The issue consists of four papers. The first paper by Biswajit Patra, “Value at Risk
(VaR) Methodology: An Analysis of Indian Banking Scenario”, tries to analyze
the different methods of VaR Calculation and test it empirically in the context of Indian banking sector. VaR is a new technology in financial engineering which helps to measure the risk in the financial world. It can be defined as maximum possible loss associated with a financial instrument within a given period of time and with a given confidence level. This paper studies the historical data of Indian banking sector between 2003 to 2011 and looks into the structural breaks found in the industry. The study divides the period into four structural shifts and looks into the risk attached to each time period. It shows that calculated risk in different time periods validates the economic scenario prevalent during that period. It tries to suggest the best methodology for VaR calculation in different time periods.
The next paper, “The Impact of Size on Credit Risk Management Strategies in Commercial Banks: Empirical Evidence from India”, by Anju Arora focuses on examining the associations between the size of bank and Credit Risk Management (CRM) strategies in India. The author says that even though CRM has come under increasing scrutiny in both academia and practice, such a study, it seems, has not been attempted so far. It is commonly believed that CRM strategies vary with bank-specific characteristics. The study draws upon primary data of 35 Indian commercial banks during 2007-2008 and explores the extent to which bank size has an impact on the choice of a broad set of CRM strategies relating to four elements of CRM, namely, CRM organization, CRM policy, CRM operations and systems at transaction level, and CRM operations and systems at portfolio level. Using discriminate analysis together with chi-square test results, the findings suggest significant association between the size of bank and some of the CRM strategies, particularly with regard to CRM organization and CRM operations and systems at transaction level. It is concluded that large sized banks generally emphasize the elements of specialization and centralization in the choice of their CRM strategies. The findings also indicate that a mix of the credit risk avoidance, credit risk mitigation and credit risk control approach is commonly followed by all the sample banks, irrespective of their size.
The third paper by Fernando F Moreira, “Data Frequency and Dependence Structure in Stock Markets”, provides further insights into the impact of the frequency variation on the dependence across returns. The author has attempted to verify the dependence structure between stock returns and market return at two different frequencies (daily and monthly). He analyzes 100 American stocks in the period 2000-2010 and concludes that the data frequency affects the relationship between the return of each stock and the overall market return. The main practical implication of this study is that trading frequency has an influence on investment risk profile such that daily trades tend to yield more speculative results than monthly trades. That is, the probability of joint extreme events (losses or gains) in daily data was higher than in monthly data for most of the stocks considered. This study contributes to the literature by investigating the effect of the data frequency on the dependence structure between asset returns, since the existing literature dealing with different frequencies has typically focused on univariate returns.
The last paper, “An Analysis of Risk-Adjusted Return on Tax-Saving Mutual Fund Schemes in India”, by N S Santhi and K Balanaga Gurunathan, attempts to evaluate the performance of all 32 growth-oriented open-ended Equity-Linked Savings schemes of tax-saving mutual funds in India. Performance has been analyzed on the basis of monthly return compared to Indian stock market benchmark S&P CNX NIFTY. For this purpose, risk-adjusted performance measures suggested by Sharpe, Treynor and Jenson have been used. Last six years’ Net Asset Value of tax-saving schemes from 2006-07 to 2011-12 has been employed. It has been found that no fund performed well during the entire study period. All the schemes follow the same pattern in their returns and move along with the stock market index S&P CNX NIFTY. Invariably all the funds have given negative return during 2008-09, but they are less negative than stock market index. The average return of all the schemes is higher and the average risk is lower than the benchmark S&P CNX NIFTY.- -Nupur Pavan Bang
Consulting Editor
Automated Teller Machines (ATMs): The Changing Face of Banking in India
Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.
The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario
If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.
Indian Scenario
The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.
