Bulletin of Research Developments September 2015

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Research Articles
Vol. No. 5 September 2015
th
2 3
Bulletin of Research Developments
Employee'sJob SatisfactioninTamilnadu StateTransport Corporation.
S.Subendiran 05
Transformationof OrganizationthroughTQPInscribed by NovelTechnique
PrasadSrinivasan 10
AnAnalyticalApproachat CriticalChain ProjectManagement
S.Jothinathan 14
AnAnalysis of Bank SectorFunctioningDuring Liberalization
AnupVargheseCherian 28
AnalyticalApproachof PsychologicalStress of the BuildingConstructionWorkers
Babu.M 40
WebTechnologyin ElectronicCustomerRelationship Management
(WithSpecialReferenceto theConsequence of ComputerizedConsumer
Relationon ClientSatisficationa Study onWebBanking inIndia) Shamik Palit53

Bulletin of Research Developments Vol.2, No.3, (5 September 2015)th
Employee's Job Satisfaction in Tamilnadu State Transport Corporation.
S. Subendiran.
Abstract
Keywords
Introduction
(M.Com., M. Phil., M.B.A., PGDCA,)
Assistant Professor, Department of Commerce (SF)
Arulmigu Palaniandavar College of Arts & Culture
Dindigul Road, Palani - 624 601
yes.subii@gmail.com
Job satisfaction is one of the most widely plays vital role in the field of organizational behavior and the
practice of human resource management. It occupies an important place in such disciplines as
industrial psychology and organizational communication. Job satisfaction has a rich history in the
management literature. Research shows that job satisfaction is related to important work-related
outcomes such as organizational commitment. Job satisfaction is of tremendous significance in the
study of organizationalbehavior. An organization having satisfied workers is a healthy one and has a
fewer problems. It is believed and also has been proved by many research studies that job satisfaction
leads to high level performance.This is because a satisfied worker will not hesitate to put forth the best
in him in the performance of the work allotted to him. The job description of the Tamilnadu State
Transport Corporation is subject to revival. Sleep deprivation, work schedule and heavy work load
deployed especially at festival times are the vital factors correlated with job satisfaction of TNSTC
employees. A case was filed in August 2013 with the Palani Branch about drivers and conductors
being forced to work extra in transport corporations. The case is still pending before the court. Hence,
drivers' and conductors' levels of satisfaction is subject to an in-depth research. In view of this an
attempt is made to make a study on job satisfaction of transport workers in Tamilnadu State Transport
Undertakings(TNSTU).
Drivers,Conductors,Requirement,Training,Job SatisfactionandJob Enrichment
As job satisfaction is a dynamic, it can decline even more quickly than it develops. Organizations are
composed of individuals. Each individual is an island in himself/herself, subject to particular motives,
aspirations, perception and abilities. The behavior of each individual is influenced by several factors,
such as environmental factors, performance and individual development of an employee is based on
theextentinfluenceofvariousfactorsonhim.
The type of job which an individual holds leads to a significant influence on his behavior. When an
employee takes up a job in an organization, his behavior is influenced by various factors. A person
likes the job when he/she is satisfied with the conditions of the job and vice versa. Attitude plays an
importantroleinreflectingthesatisfactionoftheemployee.

Statementof the Problem
Objectivesof the Study
1. TNSTC driver Dhandayuthapani told Times of India that most of them suffered gastro-intestinal
problems due to unhygienic food and lack of sleep. “Sleep deprivation and eating out will first
affect the digestion system and most of us have ulcers and other diseases,” he said. Further,
trafficrelatedleadstobloodpressure,cholesterolandheartdisease,hesays.
2. S. Sampath, Joint Secretary, Transport Corporation Staff Federation, told Times of India that the
work schedule differed according to type of bus. The city bus drivers work in two shifts starting
from early morning at 5 to 11 pm.The drivers working in village operations work from after-noon
to afternoon, spending the night at villages. As the mofussil buses operate round-the-clock, a
driver completes the entire route between destinations driving up to 10 or 12 hours, he said. The
batch system which shifts the driver and conductor to different routes every six months was
slowly being abandoned, leaving the crew tied to particular routes for years together. It seriously
affects the health of drivers and conductors as well since their lifestyle itself is altered. Most
driverssufferstressrelateddiseases,Sampathsays.
3. During each festival season, there is a heavy rush of passengers. At these times, Tamilnadu State
Transport Corporation (TNSTC) usually operates additional buses to handle the heavy rush
during festival holidays. Hence drivers and conductors are forced and deployed with heavy
workloads. As they are not spending their times with their family during these festival times and
burden on their job will them lead to work life imbalance to them. But there is no yard stick to
study the levels of job satisfaction of them and no method is very specific to identify the factors
influencingthejobsatisfactionofTNSTC's driversandconductors.
Based on the above research problems, this researcher paper is about Employees' job satisfaction in
TamilnaduStateTransportUndertakings.
TostudythelevelsofjobsatisfactionofEmployeesinTamilnaduStateTransportUndertakings
Only the drivers and conductors of TNSTC has been studied for this research paper. The nature of the
job is widely differ from other employees of TNSTC like technical staff, administrative staff and
others. A case was filed in August 2011 with the Palani Bench about drivers and conductors being
forced to work extra in transport corporations. The case is still pending before the court. Hence,
drivers' andconductors' levelsofsatisfactionissubjecttoanin-depthresearch.
Ø
ScopeoftheStudy

Methodology
StatisticalTools
Hypothesis
This study is based on both primary and secondary data. For collecting primary data interview
schedule technique will be adopted. As it is a pilot study the sample size of the respondents has been
fixedas 50andtheyhavebeenidentifiedrandomlybyusingsimplerandomsamplingtechniques.
Appropriatescalingtechniquehasbeenadoptedwhereeverthenecessityarises
1. Simplepercentageanalysis
2. Chi-squaretest
H0 Thereis nosignificancerelationshipbetweenageandwork shiftandrotation
H0 Thereis norelationshipbetweennatureofjobandwork lifebalance.
Thefollowingstatisticaltoolshavebeenappliedfor thisstudy.Theyare,
1
2
Variable
Age
Level of
Education
Below -30
HSC
31-40
UG
41 50
PG
Up to 10000
Drivers
Above 51
Diploma
10001-20000
Conductors
Above 30000
20001-30000
10
30
20
10
10
5
5
30
10
10
5
20
20
15
20
60
40
20
20
10
10
60
20
20
10
40
40
30
No. of Respondents Percentage
Table 1. Socio-Demographic Characteristics of Respondents
Nature of job
Income
(per month)
Source:Primarydata
The table shows that sociodemographic factors of Tamilnadu State Transport Corporation
employees. It revealed that 40 per cent of the respondents were at the age group from 31 to 40. It is also
significant to notice that 40 per cent of the respondents were having experience in between 11 to 20
years. Most of the respondents (30/50) that is 60 per cent have possessed higher secondary level of
education. It is significant to notice that some of the respondents (5/50) that is 10 per cent were post
graduates. Most of the respondents (20/50) that is 40 per cent were under the income group of Rs.
10,001 to Rs. 20,000. Some of the respondents (15/50) that is 30 percent were earn more than Rs.
30,000.

8 Bulletin of Research Developments Vol.2, No.3, (5 September 2015)th
Table 2. Levels of Job Satisfaction of TNSTC Employee
Factors
Work shift andRotation
Salary and other
Medical check up
Work life balance
Highly
5
-
10
10
-3
-2
-3
1
-3
-1
-1
5
-0
10
-0
5
-2
-0
-2
1
-2
-1
-2
-0
-2
-3
-2
-3
-2
-3
-3
0
3
0
Satisfied
20
5
25
25
Neutral
10
20
10
10
Dissatisfied
10
15
5
5
Highly
5
10
-
-
Source:Primarydata
ExpectedFrequency:
From the above table it is revealed that 20 respondents havesatisfied with their work shift and rotation
and 10 of them have dissatisfied with their work shift and rotation. It is also revealed that 15 of the
respondents have dissatisfied with salary and other allowances. It is significant to notice that 25 of the
respondents have satisfied with the medical checkup and medical camp conducted by TNSTC. Out of
the total respondents it is revealed that 25 of the respondents have satisfied with work life balance and
fiveofthemdissatisfiedwithwork lifebalance.
Ho Thereis nosignificancerelationshipbetweenageandwork shiftandrotation
Table 3.Test of Chi-SquareAnalysis on the Relationship betweenAge andWork
Shift and Rotation.
1
Source : Computed from Primary Data
df = (r - 1) (c-1) = (5-1) (4-1) = 12 Table value @ 5% level = 21.026
The calculated value (97.8) is greater than the table value (21.026). Hence, the null
hypothesis is rejected. There-fore, there is a significant relationship between age and work shift
and rotation.
Ho There is no relationship between nature of job and work life balance.
Calculated χ2 Value = 97.18
Result :
Expected Frequency:
Table 4 Test of significance between nature of job and work life balance
2

Source:Computed fromPrimaryData
Result
Calculatedχ2Value=70.83
df=(r-1)(c-1)=(5-1)(1-1)=4Tablevalue@5%level=9.488
: The calculated value (70.83) is greater than the table value (9.488). Hence, the null
hypothesis is rejected. Therefore, there is a significant relationship between nature of job and work
lifebalance.
The study is based on job satisfaction of theTNSTC employees.The problems suffered the bus drivers
and conductors are attributed to the nature of work they are exposed and it is associated with the
outcome from their occupation. What is really required, is a comprehensive personnel policy, with
programmes for proper recruitment and training, enforcement of discipline improved working
conditions like better seats for drivers, better buses, better roads, improved promotion avenues
introduction of well-conceived productivity linked schemes for motivation it leads job satisfaction,
work commitment, job enrichment and performance. It is the management's role to supply initiative,
both initiative towards creating better conditions and the initiative needed to apply technical skills to
theattainmentofhigherefficiencyandproductivity.
Conclusion
References
Ø
Ø
Ø
Ø
Ø
G. Jegadeesan. 2007, Job Satisfaction: a Conceptual Framework, Journal of Organizational
Behaviour,Vol.Vi,no.4,Pp.58.
JArockiaraj, health was a major causes for concern”.Times of
India17December2011
http://articles.timesofindia.indiatimes.com/Palani/30528981_1_bus-drivers-tnstc-long-
routes1.html
Bindu Bhatt and Seema M.S. 2012,
JournalofHealthManagementvolumeno.12(1),Pp.205.
Padmakumar Ram. 2013,
-AcasestudyfromIndiaVol.2,no.2,Pp.32.
“Government Bus Drivers'
“Occupational Health Hazards: A Study of Bus
Drivers”
“Relationship Between Job Satisfaction Job Performance in
thePublicsector”

