Intellectual Capital Efficiency Analysis of Indian Private Sector Banks

Banks happen to be one of the largest Intellectual Capital (IC)-intensive sectors. Measurement and management of intellectual capital, therefore, become essential, as it reflects the true value of the firm. The main aim of this paper is to estimate and analyze the Value Added Intellectual Coefficient (VAIC) for measuring the value-based performance of the Indian private sector banks for a period of five years from 2002-2007. The source of the data is the annual report, especially the profit/loss account and balance sheet, of the concerned banks for the relevant years. The data was collected through the RBI online database on Indian economy. The methodology was finalized based on an extensive review of international literature on intellectual capital with specific reference to literature that reviews measurement techniques and tools of intellectual capital. This study applies the VAIC method (propounded by Pulic Ante in 2000) in order to analyze the data of Indian private sector banks for the five-year period. It analyzes the intellectual or Human Capital (HC) and Physical Capital (CA) of the Indian banking sector and discusses their impact on the banks' value-based performance. The significance of this study is that it approaches the performance measurement and efficiency of banks in India with a new perspective and dimension. The performance of the banks is closely linked to their valuation and also their future strategies related to mergers and acquisitions