Organisational Foundations and Performance of Banks in India – A Juxtaposition Study from 1991-92 to 2019-20

Abstract

Banks are the pivot of development. The way the banking organisations function (Payer) will influence the performance of the banks as well as the target group (The Receiver). There will be always a business relationship between the banks and their customers. This relationship will be solidified and continue to exist for a lifetime and beyond (generation customers). When a bank lives longer, it means better performance by establishing a continuous customer relationship. It is in this context, a study on the organisational foundations to its performance is critical and essential. The present study aims at establishing a temporal relationship between organisational foundations – Vision, Mission, Objectives, Goals / Values, and Strategies and needs to be juxtaposed for a concomitant relationship. The study covers four types of banks in India – Public Sector (PSBs), Private Sector(Pvt_SBs), Foreign Banks(FBs), and All Scheduled Commercial Banks (ASCBs). The organisational foundational variables such as Vision, Mission, Objectives, Goals/ Values, and Strategies are culled out to test the hypothesis of the significance of organisational foundations as explicitly stated will lead to better performance of the banks by type.

The above hypothesis is tested using ANOVA Fixed Effects Model for all performance variables at the aggregate level. The data are culled out from reports of eighty banks which form a major chunk of the banks in India. The sources of data are bank websites, annual reports, RBI websites, EPWRF data sets, and the like. The data have been tabulated by bank type from 1991-92 to 2019-20 – the post-liberalization period in India.

The findings of the study are: PSBs although form 56.5% of the total transactions (credit) have mixed levels of performance. Some areas are statistically significant and some are not. The organisational foundational variables have moderate clarity and are in most of the cases, objectives and goals are not specified. The Pvt_SBs have a market share of 35.4% of total transactions that are urban-centric and have been performing well and most of the variables are documented. The FBs which are operating in India are clear about all the organisational variables except strategy. The share of the FBs in Indian urban transactions is 4.19% of the total and all the parameters of performance show the statistically significant result at 1% level. Generally, there will be no autocorrelation effect in the time model tested. This means Foreign Banks make very little or minimum time-oriented errors.

The paper suggests that all types of banks in India must emulate the FBs to have stronger organisational foundations which in the long run facilitate better competitive performance.