Transformation of Organization through TQP Inscribed by Novel Technique
Abstract
Introduction
Corporate Management
Anatomy-Cheetah
Prasad Srinivasan,
Doctoral Student
Department of Management
Himalayan University - Arunachal Pradesh
Managing corporate is an art and science that involves managing people and tasks. Successful
accomplishment of the task and the overall welfare of the corporate are deeply rooted in the Total
Quality Management (TQM) through Total Quality People (TQP). In a dynamic environment too
much emphasis is given to manage a task than the people. The quality never limits to the quality of the
people when they are hired but how to keep them continuously creative, innovative, energetic and
resultoriented.
Eventually, peoplebecomemechanicalin churning out results like machines.Such results output may
not help the organization to be competent at all times. Modern management approach lacks the
“Biology” component. A total and complete biological approach is desirable for developing people,
enable and empower them and make them successful both from within and in the corporate
ecosystem.
To demonstrate above novel concept, a wild animal Cheetah is chosen as an example. Its behavior,
functional mechanism is reviewed thoroughly and discovered an analogy to corporate management
principles.
The present day corporate are dynamic and engaged totally in competing with its competitor than
being creative. During this journey to achieve/ retain top position, they make corporate ecosystem
highly sterile for creative talents to provide an opportunity to grow than being fertile to nurture and
support talents.As a result of the above in most corporate talents exists more in its physical form than
in the biological form. A biology component inclusion to the corporate management approach is
desirabletoachievecorporategoalfaster.
The objective of present study is to establish various management principles that are involved in
the evolution and the adaption amongst animals-Cheetah and develop them for use in corporate
management learning.
The name "cheetah" comes from a Hindi word meaning "spotted one" or from the Sanskrit word
"chitraka". An adult has yellow or tan fur with solid black round or oval spots measuring .75 to 1.5
inches(1.9to3.8centimeters)indiameter.

High-speed locomotion is essential for the survival and success of many species for both prey capture
and escape from predatory attacks .The cheetah (Acinonyx jubatus) is widely acknowledged as the
fastest living land mammal, capable of speeds up to 29 ms−1 (Sharp, 1997). Through the examination
of the musculoskeletal anatomy of an animal it is possible to gain insight into its locomotor
capabilities.
The moment arm of a muscle is defined as the perpendicular distance from the joint centre of rotation
to the line of action of the muscle, which can vary with changes in joint angle (Landsmeer, 1961;An et
al. 1981; Spoor & van Leeuwen, 1992). Through measuring the muscle's moment arm we can convert
the linear forces of a muscle to rotational joint moments, which act to resist external forces and move
the limb. One of the major functions of locomotor muscle is to support the body weight of the animal
byresistingthegroundreactionforcejointmomentsduringstance.
To support body weight, an impulse must be applied to the ground (during stance) that is equal in
magnitude to the product of the animal's body weight and stride time (Alexander & Jayes, 1978).With
increasing speed, an animal's duty factor (proportion of the stride that the feet are in contact with the
ground) decreases, and therefore to maintain the impulse required to support body weight, the peak
ground reaction force must increase (Witte et al. 2006). It is therefore crucial for high-speed predators
suchas thecheetahtobeabletogeneratelargemusclejointtorquestoresistthisforce.
Another requirement of high-speed locomotion is the ability to swing the limb rapidly and reposition it
for the next stride. This is dependent on several factors: the limb's inertia (Lee et al. 2004), the internal
architecture of the muscles (a long-fibred muscle has more sarcomeres in series enabling it to contract
at a high velocity), and the muscle moment arms (a short moment arm enables greater changes in the
jointrotationforagivenchangeinmusclelength).
1. The cheetah exhibits several unique skeletal adaptations that mostly act to increase muscle
moment arms when compared with the greyhound. The cheetah also possesses divergent
talar ridges, an adaptation that may help to prevent limb interference during the gathered
aerialphaseofthegallop.
2. The cheetah has significantly longer hind limb bones than the greyhound, enabling it to have
a longer contact length and potentially an increased stride length. The cheetah's limb bones
are also proportionally heavier and have a larger mid-shaft diameter, suggesting that they are
suitedforresistinglargerforces.
3. The cheetah has a smaller volume of muscle at the hip than the greyhound, and thus is unable
to obtain the power required for acceleration from hip extensor musculature alone. We
hypothesise that the additional power is generated by the substantial amount of back
musculaturethatthecheetahpossesses.
4. The cheetah has particularly large psoas muscles, which we suggest are used to rapidly
protract the hind limb, and to resist pitching moments about the hip that occur during
accelerations.

Cheetah Relationship with Humans:-
Primitive Set up Cheetah's Message Modern Facility
Analogy (Cheetah & Corporate)
Despite their fierce appearance, Cheetahs have actually been domesticated by local people for
thousands of years, as they were used to help with hunting for food for the villagers. They have also
been kept in captivity for a long time, but as they do not seem to produce particularly healthy
individuals, wild Cheetahs were regularly caught to restore the bloodline. Hunted by people as
trophies throughout much of their natural range, Cheetahs have completely disappeared from
numerous places and along with habitat loss to growing Human settlements and the clearing of land for
agriculture,Cheetahnumbersarestilldecliningrapidlyinmanyareastoday.
The successful survival of Cheetah in African jungle comes not just from its ability to run at great
speed but certainly from its intelligence and endurance to an extraordinary struggle/hardship.
Cheetah is the fastest cat. But compared to the jaw power of a lion or hyena or leopard, the jaw power
of cheetah is poor or not that strong. More often than not, the smart cheetah hunts the prey, the smarter
lionorleopardor hyenasnatchesthehuntawayfromcheetah,leavingthemtowork allagain.
This competition for survival was there for cheetah perhaps ever since it was evolved and is continuing
even today. The wise cheetah has wisely applied its intelligence and redesigned its hunting time and
strategy and that is how it has become successful. That is how the cheetah has become a diurnal
hunter,carefullyselectedtohuntespeciallyduringthehotmid-day.
Most oftheotherbigcatsandhyenaarenocturnalanimalsandtheyfindithardtowork inhotmid-day.
Chasing the prey and running at great speed during hot mid-day will give an extraordinary pressure to
any animal. During run (chasing prey), the body temperature of cheetah is reported to rise to 105
degree centigrade. Hence this cat has to rest between. Cheetah does the above fete only to ensure its
success.
Sacrifice and endurance are inevitable for survival. Strength will support only if wisdom is applied
wiselyandwisestrategiesareworkedoutto'receiveandsupport' the'strength'.
Despite having the unique strength, i.e. ability to run at great speed and ability to catch even the fastest
deer impala, cheetah has to work differently by choosing the less chosen time, i.e., the hot mid-day to
hunt the prey. The hot mid-day has only minimized its competition and competitors snatching its
prey but not its struggle. Its struggle continues. But despite the continuous struggle, it could become
successfulsurvivorintheAfricanjungle.
Corporate leaders should plan, work and think differently in order to achieve success. One should
never assume that struggle free path is 'the' path to success. Learn to live with struggle & overcome
wisely.
Endurance is essential for success. Cheetah has willingly accepted the hardship of hot sunny mid-day.
As difficult the hot sunny day to cheetah, so is the day to its prey animals also. Cheetah saw an
opportunity there. Cheetah wisely learned the art of avoiding competition. Cheetah wants to achieve
success(survival). Cheetahwas readytoendureandwork hard.

Conclusion
Acknowledge
Cheetah a wild animal in nature has given various inputs to the corporate organization to shape and
mould to grow to greater heights. Its endurance to hard work and success is a set example to the
corporateorganization.
Corporate leaders should plan, work and think differently in order to achieve success. There is no
struggle free path for success. Learn to live with struggle & overcome wisely. In order to be
successful Organization, it is strongly recommended to develop & mould more such cheetah's and
utilizethemduringcrisissituationandgrowthanddevelopment.
I take deep pleasure in thanking Dr. S Ranganathan in directing me towards my approach and giving
insights about the animal kingdom and its messages to the corporate world. Also I have to thank
Dr. P Ramesh Babu who has given valuable inputs in shaping the details and giving additional
management prospective to the research. This paper publication would be incomplete without
mentioninganoteonDr. EVenugopalwho hasbeenthroughoutguidingmewithhisvaluableinputs.
by Swami Sukhabodhananda and
Dr.S Ranganathan , Prasanna Trust , Year of Publication 2012.
by Gopalakrishnan Published by Penguin Books,India
by One Minute Manager Series written by Kenneth Blanchard.
Published by Dr. Ranganathan.(www.articlesbase.com/human-
resources)
by John Adair, Viva Publication,
Edition 2004.
b y S t e p h a n i e S . To l a n , O n l i n e
(http://www.stephanietolan.com/is_it_a_cheetah.htm),2006.
(Cheetah Success Series Book 1) [Kindle Edition] by
Michelle LaBrosse PMP(Author).
References
Ø
Ø
Ø
Ø
Ø
Ø
Ø
Jungle Wisdom for Corporate Management
Bonsai Managers
Monkey Managers
Online Research Articles
The Concise, Management & Personal Development
I s i t a c h e e t a h
Cheetah Project Management
p u b l i c a t i o n
Analogy to Management is a Success wich demands endurance, willingness to travel an extra mile,
the intelligence to know the strength and how to use the same wisely. Every corporate person may
learn the success and struggle of cheetah in order to be successful in corporate life. In a given
circumstances corporates might be experiencing comfortless while challenged with crisis situation,
most of the corporate succumbs as they presumably have not developed many adequate cheetahs to
handlethecrisis.
More cheetah's in the corporate organization helps to resolve the challenging situations.They can be
mouldedforfuturegrowthanddevelopmentoftheorganization.
The vanishing of cheetahs in jungles has learning to the corporate organization. Develop more
cheetahs for future growth and development to avoid extinct of cheetah like leaders in the
organization. Such cheetahs will accelerate the growth and would act as catalyst. Team viewing such
catalystwouldgetmotivatedandcontributemoretowardstheorganizationgoals.

