Human Capital Management in Indian Banking Sector: A ...

Author: Dr.G.Sathish, Assistant Professor, Vijay Institute of Management, Dindigul

Co-Author: Dr.N.Swarnalatha, Professor, Vijay Institute of Management, Dindigul

Human Capital Management in Indian Banking Sector:

A Comparative Study of Public and Private Sector Banks

Author Dr.G.Sathish, Assistant Professor,

Department of Management Studies,

Vijay Institute of Management, Dindigul, India

Co Author: Dr.N.Swarnalatha Professor,

Department of Management Studies,

Vijay Institute of Management, Dindigul, India

Abstract

The development of bank culture and civilization led to new dimension in the

approach of bank performance. Human Capital Management contributes for

increased performance and development of banking activities. The Human Capital

Management’s major responsibility is to change the beliefs, attitudes, values and the

structure of management, so that they can better adapt to new technologies, markets,

and challenges. It is a long-term effort, led and supported by all employees working

in banks, to improve the banking vision, empowerment, learning, and problem-

solving process, through an on-going, collaborative management of organization

culture. The HCM values tend to be humanistic, optimistic, and democratic. The

study followed Purposive Sampling technique was adopted to obtain the responses

from the employees of both t h e Public and the Private Sector Banks. A

consolidated list of large Number of Employees working in each branch of PSBs

and PRSBs were selected as a sample size. The study found that Human Capital

Management practices in both public and private sector banks create optimistic

organizational effectiveness in the form of individual efficiency of the employees,

organizational efficiency and productivity.

Key Words: Human Capital Management, Humanistic, Optimistic

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1. Introduction

The Indian banking has seen momentous changes in the post-liberalization era.

It has witnessed a remarkable shift in its operating environment during the last

decade. Every aspect of the functioning of the Indian banking industry is undergoing

dramatic changes. Human Capital Management is a different approach to Human

Resource Management. It is the next level in social sciences in this area.

Human Capi ta l Management is an approach t o Human Resource Management

that perceives employees as assets and not mere resources. Literature underlines the

need for a new approach to Personnel Management which is termed as Human

Capital Management (HCM). It comes with the rule that, ‘if an employer hires a

worker, he always hires a “whole man’’. (Marcel Van Maruijk and Joanna

Timmers, 2003). Hence Human Capital Management is needed in

every organization to develop and create Human Capital or in other words

Human Strength.

2. Banking in India

Banking in India in the modern sense originated in the 18th

century. The

first banks were the Bank of Hindustan (1770-1829) and the General Bank of

India established in 1786. The Reserve Bank of India was established in the year

1935. In 1969 The Indian Government Nationalized all the major banks that it

did not own already and these have remained under Government ownership. They

are run under a structure known as Public Sector undertakings. They operate as

commercial banks. The Indian Banking sector is made up of Public sector banks,

The State Banks which have been joined since 1990’s, the private sector Banks

and a number of foreign banks. Banks provide various services to customers.

Banking services are based on human interactions. Banking is a huge industry that

comprises of large Number of Employees. Human Resource is the foundation of

Banking Industry. Human Resource Management enhances Banking services

provided and performance efficiency of banks.

In India, the banking industry has entered several new activities in the areas of

merchant banking, leasing housing finance, venture capital and financial services in

general. The range of services provided by the banks stretches from rural finance at

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one end to international banking at the other. The banking scenario worldwide is now

undergoing a rapid diversification and technological change and Indian banking is not

an exception with the changing policy of the Government of India in the areas of

industrial, trade and exchange rate policies. The functions of the bank have changed

to cope with the changes.

3. Statement of the Problem

There are various research studies conducted in regard to Human Capital

Management in the International level. In India, in the recent times there are

numerous conferences, seminars conducted and researches done on Human Capital

Management. As the literature was closely followed, there was an area that was

not touched with reference to Chennai city. The banking scenario is not studied

in the context of Human Capital until now in Chennai city. Chennai City, being

one of the busiest business hubs in India, is a ground where almost all the Public

and Private banks have laid seats. It is very important to study the management of

banks in order to improvise for its development. There are numerous studies

which have researched on Human Resource Management and development of banks

but Human Capital has not been dealt so far.

4. Research Gap

This study has concentrated on the major components or elements of

Human Capital revealed in literature and their impact on Public and Private Sector

Banks in Chennai City. The consolidated list of Human Capital items identified, are

studied in the light of Human Capital Management. There is a gap in literature in

assessing these elements and their outcome if implemented in Human Capital

Management. This study seeks to find out o r e x p l o r e the impact of

implementing these elements in managing Human Capital. This study will provide

literature for each of these HC Items as elements in the management of Human

Capital. Fundamentally, this research aims to bring out the importance and

significance of Human Capital Management in Private and public sector banks in

Chennai.

