post-liberalization from 1991-92 to 1993-94. He considered 25 indicators under five categories viz. labour productivity, branch productivity, financial management, profitability and growth by adopting principal component analysis, and found that in the pre-Liberalization phase, the banks used to function in a more or less uniform or regulatory regime. However, the significant variation has been observed in their performance for the year 1991-92, which suggested that organizations culture and quality management had a significant sharing on the relative performance of banks. Ram Mohan and Ray (2005) considered Tornquist total factor productivity growth, Malmquist efficiency and revenue maximization efficiency from 1992-2000 to compare the performance of public sector banks and private sector banks. The study revealed the fact efficiency and productivity have not been lower in Public sector banks relative to their peers in the private sector. Sinha (2006) estimated efficiency of Indian commercial banks (under constant returns to scale) using the data envelopment analysis. He considered loan as the output indicator. Number of bank branches and borrowed capital were taken as two inputs. The results were for 1996-97, 1998-99, 2000-01, and 2002-03 respectively. The results suggest superior performance by the observed private sector commercial banks as compared to the observed public sector commercial banks.

Objectives of the Study

Following are the objectives of this study:

(a) To understand the concept of human resource and examine the contribution of employees (humans) in banking sector in the post- liberalization period.

(b) To study the causes of lower productivity, strategies to improve it and involvement of different parties with concept of labour productivity and their initiatives.

(c) To summarize on the basis of study, the findings and give suggestions for further improvement of employee's productivity in banking sector in India.

Research Methodology

Period of Study

The post- reform period of five years has been taken for measuring the contribution (productivity) of human resources in the performance of banking sector in India. The years selected for analysis are 2007-2011. In order to study the productivity aspect the following indicators have been used:

Per Employee Indicators

S. No

Ratio

Definition of Ratio

Employee Productivity Ratios

1.

Business per Employee

Total Business/No. of Employees

2.

Net profit per employee

Net Profit/No. of Employees

Employee Cost Ratios

3.

Business per Unit of Staff Cost

Total Business/Establishment Exp

4.

Profit per Unit of Staff Cost

Net Profit/Establishment Exp.

Sample Size

The study is related to Indian Schedule commercial banking sector.

Collection of Data

Collection of Data proves a useful aid for the analysis of any research problem. Data are those relevant materials which are significantly used to describe the research findings in detail and to draw meaningful inferences. To achieve the objectives of the study, Secondary data is collected. Secondary data is also a valuable source for research. It includes all those data which had been collected for some earlier research work and applicable in the study, researcher has presently undertaken. A major part of the database has been drawn from the published secondary sources, primarily the reports of Indian Bankers Association (IBA) and the Reserve Bank of India (RBI). The data relating to financial performance of the selected public sector banks have been obtained from various sources like "Financial Analysis of Banks" brought by Indian Banker's Association, "Statistical Tables Relating to Banks of India". "Reserve Bank of India Monthly Bulletin", "Reserve Bank of India Monthly Bulletin", "Report on currency and Finance" and other publications of Reserve Bank of India.

Data Analysis

The following statistical tools have been used for analyzing data:

Ratio Analysis-To measure the Productivity of bank's Employees, analysis of relevant ratios is commonly used. Profitability ratios have been employed for assessing the Productivity of Public Sector Banks.

Mean (X) = Σ X/N Where ΣX = Sum of series of observations N = Number of items

S.D. (σ) = ΣX/N

Where x = (X-X), X is the mean of the series and (X-X) is the deviation from the mean.

N = Number of items

C.V. = (σ/X) x 100 Where σ is Standard Deviation (S.D.) and X is the mean of the series.

Analysis and Description

Business per Employee

Total Business is the sum of total Deposits and total Advances. This ratio has been computed by dividing the amount of total business by the number of employees in the bank.

Table-1 Business per Employee (Rs. in Lacs)

Years

Bank Groups

SBI & Its Associates

Nationalized Banks

Public Sector Banks

Old Private Banks

New Private Banks

Private Sector Banks

Foreign Banks

2007

436.35

490.01

471.18

481.59

807.82

695.23

974.77

2008

549.22

618.08

594.24

569.32

831.96

751.42

1125.5

2009

650.22

783.16

734.35

638.43

787.15

743.85

1282.74

2010

737.43

935.86

864.34

697.49

840.41

797.31

1411.39

2011

793.06

1144.77

1013.63

814.90

826.07

823.26

1559.74

Mean

633.256

794.376

735.548

640.346

818.682

762.214

1270.828

STDEV

143.6239

258.1852

214.346

126.4776

21.30284

49.74672

230.2934

Statistical shows that the Business per Employees of 20 nationalized banks have increased from 490.01 lacs in 2007 to 1144.77 lacs in 2011 while that of eight SBI & its Associates have increased from 436.35 lacs in 2007 to 793.06 lacs in 2011. On the other hand Business per Employees in case of Private Sector Banks has increased from 695.23 lacs in 2007 to 823.26 lacs in 2011. This is higher from Public Sector Banks. Business per Employees in case of Foreign Banks has been registered 1270.82% which is higher from both types of banks Public as well as private.

