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SPECIAL FOCUS INSIDE The Economics of Apartheid and Mandela’s Struggle for Freedom theMANAGEMENT ACCOUNTANTTHE JOURNAL FOR CMAs JANUARY 2014 VOL 49 NO. 1 `100 STRATEGIC COST MANAGEMENT IN BANKING AND INSURANCE MA ranks Indian banks on Cost Efficiency The Institute of Cost Accountants of India (Statutory body under an Act of Parliament) www.icmai.in FIRST RESEARCH ICAI-CMA – JAICO FINANCE & ACCOUNTING SERIES PUBLICATION FROM THE CAPITAL MARKETS ICAI-CMA – JAICO INITIATIVE IN INDIA Amal Krishna Dey & Pankaj Kumar Roy J-2104 ₹695 520p ISBN 978-81-8495-232-2 THE EMERGENCE OF THE INDIAN CAPITAL MARKET as an attractive avenue for international investors has been an important financial story of recent times. The entry of world players has revolutionized Indian capital markets, largely for the better. But problems of understanding the management systems and behaviour of the capital market scientifically are vastly ignored by general investors and good times for investors may not last long without proper and scientific vision. This book has been written keeping the above mentioned aspects and the basic subject matter of capital markets in mind. The book provides a comprehensive idea about the role and functioning of the capital market in India and will be a great help to students of business management, economics, business journalism and cost & management accountants in understanding the scientific parameters of the capital market mechanism in India. Market CONTENTS 6. Laws and Regulations Affecting the Capital Market 1. Capital Markets and Stock Exchanges and their History 7. Role of Income Tax Laws in the Capital Market 2. Different Instruments of the Indian Capital Market 8. Role of Derivatives, Futures and Options 3. Investment, Trading and Transactions in Share Scrips 9. Computer Screen Based Trading 4. Movements of Share Prices 10. Security of Investors 5. Role of Different Financial Institutions in the Capital Appendix: Investment Terminology Glossary For further information about the book, please mail at [email protected] The Institute of Cost Accountants of India JAICO PUBLISHING HOUSE The Institute of Cost Accountants PRESIDENT CMA Suresh Chandra Mohanty [email protected] of India VICE PRESIDENT CMA Dr A S Durga Prasad [email protected] COUNCIL MEMBERS CMA Amit Anand Apte, CMA Aruna Vilas Soman, CMA D L S Sreshti, CMA Hari Krishan Goel, CMA M Gopalakrishnan, CMA Manas THE INSTITUTE OF COST ACCOUNTANTS OF INDIA (erstwhile Kumar Thakur, CMA Dr P V S Jagan Mohan Rao, The Institute of Cost and Works Accountants of India) was first established in 1944 CMA Pramodkumar Vithaldasji Bhattad, CMA Rakesh Singh, CMA Sanjay Gupta, as a registered company under the Companies Act with the objects of promoting, CMA Dr Sanjiban Bandyopadhyaya, CMA S R Bhargave, regulating and developing the profession of Cost Accountancy. CMA T C A Srinivasa Prasad GOVERNMENT NOMINEES On 28 May 1959, the Institute was established by a special Act of Parliament, name- Suresh Pal, Nandana Munshi, Ashish Kumar, G. Sreekumar, K. Govindaraj ly, the Cost and Works Accountants Act 1959 as a statutory professional body for Secretary (Acting) CMA Kaushik Banerjee the regulation of the profession of cost and management accountancy. [email protected] Senior Director (Studies) It has since been continuously contributing to the growth of the industrial and CMA R N Pal economic climate of the country. [email protected] Director (Administration & Internal Control) The Institute of Cost Accountants of India is the only recognised statutory profes- CMA Arnab Chakraborty [email protected] sional organisation and licensing body in India specialising exclusively in Cost and Director (Professional Development) CMA J K Budhiraja Management Accountancy. [email protected] Director (Examinations) CMA Amitava Das [email protected] Director (CAT), (Training & Placement) CMA L Gurumurthy [email protected] MISSION STATEMENT Director (Finance) CMA S R Saha [email protected] The CMA Professionals would ethically drive Director (Administration–Delhi Office enterprises globally by creating value to stakeholders & Public Relations) CMA S C Gupta in the socio-economic context through competencies [email protected] Director (Research & Journal) drawn from the integration of strategy, management CMA Dr Debaprosanna Nandy [email protected] and accounting. Director (Advanced Studies) CMA Dr P S S Murthy [email protected] Director (Technical) CMA A S Bagchi [email protected] VISION STATEMENT Director (Technical) CMA Dr S K Gupta [email protected] The Institute of Cost Accountants of India would be Director (Discipline) and the preferred source of resources and professionals Joint Director (Membership) CMA Rajendra Bose [email protected] for the financial leadership of enterprises globally. Editorial Office CMA Bhawan, 4th Floor, 84, Harish Mukherjee Road, Kolkata-700 025 Tel: +91 33 2454-0086/0087/0184 Fax: +91 33 2454-0063 Headquarters CMA Bhawan, 12, Sudder Street Kolkata 700 016 IDEALS THE