An Analytical Approach at Critical Chain Project Management
Abstract
Introduction
S.Jothinathan
Doctoral Student
Critical Chain Project Management (CCPM) has emerged in the last few years as a novel approach for
managing projects. In this paper we analyze the principles, assumptions and techniques of CCPM in
the light of their contribution to project management practice and to project success. We start with a
brief review of the key elements of CCPM that pertain to project planning, execution and control.
These are: revision downwards of duration estimates; buffer calculations; task completion
notification;progress measurement;andprioritysetting.
We continue with a critical analysis of CCPM in the light of the evidence in the research literature and
in practice. The points addressed include duration estimation practices; project network structure;
stability of the critical chain; resource productivity under multitasking; and the organizational and
operational environment of the project.We also consider the place that CCPM occupies in the broader
project management context, and the costs associated with its adoption. Our conclusion is that
although CCPM has a number of valuable concepts, it does not provide a complete solution to the
needs of project management. Consequently, organizations should be very careful when considering
theadoptionofCCPM totheexclusionofconventionalprojectmanagementtechniquesandmethods.
Critical Chain Project Management is a novel approach for managing projects developed book
“Critical Chain”. Researcher is well known in the operations management community as the inventor
of the Theory of Constraints (TOC). TOC is a tool for managing repetitive production systems based
on the principle that every system has a constraint, and that the system performance can only be
improved by improving the performance of the constraining resource. CCPM is an extension of TOC
designed specifically for project environments. In the original book and in the writings of its
proponents, see for instance Newbold (1998), Simpson and Lynch (1999), Homer (1998), and Leach
(1999), CCPM is being presented as an alternative to the classical methods for project planning and
control, such as those contained in the management and engineering text books and in professional
standardssuchas thePMI GuidetotheProjectManagementBodyOf Knowledge(PMBOK).
The publication of Researcher's book generated some controversy in the project management
community see for instance Globerson (2000).The proponents of CCPM claim that it is a totally new,
revolutionary way of thinking that can lead to superior, even unprecedented, performance in terms of
reducing delivery time and increasing the ability to meet schedule and budget commitments. Others
dismiss this as hype, arguing that the principles behind CCPM have been known to and applied by
experienced project managers for decades, and that CCPM uniqueness is in the terminology rather
thaninsubstance.

In addition to departing from the commonly accepted practice of project management, the application
of CCPM requires the use of specialized software currently offered by a small number of vendors, not
necessarily the market leaders.As a result, any organization that is considering the adoption of CCPM
as a way for improving project performance faces significant costs, both in economic terms and in
terms of changes to its culture and work procedures. Consequently, a careful evaluation and
assessment of CCPM and its potential to bring about significant and sustainable performance
improvementsisinorder.
The purpose of this paper is to provide some guidance to organizations and decision makers who are
considering CCPM as an addition or a substitute to their current project management practices. The
paper is organized as follows. We begin with a brief overview of CCPM and a discussion of its key
concepts and techniques. We continue with a critical examination of the assumptions behind CCPM,
while considering relevant results from the published research literature and from our own consulting
practices. Next, we examine the place that CCPM occupies in the PMI PMBOK. Finally, we conclude
withourassessmentofthebenefitsandlimitationsofCCPM.
The starting point for CCPM is a list of tasks along with their duration estimates and dependencies.
The first step consists of developing an initial schedule for the project tasks. This is done while taking
into account the dependencies among the tasks (as reflected in the project network) and the
availability of resources. Since at least some of the resources have limited availability, the resulting
schedule is likely to be longer than the schedule obtained with the basic Critical Path Method
algorithm,as criticalactivitiesaredelayedwhilewaitingfortheresourcestheyrequire.
At this point CCPM identifies the “Critical Chain” as the set of tasks that results in the longest path to
project completion after resource leveling. The critical chain yields the expected project completion
date. Those resources required by the tasks on the critical chain are defined as “Critical Resources”.
So far CCPM is the same as conventional project management except for the terminology “Critical
Chain”, which would otherwise be called the “Leveled Critical Path”.1 The next step in CCPM
planning consists of recalculating the project schedule based on shortened task duration estimates.
TherationaleofCCPM forshorteningtheoriginaldurationestimatesis as follows:-
1.Allthetasks intheprojectaresubjecttosomedegreeofuncertainty.
2. When asked to provide an estimate of the duration, the task owner adds a safety margin in order to
be “almost certain” of completing the task on time. This means that task durations are, in
general,overestimated.
3. In most cases the task will not require the entire amount of safety margin and so should complete
soonerthanscheduled.
4. However, since the safety margin is internal to the task, if it is not needed it is wasted. As the
resourcesforthefollowingtaskarenot
An Overviewofthe CriticalChain ProjectManagementMethod

1 Wiest and Levy (1969 and 1977) have noticed way before the publication of Researcher's book that
"While a critical path of technologically connected jobs does not always exist in a limited resources
schedule, under certain conditions a "critical sequence" of slackless jobs which span the length of the
project can be identified. The jobs are continuous in time, if not in predecessor-successor
relationship". In view of Wiest (1964) and Wiest and Levy early work on resource constrained
scheduling, Globerson's (2000) assertion that "the main contribution of the critical chain notion is the
addition of a new and relevant concept that states that the critical path does not remain the same under
constrained resources" seems to be inappropriate. available until the scheduled time, when it becomes
obvious that the buffer is unnecessary the task owner will use the buffer time since there is little
incentive to finish early. On the other hand, any delays in the completion of tasks on the critical chain
propagate to the successor tasks. Thus gains are lost, delays are passed on in full, and the project is
likely to finish late even if, on average, there are enough buffers hidden in the tasks. CCPM states that
original duration estimates are such that the likelihood of completion is 95%, and that they should be
reduced to the point where the likelihood of completion is 50%. The difference between the project
duration based on the new estimates and the original project duration is called the Project Buffer, and
should be displayed on the project Gantt chart as a separate task. Figure 1 illustrates the relationships
betweentheoriginalscheduleandtheCCPM schedulebasedontheshortenedtaskdurations.
Figure 1 Conventional- schedule and CCPM schedule with the time buffers shown Explicitly
The buffers, which were previously hidden in each task, have been made explicit and pooled. This
pooled buffer is called the “Project Buffer”. Note that by calculating the project buffer the total
duration of the project did not increase: Under CCPM the project buffer is considered part of the
project and as such must be scheduled and assigned resources.Also, a Gantt chart showing the project
buffer serves to communicate the inherent uncertainty in the project, as opposed to a conventional
Ganttchartthatpresentsaspurious airofcertainty.
It is improbable that all the critical chain tasks will exceed their 50% likelihood duration estimates:
under the assumption of statistical independence, about half will complete over while the other half
will complete under. By pooling together the safety margins of the individual task, the protection
against uncertainty is improved, so CCPM suggests that the combined project buffer can be less than
thesumofthesafetymarginsoftheindividualtasks.

This argument is supported by statistical theory that states that the standard deviation of the sum of a
number of mutually independent random variables (in this case, the actual durations of the tasks on the
path) is less than the sum of the individual standard deviations.Although the assumption of statistical
independence of tasks durations is questionable, in theory this justifies reducing the overall duration
of the project. In practice, it may be easier to gain task owners' acceptance of pooling their individual
taskbuffersifthetotalisnotreduced.
The same process of making safety margins explicit and pooling them can be applied to non-critical
paths. As before, the safety margin in each task is identified, taken out, and pooled at the end of the
path. Because this buffer is placed where the path feeds back into the critical chain path, it is called
“Feeding Buffer”. Figure 2 shows a simple project network in which the feeding buffer has been
identified.Notethatnon-criticalpathscanstillhaveslack,aswellas buffer.
Figure 2 Project Network with Feeding Buffer
According to CCPM, a feeding buffer represents the extent of protection of the critical chain against
the uncertainty in the feeding non-critical chain, and its size may be adjusted as desired. Once the size
of the feeding buffer has been determined, if there is still some slack on the feeding chain, then CCPM
prescribes that the task be scheduled as late as possible. This is justified on the basis that it reduces
waste of time and work in process on the non-critical tasks while preserving the desired degree of
protectionofthecriticalchain.
The third type of buffer used by CCPM is called a “Resource Buffer”. A resource buffer is a virtual
task that is inserted prior to critical chain tasks that require critical resources. Its purpose is to issue a
signal to the critical resource to the effect that a critical chain task to which they are assigned is due to
start shortly. According to CCPM, this “wakeup call” will cause the critical resource to wrap up any
non-critical work that it is involved with, and to be ready to start work on the critical chain task as soon
as its predecessors are completed. The resource buffer does not actually consume any resource, and it
addsneithertimenorcosttotheproject.
At this point CCPM has created a new project schedule, which consists of the original tasks with
reduced durations, and various types of buffers: the project buffer, the feeding buffers and the resource
buffers.

