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A Study of Performance Appraisal Systems in Indian Banking Sector A Study of

Performance Appraisal System in Indian Banking Sector

Research · April 2019

DOI: 10.13140/RG.2.2.30472.88329

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 A Study of Performance Appraisal Systems in Indian
Banking Sector

Abstract

Keywords: Performance appraisal, Banking Sector, training needs, rewards

This paper explores an empirical approach to the analysis of performance appraisal system
in Indian Banking Sector. The Banking sector in India has always been one of the most
preferred avenues of employment. Economy of a country can grow only when it has a
sound and effective banking system. Therefore banking system of India should not only be
hassle free but it should be able to meet new challenges posed by technology and other
external or internal factors. People are the most valuable assets whether it is public sector
or private sector. There is only a need to manage them. This can be done only by
appraising their performance from time to time.
Performance Management is a multi step process of aligning employee’s work
behaviors with the strategy and goals of the organization. The primary and secondary data
was collected and analyzed for this study. A questionnaire was presented to the employees
of selected private and public sector banks. From the result it can be concluded that still
there is a need to develop a performance appraisal system which is universally applicable.
Performance of employee is evaluated but it is rarely communicated. Organizations must
make effective use of performance appraisal for identifying training needs and also as a
basis for promotion. The other result shows that in most of the banks performance is not
linked with the rewards which lowers the morale of employees and therefore efficiency
and profitability of those banks is affected.

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 A Study of Performance Appraisal System in Indian
Banking Sector

1. Introduction:
Performance Appraisal is a process of Systematically evaluating performance and providing
feed back upon which performance adjustments can be made (Schermer Born, Hunt and Osburn, 2004);
Performance appraisal is concerned with formally assessing someone’s work accomplishments and
providing feedback. Performance can be defined in terms of:
 Attitudes and traits (e.g. loyal, Dependable, Decisive etc.)
 Achievement of goals and outcomes
 Behaviors.
Performance appraisal may be defined as evaluating individual job performance as a basis for
making objective personnel decisions (Robert Kreither, 2004). Performance appraisal is a process of
assessing, summarizing and developing the work performance of staff in an organization. Good
performance appraisals benefit both employees and the organization. It promotes common understanding
of individual needs, work objectives and standards of acceptable performance. It also gives employees
and managers a useful tool to aid in employee development. One human resource objective for using
performance appraisal systems is to determine who should be promoted, demoted, transferred, or
terminated. However, these are not only human resource functions that are related to performance
appraisals. For example, an organization may use the results from a performance appraisal system to
determine who needs formal training and development opportunities. Further, such opportunities may
have no use as reward for individuals whose appraisals were positive.
Performance appraisal also can be used to motivate and improve performance. By showing an
individual strength lie and pirating out areas that still need improvement, an evaluator can help focus an
employee’s attention on a course that will produce the most positive benefits additionally reinforcing
behaviors that have produced strong positive results should motivate the individual to continue to
performing this manner.
A well-designed performance appraisal system also can encourage individuals to work together as
a team. If this is an organization’s goal, it must face several challenges in designing and implementing
such a system. Obviously, using the supervisor in the evaluation process, self-managed group members
can evaluate each other. Because self managed teams require a unique approach to performance appraisal,
the process may need to be redesigned.
2. Literature Review:
2.1 About the Banking Sector
The Banking sector in India has always been one of the most preferred avenues of employment. In
the current decade, this has emerged as a resurgent sector in the Indian economy. As per the McKinsey
report ‘India Banking 2010’, the banking sector index has grown at a compounded annual rate of over 51
per cent since the year 2001, as compared to a 27 per cent growth in the market index during the same
period. It is projected that the sector has the potential to account for over 7.7 per cent of GDP with over
Rs.7, 500 billion in market cap, and to provide over 1.5 million jobs.

