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- International Journal of Management (IJM)
Volume 8, Issue 6, Nov–Dec 2017, pp. 44–55, Article ID: IJM_08_06_005
Available online at
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© IAEME Publication
HUMAN CAPITAL MANAGEMENT IN
BANKING SECTOR-A CONCEPTUAL
FRAMEWORK
Sudershan Chadha
Senior Manager, Union Bank of India
Dr. Daleep Parimoo
Professor, School of Business Studies, Sharda University, Greater Noida, India
ABSTRACT
The issue of human resource management has been a long-debated topic for
business and professional organisations. Modern view and approach see the workers
and employee as human capital. So many research and studies have established the
direct relationship between human capital management practices and employee
performance, which finally establishes a positive relationship between human capital
management practices and organisational performance. Traditionally, in banking
sector, there was no such concept of human resource development and so for, human
resource department was not the part of organisational structure. As professionalism
and competition are increasing in banks, a need of human development initiative is
much felt now. To fulfil the gap, banks are setting human resource department in their
system. Now a days according to required benchmarks, the banks are also trying to
establish their standard for human capital management. Although, the reports say that
most of the commercial banks adopt human capital management practices to an average
degree. Some reports also say that HRD department’s functioning is far from
satisfactory level in majority of the banks yet. But, a positive gesture and initiative in
this direction is on the flow. In many banks along with training, other activities like
manpower planning and performance appraisal have also been introduced.
This paper investigates the background, current status and practice adopted by
banks for development of their human capital. The methodology adopted for the study
includes literature review for conceptual background, theoretical perspective for
establishing the relationship between human capital management practices and
employee performance as well as organisational performance, and chronological
presentation of empirical research done on human resource development practices in
banks.
Key words: Human Resource, Human Resource Management, Human Resource
Development, Human Capital, Human Capital Management, Banking Sector.
http://www.iaeme.com/IJM/index.asp 44 editor@iaeme.com
- Human Capital Management In Banking Sector-A Conceptual Framework
Cite this Article: Sudershan Chadha and Dr. Daleep Parimoo, Human Capital
Management In Banking Sector-A Conceptual Framework. International Journal of
Management, 8 (6), 2017, pp. 44–55.
http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=6
1. INTRODUCTION
Present day business approaches view and express the workers in terms of resource. They are
dealt with as most vital resource named as "Human Capital". The expression "Human Capital"
is in some cases utilized synonymously with "human resources", though human capital
regularly alludes to a more restricted view i.e. the information the individual encapsulate and
add to monetary development. The human resource is, of all resources appointed to man, the
most beneficial, the most flexible and the most resourceful. Human resources constitute the
most essential and irreplaceable constituent in any economy.
The concept of human capital as an economic asset was first given in 1960 by Theodore
Schultz. Presently in the period of the most genuine economic emergency since the 1930s,
policy makers and experts in governments and commercial organisation are looking at their
workers as their most essential resource in recuperation of economic stability and attaining
growth.
Human capital is the supply of information, propensities, social and identity traits, including
imagination, encapsulated in the capacity to perform work in order to deliver monetary esteem.
On the other hand, Human capital is a gathering of assets—all the learning, gifts, aptitudes,
capacities, encounter, insight, preparing, judgment, and knowledge had exclusively and all in
all by people in a populace. These assets are the aggregate limit of the general population that
speaks to a type of riches which can be coordinated to achieve the objectives of the country or
state.
Nowadays, we are moving towards a learning economy where interests in intangibles
resources are viewed as crucial components to esteem creation in business organisation, and
the development of this approach is changing the entire procedure treatment to execution in
changing Human Resource work. Presently, there is a general understanding that scholarly
capital, all the more particularly human capital is basic to an association's prosperity, and that
the HR centre must be more considered in the new information based economy period (Afiouni
Fida, 2009).
For advancement of "Human Capital" to perform at competitive level with set benchmarks,
the HRD development in banks is progressively working ahead. A lion's share of the banks
have setup isolate HRD Departments inside a time of working; HRD Department in a few banks
have increased certain noteworthy achievement. The thorough feedback of the displaying HRD
work as "garish connection" can't be defended. Then again, the reality of the matter is that HRD
Department's working in a greater part of the banks is a long way from satisfactory level.