For theexecutionof theprojectplan,CCPM prescribesthefollowingprinciples.
Resources working on critical-chain tasks are expected to work continuously on a single task
at a time. They do not work on several tasks in parallel, or suspend their critical tasks to do
otherwork.
Further, resources are to complete the task assigned as soon as possible, regardless of the dates
ontheschedule.
If the task is completed ahead of schedule, then work on its successor is to begin immediately.
If the task successor utilizes a critical resource for which a resource buffer has been defined,
then advance warning is provided to that resource at the point in time where the resource
bufferbegins.
If the task is completed past its planned completion date as shown on the CCPM schedule,
then this is no reason for immediate concern, as the buffer on the chain on which the task is
situatedwillabsorbthedelay.
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As progress is reported the CCPM schedule is recalculated, keeping the final due date of the project
constant by adjusting buffer sizes. Project control focuses on consumption of the buffer. If buffer
consumption is out of proportion then this becomes a clear indication for implementing corrective
actions, such as reassignment of resources to the tasks on the chains leading to the buffer in question.
In this manner, the extent of buffer utilization serves to monitor the likelihood of project completion
byitscommittedduedate.
CCPM also provides some guidelines for managing multiple projects sharing a common pool of
resources. While scheduling the various projects, CCPM suggests that we first identify the resource
whose availability constraints the system (the “drum”, according to TOC terminology), and then
schedule the projects around it. During execution, if a given resource is required to work
simultaneously on several tasks, then CCPM prescribes that priority should be given to the task of the
one project that is in the greatest risk of missing its committed date, as measured by the remaining
fraction of project buffer. Of course, working concurrently on tasks that belong to different projects is
notallowed.
In this part of the paper we consider the main elements of CCPM, and analyze them in terms of the
validityoftheunderlyingassumptionsandtheavailabilityofsupportingempiricalevidence.
CCPM assumes that all task owners overestimate task duration by a certain safety factor, and that the
duration of the actual execution of each task will expand to fill the time allotted. In other words, actual
task duration is a self-fulfilling prophecy. These two assumptions are plausible, but CCPM theorists
fail to provide any supporting scientific evidence. In fact, a recent study of task duration estimation in
software development by Hill et al. (2000) provides some contradictory results. The study analyzed
estimated and actual durations of over 500 tasks carried out by the Information Systems Development
Department of a major international financial organization. Only in 8% of the tasks was the actual
duration equal to the estimated duration, while in about 60% of the tasks the actual duration was less
Critiqueof CCPM
Task duration and safety margins

than the estimated duration. These findings in effect contradict the assumption that task owners will
use up all the allocated time. Further, in 32% of the tasks in the sample the actual duration exceeded the
estimate, indicating that the safety factor, if it existed at all, was certainly not sufficient for the 95%
confidencelevel.
However, let us leave aside the contradictory evidence and proceed under the CCPM assumptions.
Therearestilltwoimportantissues thatCCPM doesnotaddresssatisfactorily.
The first issue is how we estimate the extent of safety factor presumably built into the estimate
provided by the task owner. The only way for obtaining the correct answer to this question is to have
another method for estimating task durations that provides accurate estimates, and to subtract that
estimate from the one provided by the task owner. Of course, if such method is available then it is the
one that should have been used in the first place, and the issue remains. CCPM suggests reducing the
estimates by a certain percentage, typically 33%. Clearly such an approach is problematic, not only
due to the need to justify the percentage reduction chosen, but also due to the fact not all people
overestimate by the same amount. There are bound to be variations based on personality, job
experience,andnatureofthetask,workload,orotherreasons.
If we are willing to accept that there is an appropriate formula to reduce the duration estimates
provided by the task owners, then we still have to face the second issue: will they agree to shorten their
duration estimates and to merge their individual safety factors into the project buffer and the feeding
buffers? Imposing shortened duration estimates on the task owners will reduce their commitment to
the estimates. In addition, the knowledge that their estimates will be reduced is likely to encourage the
task owners to add larger margins; so that after the correction they still have the safety margin they
want.At any rate, the behavioral aspects of identifying the precise amount of safety margin and taking
it away from the task owner are dealt only superficially by CCPM literature, and still require empirical
support.
The various types of buffers play a key role in CCPM theory. In principle, the size of the project buffer
and of the feeding buffers should reflect the amount of protection required against the uncertainty
regarding the sum of the durations of the tasks on the critical chain and the feeding chains,
respectively. In order to contribute to the reduction in the overall project duration, the size of the buffer
has to be less than the sum of the safety margins extracted from the tasks on the corresponding chain.
However, CCPM does not provide any scientific or objective basis for determining the buffer size.
Thisraisesseveralproblems.
First, the concept of feeding chains is based on the assumption that the project network consists of
several paths that can start in parallel and then proceed to merge into each other, eventually leading to
thefinalproductoftheproject, as shown inFigure3.
Use ofbuffers in planning and control
Figure 3 Typical Project Network According to CCPM

This network structure is applicable to projects that consist of construction, assembly, and integration
tasks, which are common in manufacturing environments. But many projects begin with a small core
of central activities (design, analysis, etc.), which split into parallel tracks that merge at various
intermediate review points, before producing the various deliverables of the project. This leads to
more complex network flows, where a given task may have both predecessors and successors from
several chains, as shown in Figure 4. In such cases, it is not clear at all how much feeding buffer should
beallottedtoeachmergingtask.
Schonberger (1981) has shown that projects will always be late relative to the deterministic critical
path. The amount of delay is contingent on the time variability of activities and the amount of parallel
paths in the network. In that respect, the critical chain is no different from the critical path, especially
innon-arborescentnetworks.
Figure5providesanexampleof suchanetwork.
In addition to the critical chain that consists of activities 1 through 4, there are three more activities:
job 5 and job 6 run in parallel to each other and feed into job 7, which in turn feeds into the critical
chain at the beginning of job 4. For the sake of the example let us assume that the durations (after
reductionofupto33%asrecommendedbyCCPM) are12,12and1timeunit,respectively.
Thus, the feeding buffer has a length of 1 time unit, as shown in Figure 5. In order to examine whether
the feeding buffer is adequate and effective, we follow the same method used by Schonberger (1981).
Assuming a variability of +/- 3 units for each of the two longer activities Job 5 and Job 6, we calculate
the expected length of time required for the two to complete. Since the two run in parallel, the amount
of time required for both to complete is the maximum of the actual durations of each of the two. There
are seven possible duration values for each activity, for a total of 49 combinations. Table 1 shows the
combinations in a matrix, with the cells containing the maximum value. The average across the entire
matrix turns out to be 13.14.Adding to this the duration of Job 7, which is 1 time unit (and ignoring its
own variability), we come up with the result that the variability of the non-critical chain exceeds its
feeding buffer. In effect, this causes the non critical chain to become critical. More parallel chains will
increase the estimated duration even further. Table 1 Joint duration of parallel activities Job 5 and
Job6
Figure 4 General Case of a Project Network

DurationofJob6
Duration of Job 5
9 10 11 12 13 14 15
9 9 10 11 12 13 14 15
10 10 10 11 12 13 14 15
11 11 11 11 12 13 14 15
12 12 12 12 12 13 14 15
13 13 13 13 13 13 14 15
14 14 14 14 14 14 14 15
15 15 15 15 15 15 15 15
Figure 5 The effect of the time variability on project duration
A second issue pertains to the validity and stability of the schedule that serves as the basis for
determining the buffers. According to CCPM, the critical chain and the associated buffers are
identified from a schedule obtained with a resource-leveling algorithm.The mathematical problem of
scheduling the project tasks under resource constraints is known to be very difficult to solve
optimally. In fact, this problem belongs to the class of problems for which it has been shown that there
are no efficient algorithms for finding the optimal solution for large projects. A comparison of three
exact approaches for solving the constrained resource project scheduling problem and their
limitations can be found in Patterson (1984). Consequently, resource-leveling algorithms use
heuristic rules to generate solutions that are hoped to be close to the optimum (see for example Wiest
(1967)).
CCPM theory does not prescribe a specific resource-leveling algorithm, out of the numerous
algorithms that have been published in the operations research literature and that vary in terms of
average distance from the optimum. Thus, it is hard to assess how good the schedule upon which the
buffers are based is. Project networks are not arborescent, and since the determination of the
appropriate buffer size has to take into account time variability of activities and fatness of the network,
simulationstudiesarerequired,asSchonberger(1981)suggests.
In addition, the critical chain itself may change due to several reasons. Hoel andTaylor (1999) showed
that if the overall uncertainty on a given feeding chain is such that the project planner defines a feeding
buffer greater than the free slack of the feeding chain, then that chain becomes part of the critical
chain. Further, during project execution the critical chain may change as a result of changes in
resourceavailabilityor inbufferutilization.Changesinthesetof tasks thatconstitutethecriticalchain
are likely to affect the meaning of the buffers of various types, bringing us to the third issue which is
relatedtotheuseofbuffersforprojectcontrol.
According to CCPM, schedule control is based on monitoring the extent of buffer penetration, which
is defined as the amount of time running from the original start date of the buffer on the critical chain
or one of the feeding chains, as appropriate, to the projected end date of the last task on the
corresponding chain. The projected dates are based on estimates of the “duration left” for the tasks.
The estimation of how much work remains to be done is also subjected to inflation by safety margins,
theverysameproblemthatCCPM attemptedtosolvebyusingbuffers.