2
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. In 1969 the government nationalized the 14 largest commercial
banks; the government nationalized the six next largest in 1980.
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with
the Government of India holding a stake), 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 and 17,000 ATMs. According to a report by ICRA Limited, a rating
agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively.
Today, banks have diversified their activities and are getting into new products and services that
include opportunities in credit cards, consumer finance, wealth management, life and general insurance,
investment banking, mutual funds, pension fund regulation, stock broking services, custodian services,
private equity, etc. Further, most of the leading Indian banks are going global, setting up offices in foreign
countries, by themselves or through their subsidiaries.
Economy of a country can grow only when it has a sound and effective banking system. Therefore
banking system of India should not only be hassle free but it should be able to meet new challenges posed
by technology and any other external or internal factor. Now banking services are no longer confined to
metropolitans or cosmopolitans only. Infact Indian Banking sector has reached even to remote corners of
the country.
People are the most valued asset of the organization, be it private or public, human resources are
endowed with such uncommon qualities such as creativity, problem solving ability and they can be
motivated as a team. There is a need of only managing them, appraising them and motivating them. This
can be done only by appraising their performance from time to time.
2.2 About the Topic
Performance appraisal is a part of performance Management; Performance Management is a multi
step process of aligning employees’ work behaviors with the strategy and goals of the organization. It is a
tool for implementing strategic planning and achieving continuous improvement at all levels of an
organization. Performance management is a joint process where both the supervisor and the employee
identify common goals which correlate to the higher goal of the organization. Performance appraisal
process starts with lying down of mission, objectives and performance standard expected of employees.
These are later used as measures for feedback and performance evaluation.
Through this paper an attempt has been made to analyze the performance appraisal system
currently in Indian Banking Sector. The data was collected from employees of both private as well as
public sector banks. On the basis of this analysis recommendations are given along with the conclusions.

3. Objectives of the Study:

The Study is done keeping in mind the primary objective of identifying the performance appraisal
system being implemented in the banking sector. The Secondary Objectives are:

 To know the methods of performance appraisal adopted by various banks.

 To identify the frequency with which performance is appraised.
 To understand the check points on which performance is assessed and appraised.
 To understand the casual links between performance assessment and other HR activities like
Rewards, Compensation, Promotion, Training and Development.

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4. Methodological Approach:
4.1 Method
As the study sought to identify the performance appraisal in Indian Banking Sector. The first step
was to identify the banks for research and data collection. A survey for performance appraisal was
conducted on different banks. For this survey six banks - three private sector banks and three public sector
banks were identified. The secondary data related to these banks was collected using internet, books,
journals, reports of banks etc. Besides a questionnaire was prepared to collect the primary data related to
various aspects of performance appraisal and its evaluation.
4.2 Data Collection
Data was collected from banks in the area near Delhi & Ghaziabad. This survey was done in the
end of 2010. The questionnaire was distributed to the employees of above identified banks. Employees
were identified through random Sampling. Top level as well as middle level employees were contacted to
get information about various aspects of performance appraisal. The questionnaire investigated the
various parameters of performance appraisal and its evaluation. The questionnaire was simple in form
with both open ended and close -ended questions.
4.3 Data Analysis
Responses of the bank employees from the questionnaire were organized and compiled. The
findings were compiled and presented in the next section of the paper.

5. Findings:

5.1 Graphical representation of the Primary data analysis

The central focus of the study was the performance appraisal system in public and private sector banks

(a) From the figure it can be interpreted that 50 % of the banks do performance appraisal on yearly
basis, 17% do it half yearly and nearly 33 % do it quarterly.

Frequency of performance % of
Frequency of Performance Appraisal appraisal banks
60%
50% Yearly 50%
% of Banks

40%
30% % of Banks
20%
10%
Half yearly 17%
0%
rly
ly

ly

Quarterly 33%
ar

te
ea
Ye

ua
fY

Q
al
H

4
(b) It is necessary to motivate employee’s .For this performance should be linked with rewards .It has
been found that approx. 83% of the sampled banks link their performance to rewards and the rest
17% do not have their performance linked with rewards.

Rew ards linked to Perform ance

Rewards linked to % of
100% performance banks
80%
% of Banks

60% Yes Yes 83 %

40% No

20%

0%
No 17 %

(c) From the study it can be analyzed that nearly 50% of the banks use self and supervisors
assessment as a method for performance appraisal and the rest 50% use 360 degree method for
performance appraisal.

Method of Performance Appraisal Method of performance % of

appraisal banks
60%
50% Assessment by self & 50%
% of Banks

40% supervisor
30% % of Banks
20%
10% 360 degree method 50%
0%
Assessment 360 degree
by Self & method
Supervisor

(d) Need for training can be easily identified through performance evaluation. Performance evaluation
can also help in identifying the area where training is needed. It has been observed that nearly
33.3% of the banks use performance evaluation as a technique for identifying training needs and
rest 66.7% do not link performance to training needs.

