214111351 Performance Appraisal

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AT STATE BANK OF INDIA AND ICICI BANK

OBJECTIVES OF THE STUDY  Primary objective:  To study the effectiveness of Performance Appraisal in SBI &

ICICI Bank.  Secondary objectives:  To study the various types of performance appraisal system.  To study about the periodicity of performance appraisal required.  To understand the practical aspect of “Performance Appraisal” in

banking scenario.

INTRODUCTION TO BANKING INDUSTRY  A bank is a well regularized and licensed financial institute to assist the

individual and corporate customer in their financial needs.

 Normally banks provide the following services :  Transactional services,  Services related to monetary transaction through current and saving account,  Investment services,  Fixed deposit ,  Letter of credit ,  Treasury services ,  Bill of exchange ,  Foreign exchange ,  Performance bond ,  Project financing , Personal loan ,  Credit card , Home loan etc.

BANKING INDUSTRY IN INDIA • Banking in India originated in the last decades of the 18th century. • The oldest bank in existence in India is the ‘State Bank of India’, a

government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country.

• Central banking is the responsibility of the Reserve Bank of India, which

in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions.

• After India's independence in 1947, the Reserve Bank was nationalized

and given broader powers.

• Currently, India has 88 scheduled commercial banks (SCBs), 27public

sector banks (that is with the Government of India holding as take), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks.

• They have a combined network of over 53,000 branches and17,000ATMs.

PESTEL ANALYSIS OF BANKING INDUSTRY  POLITICAL FACTORS • Major political factors affecting Banking industry are :i) Focus on regulation of Government  Government affects the performance of banking sector most by legislature

& framing policy govt. through its budget affects the banking activities securitization act has given more power to banking sector against defaulting borrowers.

ii) Budget & budget measures  Increase farm credit  Subvention of 1% to be paid as incentives to farmers. iii)Foreign Direct Investment limits  The move to increase FDI limits to 49% from 20% during the first quarter

of this fiscal came as a welcome announcement to foreign players waiting to get a foothold on Indian Markets.

 ECONOMIC FACTORS  Every year RBI declares its 6 months policies & accordingly the various measures and rates are implemented which has an impact on the banking sector. In past 24 months RBI has changed its key monetary rates 13 times to curb

inflation & other economic risks. The economic measures affects the banking sector to boost the economy by

giving certain concessions or facilities. If in savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agriculture sector & industrial sector, therefore booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through

banking channels.

 SOCIO-CULTURE FACTORS  TRADITIONAL MAHAJAN PRATHA  Before birth of banks people used to borrow money from local moneylenders,

shahukars, shroffs.  CHANGE IN LIFESTYLE  Lifestyle of people is changing rapidly & they are demanding high class products. They

have become more advanced. So banking sectors have great opportunities.  POPULATION  Increase in population is one of the most important factor, which affect the private sector

banks. Banks would open their branches after looking into the population demographics of the area.  LITERACY RATE  Literacy rate in India is very low compared to developed countries. Illiterate people

hesitate to transact with banks. So this impacts negatively on banks. But there is a positive side as well i.e., illiterate people trust more on banks to deposit their money, they do not have market information.

 TECHNOLOGICAL FACTORS

Technology plays a very important role in banks internal control

mechanisms as well as services offered by them.

Through the use of technology new products & services are

introduced.

It include technological aspects such as R&D activity, automation,

technology incentives and the rate of technological change.

Some of the technological changes which brought radical changes

in banking industry are :a) Automated Teller Machine (ATM) b) Automated Voice Recorder c) Credit Card Facilities d) IT Services & Mobile Banking

 ENVIRONMENTAL FACTORS

Banking industry is directly related to the growth of economy. It is great news that today the service sector is contributing

more than half of the Indian GDP. It takes one step closer to the developed economies of the world.

This increases the avenues of investment by the industrial

sector. This would further increase the borrowings by the industry leading to the banking industry.

In regards to the service sector, as the income of the people

increases lending and savings will increase leading to increased business for the banks.