However, let us assume that buffer penetration data is indeed valid and accurate and can be trusted to
serve as an indication of the likelihood that the task chain will be completed by the end date of the
buffer. CCPM prescribes that in case of contention for limited resources priority should be given to the
task belonging to the chain with the highest rate of buffer penetration. The rationale for this rule is
clear: chains of tasks where a higher percentage of their buffers have been used are at a higher risk of
missing their committed dates, and consequently ought to be given higher priority in resource
allocationdecisions.
However, this consideration is not the only one and may not be the most relevant one. For example, we
may prefer to give priority to tasks that belong to a project with very high penalties for missing
deadlines,ortothosethathaveakeystrategicimpact,regardlessoftheamountofremainingbuffer.
A final point regarding time buffers deserves attention. Buffers of the various types are shown on the
project schedule and Gantt chart as special types of activities. Since there is one feeding buffer at the
end of each chain of tasks in the project network, if we assume that typically a chain consists of eight to
ten tasks in series before each merging point and take into account resource buffers as well, then
buffers add at least 10-15% to the number of items on the Gantt chart. These additional items, which
have to be interpreted differently from the others, add clutter to the schedule and increase the potential
forconfusion.
Overall, although feeding and project buffers have some intuitive appeal, one ought to be aware of the
limitationsintheirvalidityandusefulnessasthemaindecision-makingcriterioninprojectcontrol.
CCPM is against assigning more than one task to be carried out concurrently by a given resource. The
organization could reduce the extent of multitasking without switching to CCPM, but it is not clear at
all that this is a good idea. In fact, a study of 64 high technology firms carried out by McCollum and
Sherman(1991)presentssomeevidencetothecontrary.
The researchers examined the effectiveness of matrix organizations and found that there was a
relationship between the number of projects that R&D personnel were assigned to and key
performance indicators of the firm. Specifically, they found that for two of the most important
measures of performance, return on the investment (ROI) and rate of sales growth, assignment to two
projectsseemstobeoptimal,whilearangeofuptothreemaynotbeproblematic.
Resource buffers are a unique feature of CCPM.They are fictitious tasks that serve to provide advance
notice to the critical resources that the prerequisites for their assigned tasks are about to be completed,
and that they should complete whatever they are doing and become ready to start working on their
tasks shortly. Further, they are asked to complete their assigned tasks as soon as possible, in order to
allow their successor tasks to start as soon as possible. This method of coordination among project
team members seems to us rather chaotic and requiring a great deal of unscheduled communication.
Further, it may not be feasible at all if some of the resources are outside contractors who may not have
the flexibility to drop their ongoing jobs and invest their full attention on their assigned project task.
Resourceutilization

There is value in alerting resources to important (critical chain activities) early-start opportunities,
and CCPM is correct to point out that managing to complete tasks on time is not the same as managing
to complete the project on time. However, it is our opinion that this is a supplement rather than a
substitute for the traditional way of publicizing a schedule that all task owners have committed to.The
schedule's integritystillneedstobemaintainedthroughaneffectivechangemanagementprocess.
Overall we fail to see any advantage that this approach provides with respect to the traditional way of
publicizing a schedule that all task owners have committed to, and maintaining its integrity through an
effectivechangemanagementprocess.
CCPM deals with multi-project environment by staggering the projects around the constraining
resource (the “drum” in the terminology of theTheory Of Constraints). In principle, at any given point
in time there could be several constraining resources, each leading to a different schedule. Further, at
different points in time we could have different constraining resources, so that there could be
conflicting schedules. The premise that there is a single drum is based on a steady state view of the
work mix in the organization and is applicable to manufacturing and operations environments. In
most project environments there is no steady state, and consequently we doubt the applicability of the
solutionobtainedwithCCPM.
Project success and project management success are not necessarily equivalent. For many project
managers, “success” means meeting predefined planning goals stated in terms of schedule, budget
and scope commitments. To customers however, success relates primarily to whether the project
contributes to the goals of the organisation. The relative importance of the various dimensions of
project success was documented by Lipovetzky et al. (1997) in a study of 110 projects in Israel. Their
analysis revealed that benefit to the customer was by far the most important dimension, almost twice
as important as meeting planning goals. Nevertheless, a sound project management process well
executed by a qualified project manager enhances the likelihood of project success in the eyes of the
customer.
Like conventional project management, CCPM deals with project management success, rather than
project success. Further, ie CCPM focuses on a single aspect of project management, namely meeting
the schedule goals. The relative importance of this aspect is not universal: a project that exceeded its
original schedule by 10% but still earned ten times its cost in increased profits would be considered
more successful that a project that was completed on time and budget, but added little to the customers
business effectiveness.
Within the narrow scope of meeting the project schedule objectives, CCPM focuses mainly on the
uncertainty inherent in the schedule. Rather than addressing the root cause of duration uncertainty,
CCPM accepts it as a given, and attempts to overcome it by means of buffer management. In contrast,
most project risk management methodologies work at identifying and reducing the sources of
uncertainty, or by estimation methodologies that work to improve the quality of the duration
Multi-ProjectManagement
Scopeof CCPM

estimates. Although CCPM does not preclude the application of other, more comprehensive risk
management approaches, its limited focus makes it ill-suited to serve as the single tool for dealing
with project uncertainty. At best, it can help manage the schedule uncertainty that remains after the
applicationofriskanalysisandriskmitigationtools.
Further, since CCPM is presented as a revolutionary concept that replaces rather than complements
current project management knowledge and practices, it is not properly integrated with the accepted
body of knowledge and state of the practice. This situation poses a certain dilemma to organizations
who are new to project management methodologies and are asked to choose between CCPM and
mainstreammethodologiessuchas thatcontainedinthePMI PMBOK.
An organization that considers the adoption of CCPM as its main project management methodology
has to take into account two major sources of cost: software tools and culture change. The
implementation of CCPM requires that project personnel use a software tool that supports the concept
of buffer creation and management. Currently only one of the mainstream mid-size project
management software tools is compatible with CCPM, and two add-in products are available for the
leading tool in the market, one of which requires a specific data base server. Thus, the range of
softwaretooloptionsis limitedandis boundtoberelativelyexpensive.
However, the costs of acquiring, deploying and applying software that supports CCPM are likely to be
secondary relative to the costs resulting from the need to change the culture of the organization.
CCPM is presented as a methodology that has to be adopted in its entirety, ranging from buffer
calculation, personnel assignment, progress reporting, up to the criteria for determining delivery dates
in a multi-project environment. As such, CCPM requires massive education at various levels and
functions throughout the organization, and may even require from experience project managers to
forget some of their conventional knowledge in order to absorb the new way. Some of the key points
thatinvolveachangeintheorganizationcultureare:
Giving up ownership of the task duration and relying on the schedule buffers to absorb
deviationsinindividualtaskperformance.
Replacing the concept of “Due Date” by “Estimated Completion Date Range” as represented
bythefeedingandprojectbuffers.
Avoidingmulti-tasking.
Clearly, CCPM is a departure from traditional project management and its adoption by any
organizationwillrequireaconcertedeffortatalllevels.
Adoption ofCCPM
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Concluding Remarks
Project performance is often less an issue of managing the constraints on the schedule and more a
function of the personal skills and capabilities of the leaders, such as articulating customer
requirements, understanding future needs, enlisting cooperation throughout the organization, etc.
CCPM is based on the premise that uncertainty in activity duration is the major factor affecting the
ability to complete the project on time. But, there are other relevant mismanagement practices that
affect schedule expectations such as external pressures; internal politics; distorting estimates to win
theproject;etc.whichshouldalsobeaddressed.
CCPM leads us to believe that management of projects can be accomplished through the same rational
process that works for production management. In order to accomplish this, CCPM adapted the
concepts of bottlenecks and material buffers that were developed within the framework of
Researcher's Theory of Constraints, calling them “critical chain” and “time buffers” in the realm of
projects. These concepts and other elements of CCPM are not necessarily new. For instance, the
impact of resource availability on critical path calculations has been known for quite some time - see
Raz(1996)andthepaperscitedthere.
However, the issue of intellectual innovation is not the main one, even though it is emphasized in the
CCPM literature. We already presented our concerns about the validity of the assumptions and the
adequacy of the scope covered. The key question is: Is CCPM indeed superior to the currently
acceptedprojectmanagementmethodologies?
CCPM seems to hold answers to problems that have challenged project managers for many years, and
presentations on it are enthusiastically received. Proponents of CCPM have claimed some dramatic
successes, although from our personal experience these appear to be mainly in organizations that
started out with weak or non-existent project management methodologies. However, we are not aware
of any comparative studies that provide scientific evidence to the effect that organizations that have
adopted CCPM perform better than organizations that apply a conventional project management
methodology. In addition, CCPM has been out for a short period of time, and it is impossible to assess
anysustainablelong-termbenefits.
Although the bulk of this paper has been devoted to a critical analysis of CCPM, it is important to point
out its positive side. First, CCPM is a methodology, and any methodology is better than no
methodology at all. Even if CCPM is simplistic and oversold, it is worth studying for its several pieces
ofgoodadvice,whichinclude:
Account for duration uncertainty by making buffers explicit, sharing the knowledge of
buffersizesandplacementwithworkers, management,andsponsors.
Considerresourceavailability;
Focus onthekeytasksandresources;
Constantlymonitortheamountofbufferinyourschedule;
Provideadvancenoticeofupcomingwork tocriticalresources;
Do notsplityourattentionamongnumeroustasks;.
Ø
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Ø