Training Needs linked to Performance Training needs linked to % of

Evaluation
performance evaluation banks
80%

60%
Yes 33.3%
% of Banks

40% % of Banks
No 66.7%
20%

0%
Yes No 5
 (e) Only 50% 0f the banks use different appraisal methods at different levels and for different jobs.
However different jobs require different skills and competencies.

Appraisal method linked to % of

Appraisal method linked to the type the type of job banks
of Job

60% Yes 50%

50%
% of Banks

40%
No 50%
30% % of Banks
20%
10%
0%
Yes No

5.2 Critical Analysis of the Secondary data

Besides the above findings the performance management philosophy of all the six banks was also
analyses and on that basis individual bank specific observations were given. For the study private banks
were given the nomenclature PVB1, PVB2 and PVB3 and public banks were represented by PUB1, PUB2
and PUB3.
 Private Banks: PVB1 – PVB2 - PVB3
1. PVB1
The working of this bank is based on the philosophy that no two individuals are alike
therefore they cannot be treated in the similar manner. Therefore various parameters are used for
evaluating performance.
(i) Jobs are assigned to the employees and their performance is evaluated on the basis of assigned jobs.
Each employee is placed in one of the following five following categories:
Pa, Pb, Pc, Pd & Pe
Pa is the category of extremely high performance. They are over ambitious and therefore they achieve
targets much mare than laid down.
Pb category also includes high achievers but they are at the borderline of the defined targets
Pc categories of people just meet their targets. They can be considered good.
Pd is the category of under performers. This group of people achieve less than the defined targets.
Pe is the required category of people where performance is not acceptable.
(ii) Employees are examined on the basis of self skills such as leadership skills, communication skills,
empathy, customer orientation etc.
(iii) The third element in performance appraisal is inter – departmental co-ordination.
(iv) Performance is measured on the basis of initiative taking ability, capacity to take risks, cross selling
ability etc.
(v) The next parquets are the customer satisfaction of dealing with the employees of bank. Each manager
maintains a file of every subordinate under him /her. Grades are given to employees on the basis of
feedback given by customer. Records about attendance, punctuality etc are also maintained
(vi) Employees performance is also valued on the basis of his ability to detect fraud and mistakes during
cash handling

6
2. PVB2
(i) This bank is based on the philosophy that at different levels employees have different responsibilities
and therefore this bank follows different appraisal systems for different levels.
(ii) It is mandatory for the superior or the immediate supervisor to give feedback to the employee about
his performance.
(iii)This bank linked performance appraisal to rewards and promotions. Superiors also help the employees
in over coming the hurdles and help them in decision making.
(iv) Joint appraisal system is also implemented as a part of performance appraisal. The banks believe in
the assessment of employees on individual objectives as well as on interpersonal skills.
3.PVB 3
(i) The Bank makes difference between performers and non-performers.
(ii) Performance is appraised on the basis of individual ability and achievement
(iii)The bank believes in the philosophy of bringing individual employee’s goals in align to organization
strategy and goals.
(iv) This bank believes in the mentor system. These mentors support the employees in their job and also
provide meaningful feedback.
(v) Bank has a proper HRD department which takes care of all the HR activities of the organization.
Rewards are associated with the performance therefore individuals try to achieve their goals and
targets both at individual level and group level group incentives are included in performance appraisal
policy

