Research Methodology

CHAPTER 1
INTRODUCTION AND RESEARCH METHODOLOGY
1.1 Prologue
Before the establishment of banks, the financial activities were handled by money
lenders and individuals. At that time the interest rates were very high. Again there was
no security of public savings and no uniformity regarding loans. So as to overcome
such problems the organized banking sector was established, which was fully regulated
by the government.
Banking in India originated in the last decades of the 18th century. The first bank in
India, called The General Bank of India was established in the year 1786.The oldest
bank in existence in India is the State Bank of India, which originated in the Bank of
Calcutta in June 1806.
In 1984 RBI formed Committee on computerization in the Banking Industry whose
chairman was Dr C. R. Rangarajan, Deputy Governor, Reserve Bank of India. The
major recommendation of this committee was introducing Magnetic Ink Character
Recognition (MICR) technology in the all the banks in the metropolis in India. This
provided use of standardized cheque forms and encoders.
In 1988, the RBI set up Committee on Computerization in Banks headed by Dr. C. R.
Rangarajan which emphasized on computerization of branches and increasing
connectivity among branches through computers. It also suggested modalities for
implementing on-line banking. The committee submitted its reports in 1989 and
computerization in Indian banks began from 1991.
The Indian banks were finding it difficult to compete with the international banks in
terms of the customer service without the use of the information technology and
computers. The IT revolution had a great impact in the Indian banking system. The use
of computers had led to introduction of online banking in India.
Today‟s business environment is very dynamic and undergoes rapid changes as a result
of technological innovation, increased awareness and demands from customers. The
banking industry of the 21 st century operates in a complex and competitive environment
characterized by these changing conditions and highly unpredictable economic climate.
Banks have implemented IT technologies but their implementation is being done in a
disorganized manner. Therefore implementation of IT is not as effective as it should be.
To get real fruits of IT, proper IT governance is required. IT governance is a subset

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discipline of corporate governance focused on information technology (IT) systems and

their performance and risk management. IT governance is essential to mitigate IT
related risks and avoid IT project failures. Weill and Ross define IT governance as
“Specifying the decision rights and accountability framework to encourage desirable
behavior in the use of IT.” IT governance focuses specifically on information
technology systems, their performance and risk management.
The primary goals of IT Governance are to assure that the investments in IT generate
business value, and to mitigate the risks that are associated with IT. This can be done by
implementing an organizational structure with well-defined roles for the responsibility
of information business processes, applications and IT infrastructure.

Focus Areas for IT Governance in Banks -

• IT strategic alignment
• Value delivery
• IT resource management
• IT risk management
• Performance measurement
IT governance frameworks –
• Control Objectives for Information Technology (COBIT)
• The IT Infrastructure Library (ITIL)
• ISO 27001

1.2 Research Problem

Before implementation of IT and computerization banks were facing the problems viz.
crowd of customers who come to make transactions,Maintaining and handling of bulky
registers, Mathematical and human errors in the various transactions, Secrecy was not
possible in the operations, robberies with people who have been travelling with money
as ATM facility was not available during the early days, banking from anywhere was
not possible, without use of IT Indian banks were finding it difficult to compete with
the foreign banks.
In the middle and late 90s there was revolution in communication technologies like
internet, mobile/cell phones etc. Tremendous improvement has taken place in the Indian
banking sector because of the IT revolution. All the private and foreign banks have
gone for 100 percent computerization. At a rapid fast, the government owned

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nationalized banks are also improving their number of computerized branches. This
results in faster transaction, transparency in operation. At present many banks switch
over to core banking.
At present banks are implementing IT applications in different areas but banks are not
getting real benefits due to inadequate governance of IT. Following are the obstacles
observed in IT implementation at banks.
 The electronic banking system users still face the security risks with
unauthorized access into their banking accounts.
 Potential hazards of the electronic banking system are during on-line
transactions, transferring funds, and issuing electric currency, etc. due to
imperfection of the security methods.
 Loss of sensitive data from USB devices.
 There is resistance to change from bank employees because of fear of
uncertainty and control orientation. Acceptance of technology is slowly
increasing in but the utilization is not maximized.
 Even the smaller IT problems take time as most of the branches do not have
system specialist who can look after the system and other operational problems.
 The risks arising out of outsourcing i.e. dependency on third party service
providers for provision of certain services (say, for example, ATMs) does pose
certain limitations on the range and level of services offered to the customers.
 IT related frauds such as Phishing, SQL Injection, database and server hacking,
network attacks, Denial of Service attack, web page defacing, Cross Site
scripting, card cloning, etc. that result in financial and reputational loss.
 Shrinking the responsibility by the concerned authorities.
 Technology investment is not aligned to its strategic business objectives.
 Ineffective IT resource management.
 No review on performance of IT assets.

