Importance Of Operation Efficiency In Banking Sector

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Mr. Nagaraja Sastry who is presently a Consultant mainly for SME’s and MSME’s, having foreign and

domestic clients and has worked with 3 different banks namely ICICI, Kotak Mahindra and .He is the

former Vice President of Kotak Mahindra.

Operations Efficiency in Banks:

The various operational activities of bank include deposits, withdrawals, loans, opening of account,

updating of passbook, money transfer etc. The operational efficiency of a bank depends upon

optimal utilisation of
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Operational efficiency is to achieve economic growth at less technical and social cost by

maximising customer service delivery. Operational efficiency is important not only to acquire

customers but to retain them as the cost of acquiring customers is greater than cost of retaining the


Measurement of Operational Efficiency:

Measurement of efficiency of banking institutions serves two important purposes. It helps to

benchmark the relative efficiency of an individual bank against the best practice banks and secondly,

it helps to evaluate the impact of various policy measures on the efficiency and performance of

these institutions. Banks measure efficiency at every level i.e. zone level, cluster level and regional

TIME AND MOTION STUDIES: Time and motion studies have helped in measuring the efficiency of

banking operations in which the average time taken by a person to complete a transaction was

recorded for example, the time taken by a person to count 50 notes or 100 notes. Also it studied

where to place the counters, challans, deposit forms etc. for minimum movement required by
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of times they would suggest them to take a loan or if the account is

credited then it would suggest a fixed deposit with high interest returns to the customer.


Banking operations when done manually take up a lot of time and effort from their staff as well

making them do routine activities over and over again leading to loss of productivity and missing the

chance to move up the value chain. On the other hand, automation reduces the redundancies in

their operations and frees up staff that can be deployed for activities that are more productive. This

is the reason why banks and financial institutions are among the largest users of IT.

The most important benefit of automation is that it increases or keeps the operational efficiency at

the same level but reduces the cost of transactions. For example, ATM’s charge Rs. 21 per

withdrawal from the banks but the first 5 withdrawals are free, others are charged by the

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