 LEGAL FACTORS

There are 2 major factors determining the legal aspects of the

Banking Industry :

a) BANKING REGULATION ACT  In 1949, the Banking Regulation Act was enacted with

empowered the Reserve Bank of India “to regulate, control & inspect the banks in India.”

b) INTERVENTION BY RBI  The RBI will intervene to smooth sharp movements in the rupee & prevent a downward spiral in its value, but will balance this with the need to retain reserves in the event of prolonged turbulence.

STATE BANK OF INDIA Type

Public

Traded as

NSE: SBIN BSE: 500112 LSE: SBID BSE SENSEX Constituent

Industry

Banking, Financial services

Founded

1 July 1955

Headquarters

Mumbai, Maharashtra, India

Area served

Worldwide

Key people

Pratip Chaudhuri (Chairman)

Products

Credit cards, Consumer banking, Corporate banking, finance and insurance, investment banking, mortgage loans, private banking, wealth management.

Revenue

US $ 36.950 billion (2012)

Profit

US$ 3.202 billion (2012)

Total assets

US$ 359.237 billion (2012)

Total equity

US$ 20.854 billion (2012)

Owner(s)

Government of India

Employees

292,215 (2012)

SWOT ANALYSIS OF SBI STRENGTH • SBI is the largest bank in

India in terms of market share, revenue and assets. • As per recent data the bank

has more than 13,000 outlets and 25,000 ATM centers. • The bank has its presence in

32 countries engaging currency trade all over the world.

WEAKNESS • Lack of proper technology

driven services when compared to private banks.

• Employees show reluctance to solve

issues quickly due to higher job security and customers’ waiting period is long when compared to private banks. • SBI has the largest number of employees

in banking sector, hence the bank spends a considerable amount of its income in employee’s salary compensation. • In spite of modernization, the bank still

carries the perception of traditional bank to new age customers.

OPPORTUNITY • SBI’s merger with five more banks

namely State Bank of Hyderabad, State bank of Patiala, State bank of Bikaner and Jaipur, State of bank of Travancore and State bank of Mysore are in approval stage.

THREAT • Net profit of the year has decline

from 9166.05 in the year FY 2010 to 7,370.35 in the year FY2011. • This shows the reduce in market

• SBI is planning to expand and invest

share to its close competitor ICICI & Other private banks like HDFC, AXIS bank etc.

• Since the bank is yet to modernize few

• Customer prefer to switch to

in international operations due to good inflow of money from Asian Market. of its banking operations, there is a better scope of using advanced technologies and software to improve customer relations.

• Young

and talented pool of graduates and B schools are in rise to open new horizon to so called “old government bank”.

private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing.

ICICI BANK

Type

Public

Traded as

BSE : 532174 NSE : ICICI BANK NYSE : IBN BSE SENSEX Constitution

Industry

Banking, Financial services

Founded

1955

Headquarters

Mumbai, Maharashtra, India

Area Served

Worldwide

Key People

K.V. Kamath (Non-executive Chairman) & Chanda Kochhar (MD & CEO)

Products

Credit cards, Consumer Banking, Corporate banking, Finance andinsurance, investment banking, mortgage loans, private banking, wealth management

Revenue

US$ 13.52 billion (2012)

Operating Income US$ 2.117 billion (2012) Profit

US$ 1.597 billion (2012)

Total assets

US$ 98.99 billion (2012)

Total equity

US$ 12.62 billion (2012)

SWOT ANALYSIS OF ICICI STRENGTH • ICICI is the second largest bank in terms of

total assets and market share. • One of the major strength of ICICI bank

according to financial analysts is its strong and transparent balance sheet. • ICICI bank is the first bank in India to

introduce complete mobile banking solutions and jewelry card. • The bank has PAN India presence of around

2,567 branches and 8003 ATM’s. • ICICI bank is the first bank in India to attach life style benefits to banking services for exclusive purchases and tie-ups with best brands in the industry such as Nakshatra, Asmi, D’damas etc. • Good Marketing and advertising strategies.

WEAKNESS • Customer support of ICICI section is

not performing well in terms of resolving complaints.

• The ICICI bank has the most stringent

policies in terms of recovering the debts and loans, and credit payments. They employ third party agency to handle recovery management.