It has been observed that banks in India are using IT based systems from last two
decades for performing different banking functions. In fact implementation is not
everything all but its prefect governance is a must to get the optimum benefits of IT
enabled modern technologies. Business process transformation is very difficult without
adequate IT governance. IT governance is essential to mitigate IT related risks and

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avoid project failure. Ineffective IT governance is likely to be a root cause of the

negative results.

1.3 Statement of the Research Problem

On the basis of management problem present study is an effort to examine status of
existing IT governance practices in banks and to identify problems in standard IT
governance framework implementation in banks. Keeping this in view, the study has
been undertaken, titled as- „Impact of Information Technology Governance Practices on
the Performance of Selected Banks in Western Maharashtra‟. The title signifies study of
the present status of IT governance practices in banks, various problems faced by banks
in governance of IT.

1.4 Objectives of the Study

The proposed study is confined to the following objectives.
1) To study present status of IT governance.
2) To know the problems and prospects of implementation of IT governance
practices.
3) To examine the impact of IT governance on bank performance.
4) To examine existing IT governance practices used in the banks.
5) To design IT Policy for banks.

1.5 Hypothesis of the Study

The study is also undertaken to test following hypothesis.
1) IT governance practices in public and cooperative banks are in infancy stage
compared to private banks.
2) The extent of IT governance practices is independent on types of banks.
3) Efficient utilization of IT assets is dependent on IT governance.
4) There is inconsistency in aligning IT objectives with organizational objectives
in private sector, public sector and cooperative sector banks.

1.6 Scope of the Study

Study is confined to Satara, Sangli, Kolhapur, Pune and Solapur districts of Western
Maharashtra, India. Research is conducted in select public, private and co-operative
banks those having Head Offices or Regional Offices or Zonal offices in these five
districts. IT Heads are the respondents for the research.

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Study revolves around concepts of IT, IT policy and IT governance in banks.

Data has processed by using MS-Excel and analyzed using SPSS Package. Analytical
scope is confined to various statistical tools viz. Percentage, Correlation, Mean,
Standard Deviation, Binomial test, Kruskal-Wallis etc.

1.7 Significance of the Study

This research is helpful to banks for deciding hardware/software acquisition,
installation and maintenance policy, network policy, security policy and IT usage
policy. This research is also helpful to banks for knowing problems in IT
implementation and its governance. It helps bank management to performing and
transforming Information Technology to meet present and future demands of the
business and customers.
Study is important to various stakeholders of bank viz. management of bank, IT
vendors and customers. The study provides guidelines to banks for effective and
efficient utilization of IT resources, mitigation of IT risks and avoidance of IT project
failure. Software vendors use this research for designing efficient and robust access
control mechanisms and security control system. The study also helps information
system auditors for conducting application software audit, environment audit and
system migration audit.

1.8 Research Methodology

The study is inferential descriptive (diagnostic) in nature based on systematic
collection, analysis, and interpretation of the data related to IT asset and IT governance
practices used in banks.

1.8.1 Data Required

Data about status of IT implementation, status of IT governance implementation,
standard IT Governance practices applied in banks, opinions about IT governance
impact, problems IT governance implementation etc. was a need of study.

1.8.2 Data Sources

Both primary and secondary sources were used to collect the data for the research.
Primary data sources –
The necessary primary data were collected from technical staff of bank and top
management representatives by using structured schedule. (Refer annexure)

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Secondary data Sources –

The necessary secondary data regarding concept of IT governance, standard IT
governance practices, previous studies related to topic were collected from sources like
banks documents, reference books, RBI reports, various publications, International and
national journals, websites and reports. This data was useful for conceptual framework
and literature review.

1.8.3 Instrument
Structured Schedule is used to collect primary data. Schedule is natured as structured,
close ended and codified. (Annexure)

1.8.4 Sampling
The banks having Head Office or Regional Office or Zonal Office in Western
Maharashtra are the samples for this research because IT governance is associated with
Head Office or Regional Office or Zonal Office. The size of population is finite and
district wise population of banks having head offices, zonal offices and regional offices
in western Maharashtra is as below –

Table No. 1.1

District wise Population
Sr. District Public Private Co-operative Total
no. banks banks banks
1 Kolhapur 2 1 47 50

2 Pune 17 2 54 73

3 Sangli - - 21 21

4 Satara 2 - 26 28

5 Solapur 2 - 34 36

Total - 23 3 182 208

(Source: RBI Annual Report March 2013)

