Activity-based costing in banking services: A case Study of a large Indian Private Sector Bank

Abstract

Accounting system in banking industry captures expenses and income relating to branches for regulatory and reporting needs but found to be less useful in operational and strategic decisions. Implementation of Activity Based Costing (ABC) is necessary for banks to collect internal cost data for each of the major activities and such cost data can be used for decision-making. Using data collected from two branches of a large private bank, this study demonstrated how activities 9 cost can be computed. The cost computed for the activities was then used to find product/service cost and cost associated with offering such services to different types of customers. Banks can use the activity analysis and costs for a variety of decisions like benchmarking, restructuring of branch network, offering certain exclusive services in certain branches, outsourcing decision, identification of critical activities that add value to the customers, etc.