• There are also complaints of customer

assault and abuse while recovering and the credit payment reminders are sent even before the deadlines which annoys the customers.

• The

bank service comparatively higher.

charges

are

OPPORTUNITY • Banking sector is expected to

grow at a rate of 17% in the next three years. • The total number b-schools in

India are more than 1500. This can ensure regular supply of trained human power in financial products and banking services.

THREAT • RBI allowed foreign banks to

invest up to 74% in Indian banking.

• Government sector banks are

in urge of modernizing the capacities to ensure the customers switching to new age banks are minimized.

• HDFC is the major competitor • Within next four years ICICI bank

is planning to open 1500 new branches. • Small and non performing banks

can be acquired by ICICI because of its financial strength.

for ICICI, and other upcoming banks like AXIS, HSBC impose a major threat.

• In

rural areas the micro financing groups hold a major share.

PROCESS OF PERFORMANCE APPRAISAL

TECHNIQUES OF PERFORMANCE APPRAISAL • • • • • • • • • •

Essay appraisal method Graphic rating scales Field review method Forced choice rating method Critical incident appraisal method Management by objectives Work standard approach Ranking methods Methods Alteration ranking - Paired comparison - Person-to-person rating - Checklist - Behaviorally anchored rating scales - Assessment centers

PERFORMANCE APPRAISAL IN STATE BANK OF INDIA  The immediate supervisor starts the process of performance appraisal.  His observations regarding the employee are put in written and forwarded to the

Branch Manager.  In many small branches, the branch manager may initiate the performance

appraisal process.  Every year it is the branch manager’s duty to send a letter regarding performance

of the employees to the higher authorities like Deputy General Manager and General Manager.  The higher authorities then take appropriate decision regarding the service of the

employees and the amount of his contribution made towards the development of the business.

During the process of Performance Appraisal, the employee

is judged on the following aspects and given points out of a total of 100 points.  Behavior  Assistance and Implementation of Guidelines  Critical Performances  Work Analysis  Responsibility & Risk Taking  Self Improvement and Skills

PERFORMANCE APPRAISAL IN ICICI BANK  The bank is using the Management by Objectives (MBO) method. In this

method the subordinate in consultation with the supervisor chalks out short term objectives followed by specific actions that he has to carry out.  The goals are finally set and are action oriented.  The goals set are – specific, measurable, achievable, review able and time bound and most importantly they use to be aligned with the goal of the organization.  At the end of a specified time period, the activities are jointly reviewed by both the subordinate and his supervisor. Depending on the performance of the subordinate, the goals are modified or redesigned for the next period of time.

 The annual “Performance Appraisal” is usually done in two steps. a) First, the employees and their manager complete the “Performance Appraisal” form -

doing a self assessment.  Often the bank also uses 360 degree feedback process, asking for input from peers. b) Secondly, the bank employees and manager participate in a formal “Performance Appraisal” interview.  The appraisal form, used in the first step, consists of performance standards and criteria that are used to judge evaluate your performance. The items comprising your job description are usually the performance standards that are used in employees annual appraisal .

RESEARCH METHODOLOGY  DATA COLLECTION  Qualitative Data  Survey  Questionnaires  RESEARCH DESIGN  Descriptive Research Design  SAMPLE SIZE  50 Respondents  SAMPLING FRAME  Non-Probability Sampling  Convenience

QUESTIONNAIRE 1. Are you aware about the banks performance appraisal system?

2. Do you think that performance appraisal is essential?

3. Does appraisal system of your bank facilitate career growth & learning?

4. Performance appraisal system really assesses the quality of an employee. Do you agree?

5. Periodicity of performance appraisal should be on

6. Are you aware of technique of Performance Appraisal being followed in your bank?

7. The present performance appraisal of your bank distinguishes the performers & non performers?

8. The periodical performance appraisal of employee is required for maintaining efficiency of individual in bank?

9. Are you aware of the basis or attributes on which your performance is appraised?

10. Performance appraisal is based upon

11. Who should do the appraisal?

12. Performance appraisal is useful to the contributor to encourage people to perform better on their jobs?

13.The appraisal system is helping each employee to discover his/her potential & make their short comings?