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The researcher has calculated sample size by using Slovin‟s formula for small finite
population and is as below –

n= N / 1+ N (e)2

Where,

n = Number of samples

N = Total population

e = Margin of Error

The respondents are the IT heads of selected banks. The numbers of banks having Head
Office or Regional Office or Zonal Office in Western Maharashtra are 208. The sample
units are calculated by using above formula with a 90% confidence level and 10%
margin of error. The calculated sample size came to 68.
The total calculated samples are categorized in 3 types as per the proportion of existing
units. The samples in each type of bank are proportionally calculated and rounded off to
the next figure. Hence, the final calculated sample size of banks came to 68. But for
reliability and avoiding non-response error researcher has taken 73 samples for the
study.
Following table shows the comprehensive picture of sampling of the study.

Table No. 1.2

Sample Size Details
Sr.No. Type of Bank Number of Calculated Actual
Banks Sample Size Sample Size

1 Public Banks 23 7 10

2 Private Banks 3 1 1

3 Co-operative Banks 182 60 60

Total - 208 68 73

(Source: Compiled by Researcher)

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More details are as under -

1. Population Public, Private and Co-operative Banks from

Western Maharashtra

2. Type of Population Finite Population

3. Size of Population 208 Banks

4. Analysis Unit Head Office or Regional Office or Zonal Office

of Bank

5. Sampling Frame Banks from 5 Districts of Western Maharashtra

6. Sample Size Calculated - 68 Taken - 73 Banks

7. Parameter of Interest IT governance Status, Problems and Impact on

Bank Performance

1.9 Period of the Study

Study is conducted during 2012 to 2015 and data from samples were collected from
December 2013 to June 2014.

1.10 Chapter Scheme

A brief outline of the chapters is as below-
Chapter 1: Introduction and Research Methodology
This chapter provides introduction, scope and relevance of study, objectives,
hypotheses, future scope, importance of research and research methodology followed
for study.

Chapter 2: Literature Review and Conceptual Framework

This chapter covers brief summaries of referred books, thesis and research articles
pertaining to banking industry, present status of IT implementation in banks, IT
governance and IT governance frameworks used by banks etc. This chapter includes
also areas of IT implementation in banks, need and various applications of computers
for banks, meaning of IT governance, need of IT governance.

Chapter 3: Profile of Banking Industry

This chapter includes an introduction to banking industry, history of banks, structure of
Indian banking, and significance of banks in economy, IT implementation areas in
banks.

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Chapter 4: Data Analysis and Interpretation

In this chapter, an attempt has made to analyze status of present status of IT
implementation and IT strategy in banks, existing IT governance framework in banks,
impact of IT governance on performance of banks and problems in IT governance.

Chapter 5: Findings, Suggestions and Conclusion

This chapter summarizes the findings, conclusions drawn and suitable suggestions
made for effective IT governance implementation and to improve the efficiencies of
various functional areas of banks, to mitigate IT related risks and avoid IT project
failures.
Besides above chapters thesis is annexed with schedule used for data collection and
Bibliography.

1.11 Scope for Further Research

Researcher put forth statements for further research based on present study. The study
mentioned below on Core Banking Solution (CBS) implementation may help to take
banks on the development prospective.

 Design and development of cloud based Core Banking Solution (CBS) for
Indian banking industry which is suitable to global environment changes.

 Study of hardware, software requirements for Core Banking Solution (CBS).

 Design and development of economical and secure network architecture.

 Study of manpower development on the basis of education, training in the light

of Core Banking Solution (CBS).

 A study of development of parallel organization for Core Banking Solution

(CBS) implementation.

 Changing job profile of employee in banking industry due to Core Banking

Solution (CBS) implementation.

 Business Process Reengineering (BPR) due to Core Banking Solution (CBS)

implementation.

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1.12 Limitations of the Study:

1. The nature of study is such for which the sensitive data was required. The genuine
opinions have not shared by IT heads which may have impact on the reliability of
findings.

2. The research is conducted with concern the banking sector in Western

Maharashtra; therefore it could not be generalized to the entire banks in India.

1.13 Conclusion
This research is an effort to study present status of IT governance implementation in
banks and to evaluate impact of IT governance on bank performance. This chapter has
provided the general outline of the study. The scope of research and methodology
adopted for study has been defined. Assumed sample size for the study and actual
samples collected for sufficing research objectives are stated. Detailing of the
instrument which is used for collection of data i.e. schedule is given in the annexure.
Finally, this chapter introduced the topics to follow that are important for the proper
understanding of organization of thesis followed by scope for further research and
limitations of the study.

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