Introduct ion
A sound bank ing sys tem i s a s ine qua non fo r
acce le ra t ing the p rocess o f economic deve lopment o f a
coun t ry . Banks and economic deve lopment a re in te r twined
and inseparab le to each o ther . In the words o f the fo rmer
Pr ime Min is te r Morar j i Desa i , “ the ro le o f commerc ia l banks
in economic deve lopment o f a coun t ry needs no emphas i s .
Bank ing , when proper ly o rgan ised , a ids and fac i l i t a tes the
g rowth of t rade and hence the na t iona l economy. ” 1
In Ind ia , though the money marke t i s s t i l l
charac te r i sed by the ex i s tence o f bo th the organ ised and the
unorgan ised segments , in s t i tu t ions in the o rgan is ed money
marke t have g rown s ign i f ican t ly and a re p lay ing an
increas ing ly impor tan t ro le . The unorg an ised sec to r ,
compr i s ing the money lenders and ind igenous bankers , ca te r s
to the c red i t needs o f a la rge number o f persons , espec ia l ly
in the coun t rys ide . Amongs t the ins t i tu t ions in the o rgan i sed
sec to r o f the money marke t , commerc ia l banks and
coopera t ive banks have been in ex i s t ence s ince the midd le
o f seven t ies . Thus , wi th the phenomenal geograph ica l
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expans ion o f the commerc ia l banks and the se t t ing up o f the
Reg iona l Rura l Banks [RRBs] dur ing the recen t pas t , the
o rgan i sed sec to r o f money marke t has pene t ra ted in to ru ra l
a reas as wel l . Bes ides the a fo resa id ins t i tu t ions , which
main ly se rve as sources o f shor t - t e rm cred i t to indus t ry ,
t r ade , commerce and agr icu l tu re , a var ie ty o f spec ia l i sed
f inanc ia l ins t i tu t ions have been se t up in the coun t ry to
ca te r to the spec i f ic needs o f indus t ry , ag r icu l tu re and
fo re ign t rade .
Amongs t the ban k ing ins t i tu t ions in the o rgan i sed
sec to r , the commerc ia l banks a re the o ldes t ins t i tu t ions
hav ing a wide ne twork o f b ranches , commanding u tmost
pub l ic conf idence and hav ing the l ion’s share in the to ta l
bank ing opera t ions . In i t i a l ly , they were es tab l i shed as
co rpora te bod ies wi th shareho ld ings by pr iva te ind iv idua ls ,
bu t subsequen t ly there has been a d r i f t towards S ta te
ownersh ip and con t ro l . Up to l a te s ix t ies , they were main ly
engaged in f inanc ing o rgan ised t rade , commerce and
indus t ry , bu t s ince then , they a re ac t ive ly par t i c ipa t ing in
f inanc ing agr icu l tu re , smal l bus inesses and smal l bor rowers
a l so .
3
A s ign i f ican t fea tu re o f the p resen t day commerc ia l
bank ing in Ind ia i s the coex is tence o f bo th the S ta te o r
pub l ic sec to r and p r iva te sec to r in bank ing . Apar t f rom the
p r iva te and publ ic sec to r banks , the re ex i s t the fo re ign
commerc ia l banks , which a re b ranches o f the Jo in t S tock
Banks incorpora ted abroad . These banks , bes ides f inanc ing
the fo re ign t rade o f the coun t ry , under take bank ing bus iness
wi th in the coun t ry as wel l .
One o f the majo r func t ions o f commerc ia l banks i s
l end ing funds wi th o r wi thou t secur i ty . In fac t , th i s ac t iv i ty
i s the c rux o f bank ing . In te res t on loans and advances and
d i scoun t on b i l l s cons t i tu te about 85 percen t o f a bank’s
to ta l ea rn ings . In a deve lop ing economy, there i s a cons tan t
demand fo r c red i t by var ious sec to rs v iz . t r aders , indus t r ies ,
expor t s , ag r icu l tu re and the l ike . As the money , which i s
p rov ided as loans to bor rowers , i s pub l ic money , ex t ra ca re
and d i l igence i s requ i red on the par t o f the bankers in
p rov id ing the loans .
In the pre -na t iona l i sa t ion e ra , the commerc ia l banks
were in the hands o f a few b ig bus iness houses . These
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houses d id no t have any concern fo r the soc ie ty and p ro f i t
was the i r main ob jec t ive . Nat iona l i sa t ion o f four teen
commerc ia l banks in 1969 paved the way fo r mass banking
f rom c lass banking . Th is l ed to economic up l i f tmen t o f
h i ther to neg lec ted sec to rs such as co t tage and smal l - sca le
indus t r i es , marg ina l fa rmers , women and ch i ld ren and
t rad i t iona l and v i l l age en te rp r i ses , popu lar ly known as the
p r io r i ty sec to rs .