There are many banks where alongside training, different exercises like manpower planning
and performance appraisal have been presented. However, some different banks have made fast
walks similarly as the presentation of new HRD exercises and sub-frameworks, for example,
systematic training, quality circles and staff meetings are concerned. Other than presenting
these frameworks, a few banks have likewise taken critical endeavors in idealizing certain
frameworks like training and performance appraisal. In any case, there is an expansive spread
inclination in banking industry that there are no adequate result from the HRD capacities and
framework at the operational level are directed to level of customs.
This paper examines what are issues and difficulties raised by different researcher and
banking administration monitoring professionals and boards in regard of human asset
improvement named as "Human Capital Management".
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- Sudershan Chadha and Dr. Daleep Parimoo
2. OBJECTIVES OF THE STUDY
The overall objective of the study is to underline the background, current status and practice
adopted by banks for development of their human capital.
3. LITERATURE REVIEW
3.1. Conceptual Background
Human capital (HC) speaks to the knowledge, ability, judgment power and skill of workers.
HC is imperative since it is a wellspring of advancement and consider recovery (Bontis (1998).
Likewise, it is said that Human Capital is the most imperative device revenue driven era in the
knowledge-driven economy. A knowledge-driven economy is an economy where era and abuse
of knowledge assumes a prevalent part during the time spent riches creation (Harman, 2007).
Human capital was characterized as the consolidated insight, abilities and aptitude that gives
the association its particular character (Odhong et al., 2013). Human Capital (HC) was as a
method for clarifying the benefits of putting resources into instruction on a national scale
(Afiouni, 2013). The idea of human capital has assumed an imperative part in the neoclassical
investigation of work markets (Omolo (2007). This is in especially with respect to the part it
plays in wage assurance. It has additionally come to rule the monetary examination of the
training. The accentuation on human capital in organisation mirrors the view that market esteem
depends less on substantial assets, but instead on impalpable ones, especially human assets
(Kulvisaechana, 2006).
Chatzkel. J.L (2004) stated human capital as: "the pack of collected knowledge, aptitudes,
experience, innovativeness and other important workforce traits" and propose that HCM
includes "instituting the measurements to gauge the estimation of these characteristics and
utilizing that knowledge to viably deal with the association" Baron, Armstrong, 2007
Human capital which might be called as human resources capital (Shun Wang, 2011) is
spine of intangible resources and is considered as a fundamental component in
organisation'(Royal & O‘Donnell, 2008). It incorporates every single scholarly resource of
organisation like workers' learning and mastery (which empower them to take care of
authoritative issues and address clients' issues and wants (Ditillo, 1998). This sort of capital is
recognized as the most imperative model of intellectual capital represents organisation's
capacity to locate the best arrangement by focusing workers' learning (Cornachione, 2010;
Bontis, 1998) . Human capital shows learning stock of representatives and is a crucial asset of
vital development . Human capital is a standout amongst the most imperative and in deeds the
most essential knowledge resource in organisations (Bontis & Fitz-enz, 2002), in light of the
fact that these benefits are imagination resources. The capital incorporates workers learning in
an organisation contain capabilities, aptitudes and capacities . The organisation are not
proprietors of these capitals and representatives leaving of organisation confront them with new
medications (Bontis, Keow, & Richardson, 2000).
Human capital is seen by financial analysts and scientists as a noteworthy mainstay of a
nation's monetary development and thusly the base for accomplishing the focused on level of
expectations for everyday comforts. Human capital mirrors the total aggregate attitudes and
experience, learning and innovativeness, and vitality and excitement appeared by individuals
to put resources into their business (Ingham, 2007). human capital is decidedly connected to
the execution of the association and its benefits. From the prior, clearly human capital is an
imperative factor for the info and yield of present day organisations (subjective private) and has
highlights that are not accessible in other capital (Ukenna et al. 2010).