Business per Employee

Net Profit per Employee

The balance of operating profit after the provisions and contingencies is known as net profit. Net profit mainly depends upon productivity of the bank and the growth of profit per employee. Profitability is the ratio of earnings to the funds used. It indicates the efficiency with which a bank deploys its total resources to maximize its profits. This ratio has been computed by dividing the amount of total amount of net profits by the number of employees in the bank.

Table -2 Profit per Employee (Rs. in Lacs)

Years

Bank Groups

SBI & Its Associates

Nationalized Banks

Public Sector Banks

Old Private Banks

New Private Banks

Private Sector Banks

Foreign Banks

2007

2.57

2.87

2.76

2.34

5.87

4.65

16.13

2008

3.62

3.77

3.72

4.06

6.85

6

21.12

2009

4.43

4.86

4.7

4.69

6.77

6.16

25.39

2010

4.66

5.67

5.31

4.2

8.47

7.18

16.92

2011

4.2

6.95

5.93

5.63

8.93

8.1

27.59

Mean

3.896

4.824

4.484

4.184

7.378

6.418

21.43

STDEV

0.83602

1.594202

1.262509

1.200304

1.277075

1.301622

5.053548

Statistical shows that the Profit per Employees of 20 nationalized banks have increased from 2.87 lacs in 2007 to 6.95 lacs in 2011 while that of eight SBI & its Associates have increased from 2.57 lacs in 2007 to 4.2 lacs in 2011. On the other hand Profit per Employees in case of Private Sector Banks has increased from 4.65 lacs in 2007 to 6.418 lacs in 2011. This is higher from Public Sector Banks. Profit per Employees in case of Foreign Banks has been registered 27.59 lacs which is higher from both types of banks Public as well as private banks. Standard Deviation of Foreign banks is 5.05 which is highest among all the banks groups.

Business per Unit of Staff Cost

Staff cost refers to the payments to and provision for employees. The Employees cost to Business per unit is based on the portion of wage bill data in operating Expenses of the bank's group. Banks have been treating them as critical factor for improving profitability and try to minimize them in relation to operating cost.

Table-3 Business per Unit of Staff Cost (Rs. in Lacs)

Years

Bank Groups

SBI & Its Associates

Nationalized Banks

Public Sector Banks

Old Private Banks

New Private Banks

Private Sector Banks

Foreign Banks

2007

10655

13376

12350

13655

20598

18360

8991

2008

13282

15691

14828

15371

17247

16769

8426

2009

14167

16302

15546

14737

15614

15383

7771

2010

12564

17390

15548

14025

16020

15436

8402

2011

12126

15206

14155

13155

15185

14615

8074

Mean

12558.8

15593

14485.4

14188.6

16932.8

16112.6

8332.8

STDEV

1315.401

1483.775

1326.694

877.302

2188.587

1476.023

455.3292

Statistical shows that Employees cost to Business per unit of 20 nationalized banks have 15206 lacs in 2011, which is highest among all banks groups, followed by new private sector banks i.e. 15185 lacs in 2011.Business per unit of staff cost of Foreign banks has been recorded 8074 lacs in 2011 which is less among the banks groups.

Profit per Unit of Staff Cost

Employee cost to Profit per unit indicates to the payment to and provision for employees as a percentage of total profit. It is based on the wage bill of different banks groups in total profit. It is calculated by dividing Employee Cost to Total Profit.

Table -4 Profit per Unit of Staff Cost (Rs. in Lacs)

Years

Bank Groups

SBI & Its Associates

Nationalized Banks

Public Sector Banks

Old Private Banks

New Private Banks

Private Sector Banks

Foreign Banks

2007

62.75

78.35

72.34

66.35

149.67

122.80

148.78

2008

87.54

95.71

92.83

109.62

142.00

133.90

158.12

2009

96.52

101.16

99.50

108.26

134.29

127.39

153.82

2010

79.39

105.36

95.52

84.45

161.45

139.01

100.73

2011

64.22

92.32

82.81

90.89

164.16

143.79

142.82

Mean

78.084

94.58

88.6

91.914

150.314

133.378

140.854

STDEV

14.6488

10.3598

10.98295

17.96505

12.66914

8.487518

23.14549

Statistical shows that the staff cost to profit in Public Sector Banks both SBI & its Associates as well as Nationalized banks have decreasing trends in 2011.New Private Sector Banks have the highest portion of staff cost in Profits i.e 164.16 lacs in 2011. The share of staff cost in Profit in case of Foreign Banks has the second highest i.e 142.82 lacs in 2011.

Staff expenses (Payments to and Provisions for employees) of Public Sector Banks versus Private Sector Banks

Year

Public Sector Banks

Private Sector Banks

Staff

Cost per

employee

(Rupees)

Staff

2006-07

7,28,878

3,81,449

1,37,284

2007-08

7,15,408

4,00,611

1,58,823

2008-09

7,31,524

4,72,493

1,76,339

2009-10

7,39,646

5,55,874

1,82,520

2010-11

7,57,535

7,15,914

2,18,619

The above table suggests that Public Sector Banks are no longer the major employment provider in the financial market and also that their per employee expenses have gone above that of Private Sector Banks. The staff strength of Public Sector Banks has gone down between 1998-99 and 2010-11 but that of Private Sector Banks have gone up significantly.