INSTITUTE STANDS FOR Tel: +91 33 2252-1031/34/35 Fax: +91 33 2252-7993/1026 • to develop the Cost and Management Accountancy profession Delhi Office • to develop the body of members and properly equip them for functions CMA Bhawan, 3, Institutional Area Lodi Road, New Delhi-110003 • to ensure sound professional ethics Tel: +91 11 24622156, 24618645 • to keep abreast of new developments Fax: +91 11 4358-3642 WEBSITE Behind every successful business decision, there is always a CMA www.icmai.in January 2014 Inside COVER STORY STRATEGIC COST MANAGEMENT IN BANKING & INSURANCE JANUARY 2014 VOL 49 NO. 1 `100 The Management Accountant, official organ of The Institute of Cost Accountants of India, established in 1944 (founder member of IFAC, SAFA and CAPA) EDITOR CMA Dr. Debaprosanna Nandy [email protected] PRINTER & PUBLISHER CMA S C Mohanty President, The Institute of Cost Accountants of India 12 Sudder Street Kolkata 700 016 STRATEGIC COST and printed at Hooghly Printing Co Ltd MANAGEMENT IN THE (a Government of India Enterprise) BANKING SECTOR EDITORIAL OFFICE 20 CMA Bhawan, 4th Floor, 84, Harish DWELLING UPON THE NEW CAPITAL ADEQUACY FRAMEWORK IN THE INDIAN CONTEXT Mukherjee Road, Kolkata-700 025 Tel: +91 33 2454-0086/0087/0184 Fax: +91 33 2454-0063 The Institute of Cost Accountants of India is the owner of all the written and visual contents in this journal. Permission is neccessary to re-use any content and graphics for any purpose. DISCLAIMER A comparative Strategic Cost The views expressed by the authors are personal and do 26 assessment of 34 Management In not necessarily represent management of Non- the Life Insurance the views of the Institute Performing Advances industry: and therefore should not be (NPAs) in India and A Comparative attributed to it. China Study 4 THE MANAGEMENT ACCOUNTANT JANUARY 2014 www.icmai.in 6 COVER STORY From the The Financial Performance Business process Editor’s desk of Select Commercial Banks re-engineering in 40 in India Using the CAMEL 46 insurance industry and 7 Approach its cost implications President’s communique Non-performing Strategic cost assets: nightmare for management in the 55 banks ? 63 Insurance sector 10 Letters to the Editor SPECIAL ARTICLE INTERVIEW Relevance and Utility of NPA a double-edged sword 11 12 Cost and Management 78 for banks, says CMD of Indian ICAI-CMA Accounting In the Overseas Bank snapshots present Socio-Economic Risk and Project Management scenario 80 in the Banking Sector – an 18 interview with Adesh Jain Economy updates SPECIAL FOCUS RISK MANAGEMENT The Economics of Use of COBIT 5 business 90 65 Apartheid and Mandela’s 84 framework for risk BOOK REVIEW Struggle for Freedom management 100 TAXATION SURVEY INSTITUTE NEWS Stirring the Pot: Year-end The Management Accountant 70 changes in the Central 87 Study on India’s Cost 106 Excise Valuation Rules Efficient Banks 2013 CMA DOSSIER Tax-free Salaries 74 ON THE SIDE 107 Quotations TAX TITBITS MEMBERSHIP LIST 76 105 on CMAs The Management Accountant technical data Advertisement rates Rs. US $ Periodicity: Monthly Language: English Back Cover 50,000 2,500 Inside Cover 35,000 2,000 Overall Size: - 26.5cm x 19.5cm Screens: up to 130 Ordy. Full Page 20,000 1,500 Ordy. Half Page 12,000 1,250 Subscription Ordy. Qrtr. Page 7,500 750 Inland: `1,000 p.a. or `100 for a single copy The Institute reserves the right to refuse any matter of Overseas: US$150 for airmail or US$100 for surface mail advertisement detrimental to the interests of the Institute. The Concessional subscription rates for registered students of the decision of the Editor in this regard will be final. For any query, Institute: `300 p.a. or `30 for a single copy mail to [email protected] www.icmai.in JANUARY 2014 THE MANAGEMENT ACCOUNTANT 5 FROM THE EDITOR’S DESK Greetings! • Strategically allocate resources with accurate profitability and cost information Strategic Cost Management is the application of cost man- • Managing aggressive cost reduction initiatives agement techniques in order to continuously identify and • Developing and continuing sustainable cost analyze cost drivers to lower costs and maximize total val- management programmes ue. An effective Strategic Cost Management programme • Ensuring competitive advantage can not only lower costs of an organization but also cre- • Effective utilization of resources ate a strategic competitive advantage. It also provides a • Strategic decision making framework for decision making, enables measurement Presently, banks have to fight on two areas, viz. speedy of progress, provides a guideline for objective assessment recovery of bank dues from the existing NPAs on the one etc. Strategic Cost Management is hand and arresting further slippage very crucial for an organization to in standard loans on the other. For maintain its sustainability and prof- these purposes, the NPA portfolio itability. needs to be analyzed to determine In this difficult economic the reasons for loan default both environment, there is great urgency to due to external and internal factors.