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- Human Capital Management In Banking Sector-A Conceptual Framework
3.2. Theoretical Aspects of Human Capital
The theory of human capital was produced in the middle of the crisis of human capital
progression (Schultz,1960; Becker (1962). These two researchers views human capital in
different yet close points of view; Schultz analyzes the utilization of instruction as a type of
venture though Becker view human capital development as the rate of come back to put
resources into training. In any case it is pleasing that both of the two perspectives are right and
can be utilized as a part of each other. It is a total financial perspective of the human being
acting inside economies, which is an endeavour to catch the social, organic, social and mental
multifaceted nature as they cooperate in express as well as monetary exchanges. Numerous
hypotheses unequivocally associate interest in human capital improvement to instruction, and
the part of human capital in financial advancement, efficiency development, and advancement
has regularly been referred to as a support for government sponsorships for instruction and
employment abilities preparing (Van, 2002). .
The connection between financial development and human advancement has been a subject
of thorough observational econometric work since the 1970s. Training, which is a critical
segment of human advancement, has been found to clarify fluctuating levels of return and
monetary development (Crook et al 2011). The establishment of the human capital hypothesis
lies in the way that people and firms put resources into human capital construct not in light of
present picks up but rather on future financial and non-monetary returns. Ventures incorporate
different perspectives, for example, tutoring, preparing, getting data, relocation, and exercises
that enhance a person's wellbeing. (Afiouni Fida, 2009)
Moreover, Gavaran et al (2011) quoted that human capital concentrates on two primary
parts which are people and association. He additionally brings up that the human capital have
four key traits which are; adaptability and flexibility, improvement of individual capabilities,
the advancement of hierarchical skills and individual employability. Every one of these
qualities create and increase the value of individual and association results (Marimuthu et al
(2009).
At the organisational level, human capital assumes a vital part in the strategic planning how
to gain competitive advantages (Marimuthu et al., 2009). Crafted by Snell et al., (1999) stress
that an organizations' human capital has two measurements which are esteem and uniqueness.
They contended that assets are profitable when they permit allow improvement of effectiveness
capitalizing on opportunities and minimize threats. Utilizing the theory to clarify the
circumstance of labourers execution at Union Bank of India in Delhi district, it was expected
that their working performance relates with the level of human capital potential which may
perpetually be connected to the degree to which they have been taught in extending the
knowledge and skills significant for their occupations
3.3. Human Capital Management Practices and Organisational Performance
Despite the fact that, there is a wide presumption that human capital has constructive outcome
on firm performance, the idea of execution for human capital remain to a great extent
unquestionable. The always showing signs of change business condition expects firm to take a
stab for competitive advantages through dynamic marketable strategy which consolidate
imagination and innovative. This is basically essential for their long term sustainability.
Without a doubt, HR input assume a critical part in upgrading company's competitiveness
(Barney, 1995). Because of current worldwide market changes, most firms have grasped the
thought of human capital as a decent upper hand that will improve higher execution. Human
capital advancement turns into a piece of a general push to accomplish savvy and firm
execution. Consequently, firms need to comprehend human capital that would upgrade
employee's satisfaction and enhance their performance.
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- Sudershan Chadha and Dr. Daleep Parimoo
Initially, generous investigations were done on human capital and their suggestions on
organisation's performance on generally premise and clearly, human capital improvement will
bring about more prominent performance and execution (Choudhury et al (2010). From the
individual level, Snell & Dean, 1992) call attention to the significance of human capital relies
upon how much it adds to the formation of competitive advantage. From a economic
perspective exchange cost demonstrate that firm gain competitive advantages when they claim
firm-particular assets that can't be replicated by competitors. Hence, as the uniqueness of human
capital builds, firm have impetuses to put assets into its administration and the point o diminish
risk and benefit from profitable possibilities. Henceforth, individual needs to upgrade their
competency abilities keeping in mind the end goal to be focused.
From the hierarchical level, human capital assumes a vital part in the key anticipating how
to create competitive advantages. Following crafted by Snell et al, (1999) it expressed that an
organisation's capital has two measurements which are esteem and uniqueness. Firm showed
that assets are profitable when they permit enhancing adequacy, capitalizing on opportunities
and minimizing threats. in the context of viable administration, esteem concentrates on
expanding benefits in correlation with the related cost. In this sense, company's human capital
can add esteem in the event that it adds to bring down expenses and provide increase
performances.