The per employee expenses of Public Sector Banks have gone above that of Private Sector Banks and today, is more than 150% higher than that of Private Sector Banks. This is despite the fact that pension expenses of PSU Banks are not fully reflected in their staff expenses. One thing is, thus, loud and clear - the competitive advantage in terms of staff costs that we always thought the Public Sector Banks had is no longer there. The absence of the cost advantage coupled with the problem of lower productivity underscore the critical need for urgent HR transformation in Public Sector Banks. Hence, time has come for us to pay attention to this critical aspect on which our ability to compete finally hinges on. We can no longer postpone this issue.

Factors affecting Employees Productivity

Quality Training Programmes

Once the bank has decided to achieve Productivity efficiency, suitable training programmes should be introduced and all members of the staff should get an opportunity to participate in these programmes. All the employees must be trained to develop quality consciousness and the bank must continually strive to improve the quality of services provided. Training increases the skill of the new employee in the performance of a particular job. An increase in skill usually helps to increase in both quantity and quality of the output.

Improvement in Technological Knowledge

Traditional banking are sometimes unnecessary and time consuming resulting in delay of operation thus it requires a proper study of organization and method to make the office processes. Moreover, many new types of equipment like computer fax machines and ATMs have become able to spur the global competition but our public sector bank is far behind the new entrants. To enable quicker decision making in a scientific manner, on line inter connectivity is most useful. Most of Indian banks have embarked upon the process of computerizing their branches. It is necessary that the banks should reinvest in IT to remain in tune with the changing dynamics of the market. Technology also helps to reduce operation costs, offer customized products and manage risks more efficiently.

Economics of Scale

Achievement of economies of scale i.e. reduction in per unit is cost due to increase in the scale of operation. Economies of scale mean reduction in per unit cost by producing multiple products with the same firm. For example: A bank can sell insurance units, mutual fund products etc with the same branch network. Product diversification can establish "one -stop shop "and attract new customers and achieve productivity efficiency. The banks based in South India may look for a bank in North India to make its presence in North. Similarly banks in North may look for banks in South to increase its area of operations.

Employee Morale

Productivity is linked to employee morale. When employees are happy at work they have more motivation, which increases productivity. Poor morale causes employees to be disengaged. A study done by the Corporate Executive Board says that because employee engagement is down there has been a 5% decrease in productivity. When the employee is motivated-customer served well-does more business with banks- profitability of banks goes up-benefits passed on to the deserving employees-employee is motivated-excellent service to customers is provided.

Knowledge Process Outsourcing (KPO)

The success of BPO has encouraged many firms to start outsourcing their high-end knowledge work as well. India has a large pool of knowledge workers in various sectors ranging from Pharmacy, Medicine, Law, Biotechnology, Education and Training, Engineering, Design and Animation, Research and Development etc. This talent is soon being discovered and tapped by leading businesses across the globe. Hence Knowledge Process Outsourcing involves off-shoring of knowledge intensive business processes that require specialized domain expertise.

Knowledge Process Outsourcing (KPO) is a contract between a company (outsourcer) and a third party (KPO Operator). In this contract the company transfers (gives) some of its knowledge or information related to work to the KPO operator in exchange of fees. So KPO is like BPO. But KPO does high end jobs and BPO does low end jobs. KPO is mostly used by Pharmaceuticals, Biotechnology, Financial Services, Technology Research and other companies who deal with knowledge and information. KPO saves cost. This kind of outsourcing is adopted by companies to implement their strategies and to protect their intellectual property rights. According to report by Global Sourcing Now, Global KPO industry is expected to reach US $ 17 billion by 2010.

Conclusion

HR policies and activities are also vital for every organization. It includes recruitment, development of human resources, compensation management, maintaining industrial relations etc. Therefore, the HR services offered by an organization have a far reaching impact in the functioning and administration of the business organizations.

Employees are the most important resource for banks. Their performance/ productivity must be measured timely. Their performance contributes in achieving higher profitability, business, competitive advantage and goodwill of the banks. Management should treat them as business partners. The mindset of past is not going to work out in present scenario. They should be discussed, consulted, motivate and participate to accomplish tasks and meet performance standards. Finally it is manpower that makes the difference in performance.

The impact of employees is very good on performance, profitability, progress and goodwill of banks. In future it can be improved further because there is a scope for further improvement. With higher productivity and performance of employees the future of banks is going to be bright definitely. In banking sector the different types of services are being offered. The owners of the banks are located at one place. But their branches are scattered and located across the country. They jobs of offering the services are assigned to employees. The performance they are giving on the job matters a lot. That affects the customers' satisfaction, getting and retaining existing customers, complaints handling, targets achieved, sales turnover, profits, market shares and good will of the company. The performance of employees is being focused not only in banking but every service sector. The better performance gives satisfaction to the customers. The services are to be provided with minimum processing and waiting time, proper response, promptness and desire to handle more and more customers. With these objectives the employees are selected on merit basis.

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