Productivity can be defined
as the ratio of output to
input for a specific production system. A rise in
productivity implies either more output is produced for the same amount
of input or that fewer inputs are required to produce the same
amount of output. However, measurement of productivity in the banking
sector, where there is no consensus on appropriate definition of
output, is a matter of serious debate. Most of the measures and
parameters used to study the performance of banks can be interpreted more
correctly as measuring their efficiency target rather than their
productivity. Despite such handicaps, since the performance of the banks
play an important role in deciding the overall performance of the real
sector, their productivity is very critical to the overall productivity
of the country.
In the context of banking, productivity can be substantially
improved by reducing the cost of disintermediation through
effective deployment of technology, human resources as well as
raising the spread through deployment of capital in
the most effective way. However, before taking up the
issues affecting the productivity, it is important to understand
the constraints under which the Public Sector Banks (PSBs) operate
in an unbalanced environment.
Some banks measure productivity in terms of deposit per
employee, total business per employee, total business per unit
of establishment, etc. But these productivity measures are not
only partial but also misleading because they take into account
only one or two aspects of banking activity. Moreover, these are
volume measures and reflect volume characteristics which are partly
the functions of the state of economy, monetary policy, rate of
interest and so on. It is likely that productivity levels per employee
may indicate conflicting performance. Hence, varying performance
of this type may not have considerable bearing on the financial
performance of a bank. A closer examination of the banking
industry would show that financial services are the products of
banking and thus earnings from and expenses incurred on such
services have an impact on the overall financial performance of a bank. |