“The concep t o f p r io r i ty sec to r came to be evo lved in
the l a te s ix t ies to focus a t t en t ion on the c red i t needs o f
ce r ta in neg lec t ed sec to rs o f the economy, par t i cu la r ly in the
ru ra l a reas to ensure adequa te c red i t f ac i l i t i e s to them. The
p r io r i ty sec to r covers ag r icu l tu re , smal l - sca le indus t ry ,
se t t ing up o f indus t r ia l es ta te s , road and wate r t ranspor t
opera to rs , r e ta i l t r ade , smal l bus iness , p ro fess iona ls and
se l f -employed persons , educa t ion , hous ing and consumpt ion
loans .”2 The components o f p r io r i ty sec to rs which are
e l ig ib le fo r loans f rom commerc ia l banks i s expressed in
d iagram No.1 .1
5
“The f inanc ia l p r io r i t i es a re a imed a t acc e le ra ted
g rowth of the economy wi th soc ia l jus t i ce . I t a l so a imed a t
c rea t ing employment oppor tun i t i es to the mi l l ions o f peop le
in ru ra l and u rban a reas . Each sec to r i s in te r - l inked . Whi le
ag r icu l tu re and smal l sec to r p roduced goods , t ranspor t
l inked them wi th marke ts , r e ta i l ed smal l bus iness o f fe red
innumerab le ou t le t s , educa t ion improves the sk i l l s , hous ing
p rov ided she l te r s and expor t s b rough t in compet i t iveness
and qua l i ty to p roduc ts .”3
There was a fu r ther sh i f t in th i s d i rec t ion dur ing 1980
when ano ther s ix banks were na t iona l i sed . Unt i l 1991 , the
Ind ian Bank ing indus t ry was opera t ing in a h igh ly regu la ted
and p ro tec ted env i ronment . However , wi th the accep tance of
Naras imham Commit tee r ecommendat ions , compet i t ion has
been in jec ted in to the bank ing i ndus t ry . New Pr iva te sec to r
banks and fo re ign banks have been g ran ted l i censes wi th a
resu l tan t inc rease in the number o f p layers in the bank ing
sec to r .
P r io r to na t iona l i sa t ion and even a f te r na t iona l i sa t ion
un t i l the ea r ly n ine t ies , the commerc ia l bank ers were
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conservat ive in the i r approach and loans were p rov ided on ly
a f te r a lo t o f sc ru t iny . Before na t iona l i sa t ion , the banker
knew a l l h i s cus tomers persona l ly and was ab le to c lea r ly
de te rmine the c red ib i l i ty o f the cus tomers . There fo re , the re
was no t much need fo r the banker to worry regard ing
recovery o f dues . Af te r the l ibe ra l i sa t ion in 1991 , a number
o f p r iva te sec to r banks en te red in to the money marke t to
compete severe ly wi th the na t iona l i sed banks . The new
genera t ion p r iva te banks have brough t ab ou t a parad igm
sh i f t in se rv ice s tandards and se t new benchmarks in t e rms
o f app l ica t ion of t echnology , speed in the de l ivery o f
se rv ices , cho ices o f fe red to cus tomers in respec t o f de l ivery
channe ls , décor and b ranch ambience and a h igh o rder o f
marke t o r ien ta t ion . Th is resu l ted in p rov is ion o f loans to
anybody , anywhere and a t any t ime . The pub l ic sec to r banks
cou ld no t adopt the p recau t ious approach regard ing
p rov is ion o f loans fo l lowed in the ea r ly days because they
wi l l lo se the race . Apar t f rom th i s , the soc ie ta l bank ing
concep t imposed on the commerc ia l bankers a f te r
na t iona l i sa t ion in the form of p r io r i ty sec to r l end ing has
added more fue l to f i re . Due to these reasons , the re has been
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a phenomenal increase in the overdues o f bank c red i t .
Overdue mean s loans unpa id wi th in the s t ipu la ted t ime .
“The ra te o f recovery o f loans as aga ins t the i r demand
a lmos t s tands a t abou t 52 per cen t .”4
The p ropor t ion o f
overdues in bank c red i t i s inc reas ing cons iderab ly every
year . Thus , recovery o f overdues has become a Hercu lean
task fo r the banker and the very su rv iva l o f the commerc ia l
banks i s based on e f fec t ive recovery o f overdues .
Commercia l Banks -An Eagle ’s v iew
Banking system in India
Banks cons t i tu te an impor tan t segment o f the f inanc ia l
in f ras t ruc tu re o f any c oun t ry . They occupy an impor tan t
p lace in the na t ion’s economy. A bank ing ins t i tu t ion i s
ind i spensab le in a modern soc ie ty and i t p lays a p ivo ta l ro le
in the economic deve lopment o f a coun t ry .