Some of the principles of CCPM do make sense in certain situations, and their careful application can
improve performance, provided the preconditions and assumptions are fully understood. However, to
the question “Should your organization adopt CCPM as its project management methodology?” We
offer the following qualified answer. “If your organization lacks effective project planning and control
processes, and you run a relatively large number of quite similar projects in a matrix environment, and
your main concern is meeting deadlines, then CCPM could be beneficial. Otherwise, we suggest
weighing very carefully the limitations of CCPM and its costs against the potential for contributing to
the long term business success of your organization”. Perhaps the optimal solution is to incorporate
those CCPM principles that are applicable to your environment within a broader conventional project
managementmethodology.
Globerson,S, “PMBOK andtheCriticalChain”, ,Vol.14,No. 5,May2000
Researcher, E.H., ,NorthRiverPress,April1997.
Hill, J., Thomas, L.C. and Allen, D.E., “Experts Estimates of Task Durations in Software
Development Projects”, 12(1):13- 24,
2000.
Hoel, K. and Taylor, S.G., “Quantifying Buffers for Project Schedules”,
,SecondQuarter,1999,pp:43-47
Homer, J.L., “Applying the Theory of Constraints to Projects”,
.
Leach, L., “Critical Chain Project Management Improves Project Performance”,
,30(2):39-51,1999.
Lipovetsky, S., Tishler, A., Dvir, D. and Shenhar, A. : “The Relative Importance of Project
Success Dimensions”, ,27(2):97-106,1997.
McCollum, J.K. and Sherman, J.D. “The Effects of Matrix Organization Size and Number of
ProjectAssignments on Performance”,
38(1):75-78,1991
Newbold,R.C., ,TheSt.LuciePress, 1998.
Patterson, J. H., "A Comparison of Exact Approaches for Solving the Multiple Constrained
resource,ProjectSchedulingProblem". ,30(7):854-867,1984.
Raz, T. and B. Marshall, “Float Calculations in Project Networks Under Resource
Constraints”, ,14(A4):241-248,1996.
References
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A Management Guide to PERT/CPM

An Analysis of Bank Sector Functioning during Liberalization
Anup Varghese Cherian
Doctoral Student
Abstract
1.Introduction
Financial sector in India is changed over the past decade due to technological innovation,
deregulation of financial services, external financial liberalization and organizational changes in the
corporate. Competition among financial institutions further increased due to emphasis on market-
based outcomes and resultant deregulation of interest rates on deposits as well as on the advances.
Technological advances in information technology and securitization bill, reduction in employee
strength through voluntary retirement schemes has greatly reduced costs and non-performing assets
thereby increased profits, productivity and efficiency among Indian banks with simultaneous
increase in costumer services with competitive costs. There was a convergence of performance
among public, private and foreign banks in recent years due to adoption of technology. There was an
increasing importance of non-interest income in recent years for all banks. Even though PSBs
comparing poorly with the other two categories in terms of profit, PSBs had the highest efficiency in
deposit mobilization. And foreign and private banks are efficient in value added services. There has
been a decline in spreads and intermediation costs widely used measures of efficiency in banking and
a tendency towards their convergence across all bank-groups. While most of the studies emphasized
market related financial efficiency measures to boost banking sector, equally good number of studies
emphasized the importance of prudential and regulatory measures to increase financial health and
stability of banking sector. Only cost effective, costumer focused, technology driven, capital
strengthen banks which follow prudential regulations can only sustain in attracting depositors and
borrowers in the current competitive environment. The individual banks have to be competitive on
the one hand and the regulator should ensure that the prudential norms should ensure needed stability
andfinancialhealthofbankswithoutjeopardizingtheproperincentivestobanks.
Financial sector in India is changed drastically since late 1990s due to technological innovation,
financial liberalization with entry of new private and foreign banks, and regulatory changes in the
corporate sector. (Allahabad Bank, 2002).The intense competition between these new entrances with
the already existing public sector banks to cater needs of same pie of consumers facilitated
implementation of new ways in reduce costs at the same time attracting customers/business. Further
liberalization of financial sector facilitated development of capital markets; non-banking financial
institutions that absorb current and potential borrowers and bank depositor thereby banks may face
competition both in raising resources and in deploying them. In the current scenario, liberalization
and deregulation has to go hand in hand with a greater emphasis on efficiency, consolidation, asset
qualityandprofitability(Jalan2002).

29Bulletin of Research Developments Vol.2, No.3, (5 September 2015)th
The developments in banking sector such as technological advances in information technology and
securitisation bill, reduction in employee strength through Voluntary Retirement Schemes (VRS)
has greatly reduced costs and Non-Performing Assets (NPAs) thereby increased efficiency among
Indian banks. What is equally important is that the intermediation process has improved even in
Public Sector Banks (PSBs), as it is evident from the ratio of net interest income (interest spreads) to
total assets of PSBs has declined from 3.22 in 1990-91 to 2.84 in 2000-01 even though there was an
improvement in mode of function of banks from one of mere intermediator to that of provider of
quick,costeffectiveandefficientservices(Bhideetal.,2002).
However there is still a large gap to be filled in improving financial health and providing quality
customer services, reducing NPAs, and improving corporate governance practices in banks in
general, and in PSBs in particular. Lower level of provisioning for NPAs when compared to
international standards is also a problem. For example, PSBs on average provide for 55 per cent of
their NPAs, while provisioning by foreign banks is much higher at 70 per cent whereas international
banks provide up to 140 percent. It was recognised that restoration of health of the banking system
required both a stock solution (i.e., restoration of net worth) and flow solution (i.e., an improvement
in future profitability) (Joshi and little 1997). Recent interest rate deregulation exposes the banks to
interest rate risk (market risk). Such interest rate risk has a potential impact on net interest income as
well as on the market value of the fixed income securities held by the banks, which may affect bank
risk exposure. The issue of capital adequacy and recapitalisation also require urgent attention
(Jaikvoulle and Kauko 2001). With the above background the paper specifically reviews banking
sector performance (especially scheduled commercial banks) and its determinants in developing
countriesperspectiveespeciallyinIndiancontext.
In analyzing the functions performed by commercial banks, Bergendhal(1998) mentions five
fundamental goals of efficient bank management: profit maximization, risk management, service
provision, intermediation and utility provision.To keep it simple, one can redefine the five goals in to
two by pooling the five goals, i.e., profit maximization (combining features of Bergendhal's profit
maximization and risk management) and interest spreads (combining service provision,
intermediationandutilityprovision).As by reducinginterestspreadonecanmaximizeutilityof bank
customersi.e.,reduceintermediationcostinprovidingservicestobothdepositorsandborrowers
.
The banking system in India comprises the Reserve Bank of India (RBI), commercial banks, regional
rural banks and the co-operative banks. In the recent past, private non-banking finance companies
also have been active in the financial system, and are being regulated by the RBI. As in 2000,
commercial banks (which include public sector banks, private sector banks and foreign banks)
remains the most dominant with nearly 62 per cent of financial assets, followed by investment
institutions (18.6%), term lending institutions (15.1%) and cooperative banks (2.6 per cent) (Aditya
and Ghosh 2001). Indian banking sector has been characterized by the predominance of PSBs. The
PSBs had 47,579 branches during 2001 with total assets of Rs. 10,298 billion, which accounted for
79.5% of assets of all Scheduled Commercial Banks (SCBs) in India. PSBs account for 81% of
deposits, 79% of advances, 78% of income, and 90% of branches of all commercial banks during the
year 2001. Private sector banks accounted for 12.6% of the total assets and foreign banks accounted
for 7.9% of the total assets of all SCBs. The primary activity of most foreign banks in India has been
in the corporate segment, while f wider mass of India. However, in recent years, some of the

public sector banks cater to the needs o larger foreign banks have started making consumer financing.
The recent increase in foreign direct investment cap in banks from 49 per cent to 74 percent is a
significantdevelopmentinliberaizingbankingsectortoforeignparticipation.
In a study that covers more recent period, Das (1999) compares performance among public sector
banks for three years in the post-reform period, 1992, 1995 and 1998. He finds a certain convergence
in performance. He also notes that while there is a welcome increase in emphasis on non-interest
income, banks have tend to show risk-averse behavior by opting for risk-free investments over risky
loans.
Sarkar and Das (1997) compare performance of public, private and foreign banks for the year 1994-95
by using measures of profitability, productivity and financial management. They find PSBs
comparingpoorlywiththeothertwocategories.
Bhattacharya et al., (1997) studied the impact of the limited liberalization initiated before the
deregulation of the nineties on the performance of the different categories of banks, using Data
Envelopment Analysis. Their study covered 70 banks in the period 1986-91. They constructed one
grand frontier for the entire period and measured technical efficiency of the banks under study. They
found PSBs had the highest efficiency among the three categories, with foreign and private banks
having much lower efficiencies. However, PSBs started showing a decline in efficiency after 1987,
private banks showed no change and foreign banks showed a sharp rise in efficiency. The main results
accord with the general perception that in the nationalized era, public sector banks were successful in
achieving their principal objectives of deposit and loan expansion. However, Das (1997), which
analysed overall efficiency technical, allocative and scale efficiency of PSBs in the period 1990-96,
found a decline in overall efficiency.This occurred because there was a decline in technical efficiency,
which was not offset by an improvement in allocative efficiency. The study, however, pointed out that
thedeteriorationintechnicalefficiencywas mainlyonaccountoffournationalizedbanks.
In a review of performance of banks, RBI (1999a) concluded that 1. There has been a decline in
spreads a widely used measure of efficiency in banking and a tendency towards their convergence
across all bank-groups except foreign banks. 2. Intermediation costs as a percentage of total assets
have also declined especially for PSBs and new private sector banks, due largely to a decline in their
wage costs. 3. Capital adequacy and asset quality (measured by the net NPAs as percentage of net
advances) have both improved over the period 1995-96 to 1999-2000. 4. Median profit per employee
of PSBs witnessed a significant rise from 1996-97 to 1999-2000. 5. Non-interest income to working
funds rose modestly for the median PSBs. 6. The ratio wage bill to total expenses remained at a high
level for PSBs. 7. The cost to income ratio declined for PSBs. The RBI noted that, “Developments
after 1996 indicate that a majority of the public sector banks have been able to progress considerably
towardsthedirectionofpassingtheacidtestofachievingcompetitiveefficiency.
2.PerformanceofIndian Banking Sector
The difference between the interest rate charged to borrower and the interest rate paid to depositors,
which reflects the cost of intermediation (interest spread), is an important indicator of efficiency. The
maincomponentsofinterestspreadarenon-interestincome,overhead,taxes,andloanloss provisions