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5. Objective of Study

1. To study the factors responsible for Human Capital Management in

Banking Sector

2. To study the impact of Human Capital Management on

Organizational effectiveness in Banking Sector.

3. To study the comparative analysis of Human Capital Management in

Public and Private Sector Banks, and

4. To Suggest Suitable Measure to improve Human Capital Management in

Public and Private Sector Banks

6. Research Methodology

The study is based on the primary as well as the secondary data. The

secondary data were collected from Books, Journals, periodicals, websites and bank

manuals, files and records. The study depends mainly on the primary data

collected through a well-framed and pre-tested structured questionnaire to elicit

the well-considered opinions of the respondents. The Purposive Sampling

technique was adopted to obtain the responses from the employees of both t h e

Public and the Private Sector Banks. A consolidated list of Number of Employees

working in each branch of PSBs and PRSBs was obtained. The study purposefully

selected the banks and their branches that contained a large Number of Employees.

7. Sampling Techniques

The researcher has obtained the responses from 25 percent of the branch

offices of Public and Private Sector Banks rationally. These branches have been

selected in Chennai City comprising of 10 Zones. (www.chennaicorporation.com).

The following 10 Public Sector Banks and 10 Private Sector Banks are considered

as the sample domain

Table1.1 LIST OF BANKS USED IN THE STUDY

S.NO PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

1 Indian

Bank

Tamil Nadu Mercantile Bank

2 Indian Overseas Bank HDFC Bank

3 Bank of India ICICI Bank

4 Punjab National Bank IDBI Bank

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http://www.chennaicorporation.com/



5 State Bank of India City Union Bank

6 Syndicate Bank Lakshmi Vilas Bank

7 Andhra Bank Catholic Syrian Bank

8 Canara Bank Federal Bank

9 Union Bank of India Karur Vishya Bank

10 Bank of Baroda Axis Bank

8. Data Collection and Sampling Design

This research has taken 10 PSBs and 10 PRSBs located in Chennai

City. The following table indicates the distribution of samples:

TABLE1.2 Sample Data Collected

Banks Distributed Received Rejected Used

Public sector banks 250 197 4 193

Private sector banks 250 223 5 218

Total 500 420 9 411

A total of 500 questionnaires have been distributed and out of which 197

from Public Sector Banks (PSB) and 223 from Private Sector Banks (PRSB) were

received. The respondents were 25 Top level and 25 Middle level employees of the

selected bank branches in Chennai City. After the scrutiny of these questionnaires, 4

questionnaires from PSBs and 5 questionnaires from PRSBs are rejected on account

of incomplete responses. Finally, 193 and 218 completed questionnaires with a total

of 411 from PSBs and PRSBs respectively have been used for the present study.

9. TOOLS OF ANALYSIS

The primary data collected from the employees of both PSBs and

PRSBs were analyzed by using the following statistical tools to obtain a

torrent of results concerning the objectives of the study:

1. One sample t-test is applied to identify the nature of responses of

employees about the HCM sub-systems/practices and significant differences

among the various factors of HCM.

2. Linear Multiple Regression Analysis is brought to bear upon the

problem of identifying the outcome HCM practices.

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3. The application of one-way Analysis of Variance (ANOVA) is

ascertained for establishing the significant relationship between independent and

dependent HCM variables in the research.

10. Findings of the study

In this section, three variables of Employee Training and the total mean

scores of respective Public Sector and Private Sector Banks are considered along

with their standard deviation. By applying paired ‘t’ test, the following results are

obtained

Table-1.3‘t’ test for significant difference in Employee

Training as HCM practices

Q6

N

Mean

Std.

Deviation

Std. Error

Mean

t-value

Sig.

(2-tailed)

Employee

Training

1.00 193 3.8497 .91723 .06602

-8.047

.000

2.00 218 4.4679 .57977 .03927

From the table1.3, it is ascertained that‘ t ’ value = -8.047, p value = 0.000.

There is a significant difference between public sector and private sector banks

with respect to Employee Training. Therefore in private sector banks, more focus

is given to Employee Training.