14. The present performance appraisal of your bank assesses individual behavior, discipline, integration, communication skill, leadership qualities & growth?

15. How do you want your performance to be communicated to you?

16. What kind of counseling should occur in a bank?

17. According to you, Counseling is a

18. How often did you speak, or discuss about your performance with your superiors?

19. Training & development programs improve the quality of the employees?

20. Do you think the present appraisal system of your bank is effective to increase your performance?

HYPOTHESIS TESTING Z – TEST Null Hypothesis (H0) (µ1 - µ2 = 0) - The Performance Appraisal is not

effective in both State Bank of India and ICICI Bank. Alternative Hypothesis (H1) (µ1 - µ2 ≠ 0) - The Performance Appraisal

is more effective in State Bank of India than in ICICI Bank.  Sample 1 (ICICI)

Sample 2 (SBI) x1 = 1.76 x2 = 1.2 S12 = 0.5044 S22 = 0.3941 n1 = 25 n2= 25 z = (x1 - x2) – ( µ1- µ2) √ S12 / n1 + S22 / n2 = (1.76 – 1.2) – (0) √ 0.5044 / 25 + 0.3941 / 25 = 2.95

RESULT OF Z – TEST Since the calculated value of z =2.95 > the critical or table

value 1.96 and it falls in the rejected region or area, thus we would reject null hypothesis i.e., the performance appraisal is not effective in both State Bank of India and ICICI Bank and accept the alternate hypothesis i.e. the performance appraisal is more effective in State Bank of India than in ICICI Bank. So it results, that, The Performance Appraisal is more

effective in State Bank of India than in ICICI Bank.

CHI-SQUARE TEST Null

Hypothesis (H0) – There is no relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance.

Alternative Hypothesis (H1) – There

is a relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance.

CHI-SQUARE TEST OF SBI Value

df

Asymp. Sig (2-sided)

Pearson Chi-Square

2.813a

3

.421

Likelihood Ratio

3.783

3

.286

Linear-by-Linear Association

.038

1

.846

N of Valid Cases

25

 In Chi-Square test the crosstabs commands the rows include the “Who should do

the appraisal” and the columns include the “Do you think the present appraisal system of your bank is effective to increase your performance”.  The first line of the “Chi-Square Tests” table gives the results from the chi-

squared test of independence. The Asymp. Sig. in the Chi-Square Test is 0.421.  At the 95% confidence level, the exact test finds no evidence of an association

between “who should do appraisal” and “Efficiency”.  The tabulated value of Chi-Square is 1.145. Therefore, 0.421 < 1.145. So, the

calculated value i.e., 0.421 is less than the tabulated value i.e., 1.145.  Therefore, accept H0 i.e., There is no relationship between who should do the

appraisal and the effectiveness of appraisal system to increase the performance and reject H1 i.e., There is relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance.

CHI-SQUARE TEST OF ICICI Value

df

Asymp. Sig (2sided)

Pearson Chi-Square

7.857a

6

.249

Likelihood Ratio

9.682

6

.139

Linear-by-Linear Association 1.955

1

.162

N of Valid Cases

25

 In Chi-Square test the crosstabs commands the rows include the “Who should do

the appraisal” and the columns include the “Do you think the present appraisal system of your bank is effective to increase your performance”.  The first line of the “Chi-Square Tests” table gives the results from the chi-

squared test of independence. The Asymp. Sig. in the Chi-Square Test is 0.249.  At the 95% confidence level, the exact test finds no evidence of an association

between “who should do appraisal” and “Efficiency”.  The tabulated value of Chi-Square is 1.145. Therefore, 0.249 < 1.145. So, the

calculated value i.e., 0.249 is less than the tabulated value i.e., 1.145.  Therefore, accept H0 i.e., There is no relationship between who should do the

appraisal and the effectiveness of appraisal system to increase the performance and reject H1 i.e., There is relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance.