and after tax bank profits. The efficiency of the banking system as a whole, measured by declining
spreads/total assets (3.22 in 1991-92 to 2.7 in 1999-2000), has improved, and public sector banks have
improved their performance in both absolute and relative terms (Ram, 2002). In contrary to that Souza
(2002) argued that banking system as a whole has not become more efficient as measured by the
interest spreads/working funds which have been rising (2.10 in 1990-91 to 2.73 in 1999-2000 for all
banks) and not declining. However, there are some issues need to be addressed in PSBs such as low
provisioning to non-performing assets and low employee productivity compared to private and
foreign banks. The turnover per employee in the private banks doubled relative to the public sector
banks during the 1990s. The establishment expenses as percent of total expenses drastically declined
in private and foreign banks due to these banks have been able to contain their wages and salaries
expenditures compared to the public sector banks however private and foreign banks spend more on
technologyupgradation.
Another indicator of bank efficiency is the quality of assets (NPAs). As of March 31,2002, the gross
NPAs of scheduled commercial banks stood at Rs.71, 000 crore. Although the net NPAs of the
commercial banks in India have witnessed a decline over the past several years, they are still high as
compared to developed country standards of around 2 per cent. Some argue that, the high level of
NPAs in PSBs was due to higher proportion of NPAs in priority sector advances by PSBs which was
attributed to the directed and pre-approved nature of loans sanctioned under government sponsored
programmes, absence of any security, lack of effective follow up due to large number of accounts,
legal recovery measures being considered not cost effective, vitiation of repayment culture
consequent to loan waiver schemes, etc (Nachane, 1999; RBI, 1999b). However, all banks but three
have met RBIs capital adequacy norm of 9 per cent in 2002. Performance measured by gross and net
return on average assets worsens and liquidity (measured by cash over assets) declines for weak
banks.
The commercial banking system in the country has become quite apprehensive of exposing itself to
lending risk and has developed an unhealthy appetite for government securities.The pace at which the
commercial banks invested in government securities far exceeded those in both deposit mobilization
and credit disbursal (Nair, 2000) as in the low interest rate regime trading profits very high for
governmentsecurities(Rakesh,2002).
In a cross-bank study for India Sarkar et al., (1998) regresses two profitability and four efficiency
measures on pooled data for two years 1993-94 and 1994-95, for a total of 73 banks, using single
equation OLS estimation for each. They found that after controlling for total assets, proportion of
government securities to total assets, proportion of priority sector loans, share of rural banking, non-
interest income to total income, foreign ownership showed positive association with profitability and
efficiency.Ajit and Bangar (1998) present a tabulation of the performance of private sector banks vis-
à-vis public sector banks over the period 1996-1997, using a number of indicators: profitability ratio,
interest spread, capital adequacy ratio and the net NPA.The conclusion is that Indian private banks out
perform public sector banks. The study also found that Indian private banks have higher returns to
assetsinspiteoflowerspreads.
Rajaraman et al., (1999) show that bank-specific characteristics such as ownership or adherence to
prudential norms do not suffice to explain inter-bank variability in NPAs while region of operation

matters. The study argued that banks functioning in less developed areas like Bihar were having high
NPAs, whilebanksfunctioningindevelopedregionssuchasDelhi,Punjabwerehavingless NPAs.
As Indian banking system is predominantly a public sector one, the incentive structure differs
significantly from those prevailing under private sector banking. In the changed scenario of
liberalization, banks will have to bring about an overall improvement in their working covering
humanresourcemanagement,technologyupgradationandintegratedriskmanagement(Jalan2001).
Financial systems in developing countries typically exhibit significantly high and persistent spreads
as cost of poor quality loans is shifted to bank customers through higher spreads (Barajas et al., 2000).
Similarly Brock and Suarez (2000) also find significant evidence of a positive relation between
spreads and wages or non-financial costs. Non-financial costs reflect variations in physical capital
costs, employment and wage levels. While studying bank restructure policies of 11 transition
countries during 1991-98, Zoli (2001) stated that an increase in interest spreads may indicate that
banks are facing riskier borrowers and hence charging them with higher rates or that banks need to
cover larger expenses due to loan losses. So a decline in the spread is interpreted as an improvement in
efficiency. Undercapitalized banks faced distorted incentives in extending new loans and were prone
to excessive risk taking and high spreads. The excess risk taking was also encouraged by the
government by retaining a controlling stake in major banks that creates the expectations of future
bailout.
Intermediation margins are positively related to market power in the Columbian banking system
(Barajas et al., 1999). A study by Asli and Harry (1998) while studying bank performance that taken
interest spread and bank profitability as dependent variables and bank specific variables (size,
leverage, type of business, foreign ownership), country specific variables (macro-economic, legal and
institutional environment) as explanatory variables concluded that foreign banks are better in terms of
net profits with high interest spread and low NPAs. The study found that higher interest spread could
indicategreaterbankingefficiencyundersegmentedorimperfectlycompetitivemarkets.
high wages, overhead as a share of total assets appears
to be lowest at around 1 per cent for banks in high-income countries. Large banks tend to have smaller
overheads.
The above studies are providing contradictory evidence about interest spread as bank efficiency
indicator in developing countries perspective such as in India. In the long run banking system should
be stable and efficient to enhance overall development of the country. Stability clearly requires
sufficient banking profitability, while economic efficiency requires banking spreads that are not too
large. A prerequisite to formulating effective banking policies is thus to understand the determinants
ofbankprofitabilityandinterestmargin(AsliandHarry1999).
3.International Experience
3.1Interest Spreads and Profitability
Implicit taxes such as Cash Reserve Ratios (CRR), Statutory Liquidity Ratio (SLR) and priority sector
lending are at higher level in developing countries, which is also a cause for higher spreads. There is a
positive and significant relationship between spreads and liquidity reserves in the Columbian
banking system (Barajas et al., 1999). Despite

3.2Deposit Rates
3.3PrudentialRegulations and Banking Restructuring
One instrument to increase profitability and spread was lowering deposit rates, which lowers cost of
funds to banks.Abdourahmane (2000) by using United States data concluded that, commercial banks
ability to lower deposit interest rates diminishes when their deposits become closer substitutes to non-
bank liabilities requiring greater interest rate competition (for example ceiling rate for non-bank
financial companies were around 11 percent compared to average bank deposit rate of about 6 to 7
percent). Deposits can be inputs for the production of bank loans (an intermediation service) or
safekeeping services output provided to depositors (a non-intermediation service). The same deposits
may also be inputs to the provision of payment services (checking services). The framework shows
that the input-output nature of banking deposits may be such that banks to use their market power on
deposits to subsidize non-intermediation service fees as deposit raising strategy. Therefore reduction
of deposit interest rate does not mean a lack of competition but an increase in competition by using
another means. Banks would lower deposit interest rate provided they have market power on deposits
and non-intermediation services. Given the low-income levels in developing countries, small savers
and demand depositors may be less sensitive to the deposit interest rate and more responsive to the
convenience of bank branches and payments services for savings, safekeeping and transactions. The
public sector commercial banks are having advantage in competing via branch banking that may be
good for financial deepening. While foreign banks are competing via providing non-intermediation
banking services, which ultimately may increase domestic banks efficiency and foster domestic
financialdeepening(BernadoandDouglous, 2001).
While most of the studies emphasized market related financial efficiency measures (spread and
profitability) to boost banking sector, equally good number of studies emphasized the importance of
prudential and regulatory measures to increase financial health and stability of banking sector.
Prudential tightening covered exposure and disclosure norms, guidelines on investment, risk
management, asset classification and provisioning. A study on Croatian banking system argued that
fundamental determinant of profitability is probably good management, which succeeds both in
cutting costs and managing risk prudently. It is the good prudential management rather than cost
efficiency explains the survival of more cost efficient banks in turbulent waters of transition banking
(Evanetal.,2002).
While discussing consequences of weak prudential regulation upon Russian banking system
Gidadhubli (2001) stated that due to the low minimum capital requirements a large number of small
banks were set up. Most of these banks engaged in utilizing their resources for speculative activities
such as exchanging rubles into dollars or vice versa to earn quick profits. It was reported that a few
banks even used money borrowed from government and the central bank of Russia for transactions
due to the inefficient regulation. In line with this David and Vlad (2002) found that tighter minimum
capital adequacy ratios seem to be associated with improved revenue generating capacity and more
aggressive deposit taking behavior. Well-capitalised banks face lower expected bankruptcy costs,
therebyreducingtheircostoffunding.
In a study of crisis and restructuring of Indonesian banking system, Mari and Manggi (2002) listed

causes for banking crisis as Firstly, a rapid expansion of the banking sector without necessary
strengthening of prudential regulations and central bank supervision. Secondly, the high
concentration of ownership in the banking sector led to weak corporate governance of banks.An even
more serious problem was the lack of ability to enforce prudential regulations because of the weak
capacity and capability of central bank supervisors, widespread corruption and political interference.
Further it was believed that banks would be bailed out in case of bank failure by the government and
therewas noeffectiveexitmechanismforfailedbanks.
In response to crisis, Indonesian Bank Restructuring Agency (IBRA) was set up to supervise and
restructure the banking sector. The IBRAs mandate was to close merge or take over and recapitalise
troubled banks. The banking reforms also included steps to intensify the supervision of a number of
the largest private banks, rehabilitation and surveillance plans for a number of smaller private banks
and mergers of state owned banks. The IBRAhas recommended change in management some banks,
reducing number of banks to consolidate and increase scale and scope economies that will increase
performance and profitability. It also recommended higher capital requirements for banks, as
Indonesian banks need to operate in riskier environment. The high capital requirement is widely
practiced in high-risk environment such as community banks in United States. It also recommended
efficient deposit insurance scheme by giving incentive to better performing banks by linking the
annualpremiumpaymentstotheirriskprofile.
Asli et al., (2000) stated that in crisis period rate of growth of real deposits falls significantly, in fact
banks lose other sources of funding (such as inter bank credit, foreign loans, commercial paper or
equity) more rapidly than deposits, as witnessed by significant increase in the ratio of deposits to
assets. On the assets side real credit slows down and NPAs increased significantly, banks shifts their
portfolio away from loans to shift to safer assets to economize on regulatory capital. The drop in
sourcesoffunds callsforaneffectivemanagementofliquidityintimesof crisis.
capacity to evaluate financial contracts and safety with banks (Souza 2000). However the approach to
achieve the above objectives should be market friendly and cost effective with greater reliance should
beplacedonincentivesandless onsupervision.
Institutional restructuring encompasses reforms of the legal framework, prudential regulations,
accounting standards and banking supervision. Operational restructuring deals with the flow
problems caused by sizable non-performing loans and high operating costs and aims at improving
corporategovernance.
3.4Reforms and Restructuring of Banking System in India
In the above backdrop there was a need for further reforms and prudential regulations to be placed
in adjust with the technological advances and economic conditions. The economist's case for
justifying prudential regulation in the field of banking is due to the existence of two types of market
imperfections i.e., externalities-social cost of failure of banking system far exceeds private costs and
informationfailures-assmalldepositors/clientsdoesnothave
The Working Group of RBI under chairmanship of M.S.Verma while identifying three weak banks,
which fall short of every competitive benchmark. In every business segment, in cost, productivity