3.4. Human Capital Management Practices and Employee Performance
The world has been encountering a war for talent', it is critical to hold the current talent and
furthermore to upgrade their skills and capacities to enhance the performance. As indicated by
an overview directed by Hay Group in 2002 among the employees who worked in 330
organizations in 50 nations, 33% of them revealed that they expected to leave from their
occupations inside the following two years. A large number of the world's most appreciated
organizations recognize that they will lose a large portion of their senior officials in the
following five years. This circumstance will be much more dreadful in the coming years;
associations ought to deal with their human capital pool all the more applicably so they can deal
with the erratic employee turnover. HCMP like employee engagement, leadership practices,
learning capacity and so forth can have affect on employee retention and performance
enhancement. In their assessment, Nadoushan, Saeedi, Amidzadeh, and Hosseini (2013) ,
researches the connection between human capital administration practices and employees'
performance and they found a positive and important connection between human capital and
its measurement with employee performance.
As per Chen, Zhu, and Xie (2004), human capital alludes to factors as employees' learning,
aptitude, capability, and attitudes in connection to cultivating performances which clients will
pay for and the organization's benefit originates from. Wan (2007) declares that human capital
advancement strategies can upgrade employee fulfilment and it is apparent from many research
ponders that employee fulfilment has positive critical connection with employee performance.
As indicated by Peccei (2004), fulfilled employees are all the more ready to buckle down and
invest additional exertion for the benefit of the association, in this way effectively adding to the
general productivity and effectiveness of the framework.
Employee work performance is multidimensional and huge for authoritative achievement
(Dyne, Jehn, and Commings, 2002) and effectiveness (Ohly and Fritz, 2010). Work
performance is portrayed as ―synonymous with conduct it is the thing that individuals do that
can be watched and measured regarding every individual's involvement or level of contribution‖
(Pulakos, Arad, Donovan, and Plamondon, 2000). Jones and George (2008) additionally
showed that performance can be seen as an assessment of the after effects of a man's conduct
which incorporates deciding how well or ineffectively an undertaking has been finished.
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- Human Capital Management In Banking Sector-A Conceptual Framework
3.5. The Indian Banking System
The Indian banking framework comprises of 26 public sector banks, 20 private sector banks,
43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural
cooperative banks, notwithstanding cooperative credit institutions. As on September 2016, the
exceptional credit to NBFCs remained at US$ 55.27 billion, developing at 25 for every penny
on year-on-year premise. Bank credit to non-banking finance companies (NBFCs) has touched
the most elevated in three years.
Table 3.5.1 Indian Banking System
PSB Pvt. SBs Foreign Banks
Number of banks 26 20 43
Total business (INR 102,185 25,391 5,517
billion)
Number of employees 801,659 269,941 25,384
Source: Reserve Bank of India
Indian banks are progressively concentrating on receiving incorporated way to deal with
risk management. Banks have just grasped the worldwide banking supervision accord of Basel
II. As indicated by RBI, larger part of the banks effectively meet capital necessities of Basel
III, which has a due date of March 31, 2019. The vast majority of the banks have set up the
system for asset-liability match, credit and derivatives risk management.
Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) are developing. As on
November 09, 2016, US$ 6,971.68 million were stored, while 255.1 million records were
opened. Rising incomes are required to upgrade the requirement for banking services in rural
areas and in this manner drive the development of the sector; programs like MNREGA have
helped in expanding rural salary supported by the current Jan Dhan Yojana. The Reserve Bank
of India (RBI) has loose its branch licensing policy, accordingly permitting banks (which meet
certain financial parameters) to set-up new branches in level 2 to level 6 focuses, without earlier
endorsement from RBI. It has stressed the need to concentrate on spreading the compass of
banking services to the un-saved money populace of India.
(https://www.ibef.org/industry/banking-india.aspx, dated-03/06/2017, 12:14 pm)
Figure 3.5.2 Structure of Banking
Source: EXIM Bank, NABARD, NHB, SIDBI
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- Sudershan Chadha and Dr. Daleep Parimoo
3.6. Chronological Presentation of Empirical Research done on Human Resource
Development and Organizational Performance:
Becker (1994) distinguish current practices of banks concerning accounting for human
resources and the degree of utilization inner and external information and accounting
information. The study has concluded that there is extremely constrained utilization of
accounting information and information in these zones. The after-effects of the investigation
show that there are essential components have added to this circumstance are: (1) the absence
of an accounting standard for revealing information of human resources in the financial
statements, and (2) the absence of the establishments and basics of cost frameworks.