RESULT OF CHI-SQUARE TEST

 In Chi-square test the calculated value in State Bank of India is 0.421 and in ICICI

Bank it is 0.249.

 While comparing both the banks it shows that the appraisal system of State Bank of

India is more effective then ICICI bank as per the response given by the respondents.  From the results of Chi-Square of SBI and ICICI bank it shows that we accept null

hypothesis i.e., there is no relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance and reject alternative hypothesis i.e., there is a relationship between who should do the appraisal and the effectiveness of appraisal system to increase the performance.  So it results, that, there is no relationship between who should do the appraisal

and the effectiveness of appraisal system to increase the performance.

FINDINGS CRITERIA

SBI

ICICI BANK

Aware about the banks performance appraisal

100% 100%

Performance appraisal is essential and also it facilitates career growth & learning

100% 100%

Performance appraisal is based on Seniority Seniority & performance

96% 4%

44% 56%

Counseling Formal Informal

76% 24%

72% 28%

Training & development programs improve the quality of the employees Strongly agree Agree

32% 68%

44% 56%

Present appraisal system is to a large extent effective to increase their performance Large extent Moderate extent Less extent

56% 44% 0%

28% 68% 4%

LIMITATIONS  Whenever the work is conducted by the human, there are errors or limitations to it. But as a

matter of fact they could not be eliminated completely. There is no concrete basis to prove the response given is a true measure of the opinion of all the respondents as a whole.  I have tried my level best to remove errors and degrade the level of limitations. Though

there are some limitations related to my work as follows: Study is limited to selected banks and its branches.  Problems with confidential information.  Even after a lot of effort from my side some of the employees fear to supply the

information or provided wrong information due to their level in company so the information provided by them may be inaccurate.  The method used for taking out sampling size has its own limitations so that becomes my own limitation and so the sample size is limited to 100 respondents.  The questionnaire contained mostly multiple-choice questions; therefore many respondents may not have given a proper thought before answering the questions.  The response of the respondents may not be accurate thinking that the management might misuse the data and even most respondents might be influenced by their peers in answering the questions.  Researcher has its own limitations while analyzing the data.

RECOMMENDATION Findings suggest that the SBI performance appraisal process is

distinct from ICICI Bank counterpart and that a variety of specific. It is suggested that for appraisals to be effective in the ICICI

Bank : Appraisals need to be directly linked to job analysis. This may be

accomplished by using job dimensions as the critical behaviors on which to base the appraisal. Success is premised on the job analysis being current and an accurate reflection of the individual’s job.  Numerical ratings may be utilized if anchored to specific job

behaviors. They are speedier than narrative or MBO evaluations.

 Performance appraisal needs to be linked to individual development and

training. This can be facilitated by including space on the form to prioritize training needs. Training is essential for appraiser biases to be reduced.  Appraisals need to be reviewed at more than one level. If an individual

reports to several different superiors, it is advisable to have each appraise the individual.  Instruments should include comment and summary sections for rater and

ratee.  Finally and most importantly, the appraisal process must be part of a total

management system which considers the needs of the agency as well as the public employee.  “Performance Appraisal” should be treated as an integral part of the bank

development not just the formality.

CONCLUSION To summarize we can say that the “Performance Appraisal” an integral

part has become the important component of the HRM. Performance appraisal includes activities to ensure that goals are

consistently being met in an effective and efficient manner. Performance appraisal can focus on the performance of the banks to build

a product or service, employees, etc. A well designed Performance Appraisal system helps a bank to :  Know and understand what is expected to them.  Have the skills and ability to deliver on these expectations.  Are supported by the

bank to develop the capacity to meet these expectations and are given feedback on their performance.

Have the opportunity to discuss and contribute to individual and

team aims and objectives. Performance Appraisal can recognize its true personal inventory

and formulate the strategy for manpower planning and career development. Performance appraisal directly affects the other sub system of

HRM such as manpower planning selection, career development, potential development, recruitment, compensation, etc. Performance appraisal is a widen approach to guide the employees

in the right direction to achieve organizational as well as individual objectives mainly in banking sector because of the dominancy of personal skill and service level to interact with the customers.

THANK YOU

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