10.1 A Comparative Study of Employee Turnover in Public and Private sector

Banks

In this section, three variables of Employee Turnover and the total mean

scores of respective Public Sector and Private Sector Banks are considered along

with their standard deviation. By applying paired ‘t’ test, the following results are

obtained

Table-1.4‘t’ test for significant difference in Employee Turnover as HCM

practices

Q6

N

Mean

Std.

Deviation

Std. Error

Mean

t-

value

Sig.

(2-tailed)

1.00

193

3.0604

.93252

.06712

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Employee turn

over

2.00

218

4.4771

.67486

.04571

- 17.444

.000

From the table, it is ascertained that ‘t’ value = -17.444, p value = 0.000.

There is a significant difference between public sector and private sector banks with

respect to Employee Turnover. Therefore in private sector banks, the Employee

Turnover rate is effectively monitored and effective measures are taken to control

and eliminate turnover.

10.2 A COMPARATIVE STUDY OF EMPLOYEE VALUE IN PUBLIC

AND PRIVATE SECTOR BANKS

In this section, three variables of Employee Value and the total mean scores of

respective Public Sector and Private Sector Banks are considered along with their

standard deviation. By applying paired ‘t’ test, the following results are obtained

Table-1.5 ‘t’ test for significant difference in Employee Value as HCM practices

Q6

N

Mean

Std.

Deviation

Std. Error

Mean

t-value

Sig.(2-

tailed)

Employee

Value

1.00 193 3.2228 .81664 .05878

-21.937

.000 2.00

218

4.7867

.59551

.04033

From the table, it is ascertained that ‘t’ value = -21.937, p value = 0.000.

There is a significant difference between public sector and private sector banks with

respect to Employee Value. It is revealed from the above table that in private sector

banks employees are more valued and the employees feel economically upgraded

and valued.

10.3 ASSOCIATION BETWEEN HUMAN CAPITAL MANAGEMENT

AND AGE OF THE BANK EMPLOYEES

The association between Human Capital Management and age of the bank

employees is verified in the following table.

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Table-1.6 Crosstab for Human Capital Management and age of the employees

Age

<30

yrs.

31-40

yrs.

41-50

yrs.

51-60

yrs.

Total

Human

Capital

Management

Dynamic

Employees

Count 42 66 94 22 224

% within

Human

Capital

Management

18.8%

29.5%

42.0%

9.8%

100.0%

Improved

Seekers

Count 16 12 24 38 90

% within

Human

Capital

Management

17.8%

13.3%

26.7%

42.2%

100.0%

Mechanical

Employees

Count 8 9 34 46 97

% within

Human

Capital

Management

8.2%

9.3%

35.1%

47.4%

100.0%

Total Count 66 87 152 106 411

% within

Human

Capital

Management

16.1%

21.2%

37.0%

25.8%

100.0%

From the above table, it is found that 42% of dynamic employees are found in

the age group 41 to 50 years and 42.2% of improved seekers are found in the age

group 51 to 60 years. It further identified that 9.3% of mechanical employees are in the

age group 31 years to 40 years and 18.8% of dynamic employees are in the age group <

than 30 years. This leads to the computation of chi-square statistics as stated in the table

below.

Table1.7 Chi-Square Tests for Human Capital Management and Gender of

the Employees

Value Df Asymp. Sig. (2-sided)

Pearson Chi-Square 74.594a 6 .000

Likelihood Ratio 78.752 6 .000

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Linear-by-Linear Association 44.464 1 .000

N of Valid Cases 411

a. 0 cells (.0%) have expected count less than 5. The minimum expected count is

14.45.

From the above table, it is found that Pearson chi-square statistics =74.594, p

= .000 are statistically significant at 5% level. Therefore it can be concluded that there

is a deep association between age of the employees and the practice of Human Capital

Management in banks. It implies age of the employees plays an important role in banks

at Chennai during the practice of Human Capital Management.

10.4 INFLUENCE O F TYPE OF BANKS ON THE FACTORS OF HUMAN

CAPITAL MANAGEMENT IN BANKS

The present study deals with the type of banks namely public sector and

private sector banks and practice of Human Capital Management. The relationship

between independent and dependent variables is established through one-way Analysis

of Variance (ANOVA) as presented below.

Table-1.8 ANOVA –type of banks

Sum of Squares

df

Mean Square

F

Sig.