 Public Sector Banks: PUB 1- PUB2 - PUB3

Public Sector banks are the banks in which government of India holds stake. Almost all the banks
use the same policies and procedures based on the guidelines given by RBI.
(i) In public sector banks performance is appraised once in a year. However for lower level employees
performance is appraised twice a year. Employees are appraised by their immediate supervisor.
(ii) Public sector banks do not give much emphasis to performance appraisal. Only at the time of
promotions performance appraisal is given weightage.
(iii) Public sector banks appraises the performance of its employees on the parameters such as readiness to
work under pressure, communication skill, knowledge of organization, behaviour with customer and
colleagues.
6. Recommendations & Conclusions:
The study comes to a conclusion that banks set their strategies that emphasizes on the
efficiency of the employees. These banks evaluate the employee’s performance mostly objectively
and the final decision regarding the appraisee is taken by higher authority, where some times the
appraiser’s or immediate supervisor’s recommendation is neglected. The final decision is effected by
the liking and disliking of higher authority.
 In public sector banks performance is evaluated once in a year. Public sector banks should
increase the frequency of evaluation.
 On the contrary private banks experiences high growth in sales and therefore they set the strategies
which are related with customer satisfaction, external recruitment etc.
 Study reveals that most of the employees do not have proper knowledge regarding the existing
performance appraisal system and the factors or areas of the work they need to give emphasis.
 Appraisers should have personal knowledge of appraise so that reward or punishment for the
concerned employee can be decided.
 Besides appraiser’s feel this job is worthless, therefore performance appraisal remains on papers
and is considered as time waste activity. In order to overcome this barrier rewards for executing a
performance appraisal correctly and accurately should be created.

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  Due to increased importance of performance appraisal, it should be ensured that superiors do not
conduct 5 to 10 personal appraisals per year.
 In almost all the banks appraisal by superior is the prime method of performance appraisal. Self
appraisal should be made mandatory. If possible the 360 degree feedback must be implemented.
 Performance should be linked with financial as well as non- financial rewards.
 Parameters for performance appraisal should be different for different levels because every level
requires different knowledge, skills and abilities.
 Through the study it can be concluded that performance of employee is evaluated but rarely its
feedback is communicated to employees.
 Organizations must make effective use of performance appraisal for identifying training needs and
also as a basis for promotions.

7. Limitations of study:
Every research paper or analysis has specific boundaries over which we do not have a hold.
 The data was collected from the area near Delhi and Ghaziabad only. Therefore response to the
procedures may vary locally.
 Nearly 120 employees were selected randomly.
 Some questions were not understood by the respondents.
 Time constraint was also a limitation.
 Respondents were a bit apprehensive in filling the questionnaire as they feared their names
will be revealed.
 Some senior executives were not willing to share their actual views because they termed it as
confidential.

8. Application and Future Research:

The findings refer to the present scenario of the performance appraisal system in banking
sector. Further research is needed to develop a performance evaluation system best fit for his sector.
However development and application of new appraisal system take many years and also creates
distrust among the employees. Therefore prior to any thing it is necessary to create confidence and
trust among the employees so that a particular appraisal system can be effectively and efficiently
applied in the organization.

9. Bibliography:
1. Cleveland J. N., Murphy K. R., and Williams R. E. (1989). Multiple Uses of Performance Appraisal:
Prevalence and Correlates, Journal of Applied Psychology, Vol.74, 1989,
pp. 130-135.
2. Dessler G. (2005) Human Resource Management, 10th Edition. Prentice-Hall, Inc, USA.
pp. 84-87.
3. Fisher C. D., Schoenfeldt L. F., and Shaw J. B. (1997).Human Resource Management, 3rd
Edition . All India Publishers and Distributors.
4. George S. Odiorne. (1965). Management by Objectives. International Edition. Pitman
Publishing Corporation. p. 78.
5. Gomez-Mejia L. R., Balkin D. B., and Cardy R. L. (2004). Managing Human Resources, 4th
Edition. Pearson Education, Inc. India. p. 69.
6. Latham G. P., Skarlicki D., Irvine D., and Siegel J. P. (1993). The Increasing of Performance
Appraisals to Employee Effectiveness in Organizational Setting in North America,
International Review of Industrial and Organizational Psychology, Vol. 8, pp. 87-132.
7. Wexley K. N. and Kilimoski R., (1984). Performance Appraisal: An Update, Research in

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 Personnel and Human Resources Management, ed. Kendrith M. Rowland and Gerald R.
Ferris, Greenwich, Conn.: JAL Press, 1984, pp. 35-80.
8. Bretz, R.D.Jr. Milkovich, G.T. and Read, W. (1992), The current state of performance appraisal
research and practice: concerns, directions, and implication, Journal of Management 18 (2), pp.321352.
9. Cook, J & Crossman, A. (2004), Satisfaction with performance appraisal systems, Journal of
Managerial Psychology 19 (5), pp. 526-541.
10. Murphy, K.R., & Cleveland, J.N. (1991), Performance Appraisal: An
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11.Mohrman, A.M. & Mohrman, S.A. (1995), Performance Management is
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