Bassi et al., (2007) directed an investigation on Human Capital and Organizational
Performance: Next Generation Metrics as a Catalyst for change. The overview concentrated on
the connection between HCM metrics (for instance, employee turnover rate) and resulting
organizational performance. The review directed crosswise over American Standard
Organizations and results summed up. The exact research uncovered a centre arrangement of
HCM drivers that anticipate performance are leadership practices, employee engagement,
knowledge accessibility, workforce optimization and learning capacity.
Regal Bank of Scotland perceives that in the event that it is to convey its objective of being
'the world's most respected bank' and outflank others in the segment, the commitment and
performance of its staff is the key differentiator. To accomplish this goal, RBS places extensive
significance on having HR arrangements set up that effect decidedly on staff. The Bank has
possessed the capacity to demonstrate that by enhancing employee engagement, quantifiable
enhancements in business performance and benefit levels can come about.
McMurrer, (2007) built up a framework that enables officials to evaluate HCM and to utilize
those metrics both to foresee organizational performance and to direct associations' interests in
individuals. The structure depends on a centre arrangement of HCM drivers that fall into five
noteworthy classifications: leadership practices, employee engagement, knowledge
accessibility, workforce optimization, and organizational learning capacity. By utilizing
thoroughly composed reviews to score an organization on the scope of HCM practices over the
five classes, it's conceivable to benchmark organizational HCM abilities, distinguish HCM
qualities and shortcomings, and connection changes or falling away from the faith in particular
HCM practices with enhancements or deficiencies in organizational performance (Bassi et al.,
2007).
A study directed by Bassi et al., (2008) dissected the connection between human capital and
organizational performance of Banking Sector. Discoveries of their investigation uncovered
that the human capital pointers had a positive relationship on organizational performances.
Bassi et al., (2008) refered to in Jamal (2011) recommended that HCM pointers have association
with result of the association and upgrade in expertise level of individual, change in human
capital administration and disposal of information inadequacies will be utilized as strategy goals
to contend in knowledge period. Royal Bank of Scotland (RBS) Group, for instance, is an
acknowledged pioneer in the field of human capital administration that has held consistency of
HCM detailing and estimation from HR that has a huge concentrate on business affect.
Yahaya (2008) researches the effect of interest in human resource training and development
on employees' viability in banks. The outcomes demonstrated that Zenith Bank had the best
Human Resource Management and Accounting practice performed best. The investigation
additionally distinguished the primary training and development exercises in the three chose
banks as introduction and at work training, aptitudes change training, use of the recently gained
abilities, consistent training and procurement of job experiences in every aspect of banking.
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- Human Capital Management In Banking Sector-A Conceptual Framework
Olufemi (2009) led an examination on human capital development practices and
organizational effectiveness. The primary reason for the examination was to pick up a superior
understanding of the hypothetical and experimental connection between Human Capital
Development (HCD) practices and some measurement of organizational effectiveness of banks
especially after the banking sector changes of June 2004.
A research think about led in 2010 by CFO Research Services uncovers that human capital
issues as a key guilty party in fizzled and ensuing financial misfortunes. In this study of Finance
and HR officials, the researchers investigated how associations are handling human capital
issues identified with value-based action. The after-effects of the study proposed that HR offers
one of a unique value and guidance, especially in relationship to overseeing and valuing human
capital resources which can fundamentally contribute to effective pre-and post-transformational
events (Hewitt, 2010). The conceptualization of human capitals is firmly connected to a few
essentials of financial aspects and firms' performance.
Nzuve and Bundi (2012) conducted a study to decide the connection between human capital
management practices and performance of Commercial Banks in Kenya. The researchers
utilized a cross sectional survey configuration and additionally a correlation research. The
investigation inferred that most business banks embrace human capital administration practices
to a normal degree. The study additionally presumes that human capital management practices
for the most part impact performance as measured by both turnover development and profit for
resources.