Employee Benefit Between Groups

137.33

8

1 137.33

8

321.95

9

.00

0

Within

Groups

174.46

7

40

9

.42

7

Total 311.80

5

41

0

Entrepreneurial

Spirit

Between Groups

47.04

7

1 47.04

7

93.49

8

.00

0

Within

Groups

205.80

4

40

9

.50

3

Total 252.85

2

41

0

Job Rotation Between Groups

113.43

4

1 113.43

4

237.90

3

.00

0

Within

Groups

195.01

4

40

9

.47

7

Total 308.44

8

41

0

Training

Participation

Between Groups

93.45

4

1 93.45

4

183.23

4

.00

0

Within

Groups

208.60

0

40

9

.51

0

Total 302.05

4

41

0

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Employee Training Between Groups

39.11

6

1 39.11

6

68.23

2

.00

0

Within

Groups

234.47

3

40

9

.57

3

Total 273.59

0

41

0

Sum of Squares

df

Mean Square

F

Sig.

Skills

Competencies

Between Groups

230.66

1

1 230.66

1

593.14

6

.000

Within

Groups

159.05

1

40

9

.38

9

Total 389.71

1

41

0

Intellectual Skills Between Groups

7.94

4

1 7.94

4

14.44

0

.000

Within

Groups

225.01

7

40

9

.55

0

Total 232.96

1

41

0

HC Statistics Between Groups

40.64

0

1 40.64

0

125.43

8

.000

Within

Groups

132.50

9

40

9

.32

4

Total 173.14

8

41

0

Leadership

Practices

Between Groups

45.54

9

1 45.54

9

60.00

8

.000

Within

Groups

310.44

7

40

9

.75

9

Total 355.99

5

41

0

Educational Qualification

Between Groups

153.06

7

1 153.06

7

331.38

1

.000

Within

Groups

188.92

0

40

9

.46

2

Total 341.98

7

41

0

Employee Turnover Between Groups

205.43

6

1 205.43

6

316.12

5

.000

Within

Groups

265.79

1

40

9

.65

0

Total 471.22

7

41

0

Number of

Employees

Between Groups

142.90

8

1 142.90

8

279.43

1

.000

Within

Groups

209.17

2

40

9

.51

1

Total 352.08

0

41

0

Employee Value Between Groups

250.37

4

1 250.37

4

499.52

4

.000

Within

Groups

205.00

1

40

9

.50

1

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Total 455.37

5

41

0

Employee

Recruitment Policy

Between Groups

5.69

1

1 5.69

1

9.29

9

.002

Within

Groups

250.30

7

40

9

.61

2

Total 255.99

8

41

0

Sum of Squares

df

Mean Square

F

Sig.

Employee Compensation

Between Groups

149.38

0

1 149.38

0

271.69

1

.000

Within

Groups

224.87

5

40

9

.55

0

Total 374.25

5

41

0

Employee

Incentives Program

Between Groups

171.98

0

1 171.98

0

203.69

6

.000

Within

Groups

345.31

9

40

9

.84

4

Total 517.29

9

41

0

Employee Safety Health

Between Groups

65.88

2

1 65.88

2

130.71

7

.000

Within

Groups

206.14

0

40

9

.50

4

Total 272.02

2

41

0

Career Opportunity Between Groups

131.05

2

1 131.05

2

290.87

5

.000

Within

Groups

184.27

2

40

9

.45

1

Total 315.32

4

41

0

Community

Activities

Between Groups

197.68

4

1 197.68

4

418.95

8

.000

Within

Groups

192.98

5

40

9

.47

2

Total 390.66

9

41

0

Training Institute Between Groups

80.20

4

1 80.20

4

212.56

8

.000

Within

Groups

154.31

9

40

9

.37

7

Total 234.52

3

41

0

From the table it is found that Employee Benefit (F= 321.959),

Entrepreneurial Spirit (F=93.498), Job Rotation (F=237.903), Employee Training

Participation (F= 183.234), Employee Training (F=68.232), Skill Competencies

(F=593.146), Intellectual Skills (F= 14.440), HC Statistics (F=125.438), Leadership

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Practices (F=60.008), Educational Qualification (F= 331.381), Employee Turnover (F=

316.125), Number of Employees (F=279.431), Employee Value (F=499.524),

Employee Recruitment Policy (F=9.299), Employee Compensation (F=271.691),

Employee Incentive Program (F=203.696), Employee Safety and Health

(F=130.717), Career Opportunity (F= 290.875), Community Activities (F=418.958),

Training Institute (F=212.568) differs significantly with respect to type of banks the

employees are working. This leads to mean wise comparison of each segment of

type of banks.