and profitability, in technology and systems support, in internal control and risk management
procedures, in their mode of operation and servicing of customers. The restructuring plan has been
prepared for these banks. And suggested seven parameters covering three major areas i. Solvency
(capital adequacy ratio and coverage ratio), ii. Earning capacity (return on assets and net interest
margin) and iii. Profitability (include operating profit to average working funds, cost to income and
staff cost to net interest income plus other income), The core of the strategy to restructure weak
bankssuggestedbyVermaCommitteecomprisesfivecomponents.
1. Shed the load of non-performing assets by creating an Asset Reconstruction Fund (ARF) to
cleanthebalancesheetoflargeNon-PerformingAssets (NPAs).
2. Shed excess manpower by introducing a voluntary retirement scheme (VRS) or a 25 per cent
reductioninsalaryincaseoffailuretodoso.
3. nstallacredibleandeffectivegovernancemodelattheboardandthetopmanagementlevel.
4. Review and change the core processes in each of the banks, principally those pertaining to
technology,customerserviceandhumanresourcesand
5. Establish a Financial Restructuring Authority (FRA) with statutory banking to oversee the
restructuringprocessofthethreeweakbanks.
In stage one, focus will be on operational, organizational and financial restructuring of the units
involved, which aims at restoring their competitive efficiency. In the stage two of restructuring, after
investor attention, privatization or mergers will then assume relevance. In line with the above
recommendations, during 2001-02 RBI has taken many policy measures in the context of the banking
sector which were guided by the objectives of strengthening the banking sector through rigorous
operational, prudential and accounting norms set to gradually converge to international standards
(basal capital standards). Banks were encouraged to prepare themselves to follow international
practices in respect of assigning capital for market risk. Initiatives in the direction of redefining the
regulatory oversight of the Reserve Bank such as mitigating the potential conflict of interest regarding
issues of ownership, risk-based supervision, consolidated accounting and supervision, off-site
monitoring and inspection are underway. Policy attention was also drawn to issues in management of
NPAs and related supervisory initiatives, including the setting up of Asset Reconstruction Company
and the revival of weak public sector banks. New avenues of banking activity were created in
insurance and the access of the banking sector to foreign direct investment was enhanced during 2001-
02(RBI2002).
The RBI has also initiated certain structured actions in respect of the banks now widely known as
Prompt Corrective Actions (PCA), based on trigger points in terms of CAR, Net NPA and Return on
Assets (ROA). The Reserve Bank, at its discretion, will resort to additional actions (discretionary
actions) as indicated under each of the trigger points. In this process a high-risk bank will be subjected
to enhanced supervisory focus through a shorter supervisory cycle and greater use of various
supervisory tools like targeted inspections, intensive off-site surveillance, structured meetings with
bank management, commissioned audits etc. In addition to these above prudential norms, progressive
deregulation of interest rates, shaving of priority lending commitments and moderating statutory
liquidityandreservenormshavesteadilyorientedthebankingsectortowardsthemarket(Patel2000).

Although tightening prudential requirements may limit banks flexibility and profitability in the short
run, doing so may encourage banks to look for new and innovative ways to invest, thereby expanding
the production-possibility frontier. It is therefore essential for a policy maker to be able to identify and
come up with the best (often the least-cost) policy response. However one cautious about excessive or
inappropriate regulation, as it can stifle efficiency and invite moral hazard problems and induce
entitiestomoveoutofover-regulatedbusiness tolessregulatedones(Reddy2001).
Financial sector in India is changed over the past decade due to technological innovation, deregulation
of financial services, external financial liberalization and organizational changes in the corporate.
Competition among financial institutions further increased due to emphasis on market-based
outcomes and resultant deregulation of interest rates on deposits as well as on the advances.
Technological advances in information technology and securitisation bill, reduction in employee
strength through voluntary retirement schemes has greatly reduced costs and non-performing assets
thereby increased profits, productivity and efficiency among Indian banks with simultaneous increase
in customer services with competitive costs. However there is still a large gap to be filled in improving
financial health and providing quality customer services, reducing NPAs, and improving corporate
governance practices in banks in general, and in PSBs in particular compared to international
standards.There was a convergence of performance among public, private and foreign banks in recent
years due to adoption of technology. There was an increasing importance of non-interest income in
recent years for all banks. Even though PSBs comparing poorly with the other two categories in terms
of profit, PSBs had the highest efficiency in deposit mobilization. And foreign and private banks are
efficientinvalueaddedservices.
the
1990s.Another indicator of bank efficiency is NPAs, although the net NPAs of the commercial banks
in India have witnessed a decline over the past several years, they are still high. Some studies argued
region of operation play a greater role in amount of problem loans than the type of ownership of banks.
That is banks functioning in less developed regions were having high NPAs compared to banks
functioning in developed regions. While most of the studies emphasized market related financial
efficiency measures to boost banking sector, equally good number of studies emphasized the
importance of prudential and regulatory measures to increase financial health and stability of banking
sector. It is the good management rather than cost efficiency explains the survival of more cost
efficient banks in turbulent waters of transition banking. International experience Russian and
Indonesian banking systems were good examples of inefficient central banks and prudential
regulations. Due to low minimum capital requirements a large number of small banks were set up
which were weak, which lead to banking crisis in later periods. International experience also shows
that high concentration of ownership, weak corporate governance, lack of ability to enforce prudential
regulations, weak central bank supervisors, widespread corruption and political interference are major
reasonsforbankingcrisisinmostofthedevelopingcountries.
5.Conclusion
There has been a decline in spreads and intermediation costs widely used measures of efficiency in
banking and a tendency towards their convergence across all bank-groups. The establishment
expenses as percent of total expenses drastically declined in private and foreign banks due to these
banks have been able to contain their wages and salary expenditures compared to the public sector
banks however private and foreign banks spend more on technology up gradation. As a result
turnover per employee in the private banks doubled relative to the public sector banks during

According to the Varma committee of RBI, solvency, earning capacity and profitability were major
thrust areas banks to follow. The committee also recommended shed the load of non-performing
assets by creating an asset reconstruction fund, shed excess manpower by introducing a voluntary
retirement scheme, establishment of a financial restructuring authority with statutory banking to
oversee the restructuring process of the weak banks. The RBI has also initiated certain structured
actions in respect of the banks now widely known as prompt corrective actions, which have hit the
triggerpointsintermsofcapitaladequacyratio,non-performingassetsandreturnonassets.
In short, only cost effective, costumer focused, technology driven, capital strengthen banks which
follow prudential regulations can only sustain in attracting depositors and borrowers in the current
competitive environment. The individual banks have to be competitive on the one hand and the
regulator should ensure that the prudential norms should ensure needed stability and financial health
ofbankswithoutjeopardizingtheproperincentivestobanks.
'Financial Liberalisation, Bank Market Structure and Financial
Deepening:An InterestMarginAnalysis', InternationalMonetaryFundWorkingPaper,WP/00/38
: 'Bank Supervisory Arrangements: International Evidence and
IndianPerspective,EconomicandPoliticalWeekly,September15,Pp. 3543-3553.
: 'The Role and Performance of Private Sector Banks in India-1991-
2to1996-97', PoliticalEconomyJournalofIndia7(1),Pp. 7-20.
Initial Public Offer Document, Allahabad Bank, 26th Sept. 2002, Calcutta.
Pp. 2.
: Determinants of Commercial Bank Interest Margins and
Profitability:SomeInternationalEvidence,WorldBank,Workingpaperseries.
,' Determinants of Commercial Bank Interest Margins and
Profitability: Some International Evidence, The World Bank Economic Review, Vol. 134(2), 379-
408.
'Inside the Crisis: An Empirical Analysis of Banking
System in Distress', International Monetary Fund Working Paper, No. 156.
, 'Interest Spreads in Banking in Columbia,1974-96',
InternationalMonetaryFund StaffPapers,46,Pp.196-224.
, 'The Impact of Liberalization and Foreign Investment
inColumbia's FinancialSector', JournalofDevelopmentEconomics,36,p157-196,2000.
'DEA and Benchmarks-An Application to Nordic Banks', Annals of
OperationsResearch,Vol.82,P233-49.
References:
Abdourahmane, S. (2000)
Aditya, N and S. Ghosh (2001)
Ajit, D and R. D. Bangar (1998)
Allahabad Bank (2002)
Asli, D.K., and H. Harry (1998)
Asli D. K., and H. Harry (1999)
Asli D.K., D. Enrica and P. Gupta (2000)
Barajas,A., R.Steiner and N.Salazar (1999)
Barajas,A., R. Steinerand N. Salazar(2000)
Bergendhal., G (1998)

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