Nzuve et al., (2012) directed a study on Human capital administration practices embraced
by the National Social Security Fund. The fundamental target of the study was to decide the
degree to which Kenya National Security Fund (NSSF) had received the HCM practices. The
study utilized the contextual investigation outline that depended on an objective populace of 98
administration staff in the human resource and organization division. Both substance and
quantitative investigation were utilized to analyze information. The researcher found that NSSF
had actualized HCM practices yet to a unimportant degree. Some of HCM practices at NSSF
incorporates: upgrading the association's capacity through staff training and development and
setting of clear performance standards.
In this way, the research prescribes that Banks ought to assess the nature of their human
resource consistently and gives satisfactory training and development chances to their
employees. Likewise, the expert bodies in India ought to build up a standardized scale for the
evaluation of human resource in banks and other corporate associations. Likewise, training and
development programs intended for the employees ought to be comprehensive and identified
with their requirements
3.7. Emerging Trends
In the present situation technology has changed the method for banking is finished. To matchup
with it bank employees should be more taught and made agreeable in utilizing technology. Re-
skilling of employees required at each level for the banks to make a move from predominantly
back office parts to predominantly deals and administration parts. Soft skill training to the
banking employee is additionally required. Underneath the figure and table represent the
Incremental Human Resource Requirements and Skill Gaps in Banking Sectors. It requires bank
employees to be prepared and stay refreshed on the procedures associated with different
distribution channels.
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- Sudershan Chadha and Dr. Daleep Parimoo
Table 3.7 Incremental Human Resource Requirements
Employment Growth 2013- Employment
Employment( in Million)
17 Growth 2017-22
2013 2017 2022 (in million) (in million)
Banking &
1.89 2.38 3.16 0.48 0.78
NBFC
Table 3.7 Skill Gaps in Banking Sectors
Banking Segment
Job Roles Representative Skill Gaps
Entry Level (Clerks, Senior Detailed understanding of various bank offerings
Officers, and processes, Knowledge of various third-party
Asst. Manager) offerings, Knowledge of core banking system and
various technology
platforms, awareness of regulatory norms,
understanding customers’ requirements,
Patience and perseverance, Good oral and written
communication skills
Middle Level (Manager, Knowledge of banking operations, regulations and
Senior Manager, products, Sound understanding of credit appraisal,
Chief Manager, asset liability management, asset class and risk
AGM, AVP, DVP, VP) management concepts, knowledge of legal norms
and sensitivities involved in contracts and
agreements, motivating employees to put their
best performance, ability to manage profit centre
and drive revenue targets with focus on cross
selling, setting up sales targets for executives, and
putting together a plan to achieve it
Top Level (DGM, Quick decision making ability, analytical bent of
GM, SVP, SGM, EVP, ED, mind,, relationship management skills, ability to
President, ED, CEO, Chairman) design products that match market dynamic,
ability to develop sales strategy
Source: KPMG in India analysis
4. CONCLUSION
Modern approach of professionals and organisation has been changed to see and treat the
employees and workers as most valuable resource which may be termed as “Human Capital”.
Now a days, there is a general consensus that human capital is most important for organisations’
growth and development, and that the Human Resource Development activities must be more
considered in the new information based economy period. In different studies, researchers
found and established the fact that there is direct relationship between human capital
management practices and employee performance which at last, is converted and assessed in
terms of organisational performance. It has been stated that from the organizational level,
human capital plays an important role in the strategic planning to create competitive advantage.
In terms of human resource development practices, the studies show that although every bank
understands the importance of human resource development practice and its impact on
organisational performance these days, the amount of focus and activity for the same vary from
bank to bank. Most of the commercial banks adopt human capital management practices to an
average degree. Some reports say that HRD department’s functioning is far from satisfactory
http://www.iaeme.com/IJM/index.asp 52 editor@iaeme.com
- Human Capital Management In Banking Sector-A Conceptual Framework
level in majority of the banks yet. At the same time, to perform at competitive level with set
benchmarks, the focus on HRD in banks is gradually increasing. Most of the banks are setting
up separate HRD Departments to match the standards in external environment. In many banks
along with training, other activities like manpower planning and performance appraisal have
also been introduced. This shows a positive approach and initiative towards “Human Capital
Management” in banking sector.
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