It is concluded from the above table that the employees working in private

sector banks strongly agreed that Employee Benefits (mean = 4.54), Entrepreneurial

Spirit (mean = 4.20), Job Rotation (mean = 4.55), Employee Training Participation

(mean = 4.29), Employee Training (mean = 4.46), Skill Competencies (mean

=4.75), HC Statistics (mean = 4.62), Leadership Practices (mean = 4.30) Educational

Qualification (mean = 5.00) Employee Turnover (mean = 4.47), Number of Employees

(mean = 4.05), Employee Value (mean = 4.78), employees safety and health (mean =

4.14), Career Opportunity (mean = 4.57), Community Activities (mean = 4.79),

Training Institute (mean = 4.40) are included at the time of practicing Human

Capital Management compared to public sector banks employees who moderately

agreed towards Employee Benefits (mean = 3.38), Entrepreneurial Spirit (mean = 3.52),

Job Rotation (mean = 3.50), Employee Training Participation (mean = 3.33),

Employee Training (mean = 3.84), Skill Competencies (mean =3.25), HC Statistics

(mean = 3.99), Leadership Practices (mean = 3.63) Educational Qualification (mean =

3.77) Employee Turnover (mean = 3.06), Number of Employees (mean = 2.87),

Employee Value (mean = 3.22), employees safety and health (mean = 3.34), Career

Opportunity (mean = 3.44), Community Activities (mean = 3.40), Training Institute

(mean = 3.52).

It is further revealed that the employees working in private sector banks

moderately agreed towards their banks practicing Intellectual Skills (mean = 3.30),

employees recruitment policy (mean =3.77), employees compensations (mean

=3.91) employees incentives programmes (mean = 3.84) in Human Capital

Management compared to public sector banks in Chennai.

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Figure 1.1 Human Capital Management on SEM MODEL

The above model indicates that the twenty Human Capital Management

Items create significant influence over the employees as well as the organization in the

form of organizational effectiveness. The structural equation modelling clearly revealed

that the co-variances -18,-.15, .28, -.18, .16, -.48, -.18, -.20, .18, .06, .03,.02, .30, .21,

.13, .06, .30, -.26, -.40, .31 are statistically significant at 5% level. Therefore, it can be

concluded that Human Capital Management practices in both public and private sector

banks create optimistic organizational effectiveness in the form of individual

efficiency of the employees, organizational efficiency and productivity.

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11. Suggestions

There is a need for banks to take more measures by enhancing the Human

Capital Management practices as the scores are still low.

The Human Capital Management should outline the related strategy

throughout the banking organization and explain its importance into the

overall banking strategy and objectives.

The importance of the employees and the Human Capital Management to the

future performance of the banks should be acknowledged and explained.

A Human Capital Management strategy should be developed in consultation

with the employees, and this process, along with the results and subsequent

inputs into the strategy development should be specified clearly.

An overall strategy, individual policies in Human Capital Management should

be described and preferably made available on the banks website.

Effective progress of the banks requires the appointment of separate executive

made accountable for Human Capital.

The banks should be capable to explain the significance of Human Capital

Management to the business financial performance and in more intangible

areas such as reputation.

Measures must be taken to educate middle level executives in banks to adopt

Human Capital Management practices as a part of a learning program

throughout their service.

A collective and equal enthusiasm must be created among all the executives to

practice HCM and they might be told the significance of HCM practices as the

long term process to accrue maximum benefits.

12 Conclusions

The study sought to determine the Human Capital Management practices

adopted by the banking industry and it is found that this practice generally has a

positive influence on the performance of the banks. The Banks need to be producing

more integrated accounts of how Human Capital Management strategy involves the

overall banking performance, strategies used for managing their employees to gain

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their highest potential and the potential benefits of effective management. The

study reveals that many banks can significantly improve their discussion on

Human Capital Management issued to the extent that they are of the same standard as

the reporting of other more tangible assets. T h e Human Capital Management

communicates more effectively a clear positive message to employees that they are

valued and their contribution is important to the success of the bank’s performance

and their contribution helps to achieve the targets fixed for the banks.

13 References:

1. Benson. S (2003), "effects of employee development on commitment and

intention to turnover" Academy of Management Best Conference Paper

2. Bhattacharya, Mousumi / Wright, Patrick M. (2005): Managing human

assets in an uncertain world: applying real options theory to HRM. In:

Journal of Human Resource Management, 16(6), 929-948

3. Human Capital Management - Achieving added value through

people, Angela Baron and Michael Armstrong, 2007.

4. Human Capital, Cambridge University Press India Pvt.Ltd, 2008.

5. Human Hap tic Perception, Martin Grunwald, Basic and applications, Ed.

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