The Ind ian money marke t exh ib i t s the para l le l
ex i s tence o f bo th the o rgan ised and the unorgan ised sec to rs .
The unorgan ised sec to r , compr i s ing the money lenders and
ind igenous bankers t akes ca re o f the c red i t requ i rements o f
a l a rge number o f persons , espec ia l ly in the coun t rys ide .
8
Commerc ia l banks and coopera t ive banks cons t i tu te the
o rgan ised sec to r in the money marke t , wh ich has been
ex is t ing s ince the midd le o f seven t ies . The ins t i tu t ions in
the o rgan ised sec to r have g rown s ign i f ican t ly and a re
p lay ing an increas ing ly impor tan t ro le . The commerc ia l
bank , by means o f se t t ing up the Reg iona l Rura l Banks
[RRBs] dur ing the recen t pas t has pene t ra ted in to the ru ra l
a reas as wel l . Bes ides these ins t i tu t ions , which p rov ide
main ly shor t - t e rm cred i t to bus ines s , the re a re number o f
spec ia l i sed te rm lend ing ins t i tu t ions , which ca te r to the
long- te rm requ i rements o f indus t ry , ag r icu l tu re and fo re ign
t rade .
Indigenous banking in India
The Ind igenous Bank ing sys tem in Ind ia cons t i tu t ing
money lenders and ind igenous bankers has been in ex i s tence
f rom t imes immemor ia l . Accord ing to th e Ind ian Cen t ra l
Banking Enqu i ry Commit tee , “an ind igenous banker o r bank
i s an ind iv idua l o r f i rm rece iv ing depos i t s and dea l ing in
hund ies . Thus , accep tance o f depos i t s i s a necessary
prerequ is i t e fo r ca l l ing one an ind igenous banker .” 5 As
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such money lenders do no t accep t depos i t s f rom the pub l ic
and th is d i f fe ren t ia tes moneylenders f rom ind igenous
bankers . Such banks run by ind igenous bankers occupy an
impor tan t p lace in the Ind ian f inanc ia l sys tem. These
ind igenous bankers l end money , ac t as money chang ers and
f inance in te rna l t rade by means o f in te rna l b i l l o f exchange .
They run the i r bus iness as a f ami ly concern and p rov ide
loans wi th the i r own cap i ta l aga ins t secur i t i es such as go ld ,
j ewel le ry , l and , p romissory no tes , e tc . They a l so buy and
se l l r emi t tances and d i scoun t hundies . They usua l ly combine
bank ing wi th t rad ing and commiss ion bus iness . They
genera l ly dea l wi th ag r icu l tu r i s t s and smal l t r aders . “The
in te res t ra te cha rged by them i s h igher than the in te res t
charged by o ther bank ing ins t i tu t ions . ” 6
“Accord ing to the
Reserve Bank o f Ind ia , abou t 50 per cen t o f the in te rna l
t r ade i s f inanced by these ind igenous bankers .” 7
“The ind igenous bankers rece ive no bank ing educat ion
as such , though they rece ive p rac t ica l t ra in ing in the i r own
f i rms and the reby acqu i re r i ch exper ience . The i r opera t ions
a re s imp le and f ree f rom fo rmal i t i es and de lays . They do no t
have even f ixed work ing hours . They main ta in c lose
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persona l touch wi th the i r c l i en t s . They know the an tecedents
o f a l l the i r bor rowers and care fu l ly watch the i r f inanc ia l
pos i t ion a f te r accommodat ing them. They know the fami ly
h i s to ry of the peop le in the loca l i ty and unders tand whom to
accommodate and to what ex ten t . The i r accoun t ing and the i r
bus iness methods a re ex t remely s imple and moreover the i r
methods have been tes ted over a long per iod o f t ime .
The ind igenous bankers rece ive depos i t s f rom the
pub l ic and pay in te res t on them. The ra te o f in te res t var ie s
f rom 3 per cen t to 9 per cen t and depends upon cer ta in
fac to rs such as the amount o f depos i to rs , the cond i t ion o f
the marke t and even the i r persona l re la t ions wi th the
depos i to rs . However , they re ly p r imar i ly upon the i r own
cap i ta l and compara t ive ly to a very smal l ex ten t , upon the
depos i t s f rom the pub l ic . They do no t permi t wi thdrawals by
cheques . The wi thdrawals a re a s a ru le in cash . In t ime o f
necess i ty , ind igenous bankers supp lement the i r resources by
bor rowing f rom commerc ia l banks on demand p romissory
no tes o r by d i scoun t ing hund ies endorsed by them.
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The c l ien t s o f the ind igenous bankers ge nera l ly cons i s t
o f the r io t s , smal l indus t r ia l i s t s and t raders . Genera l ly , they
f ind i t d i f f i cu l t to es tab l i sh d i rec t con tac t wi th the r io t s and
f inance them th rough loca l money lenders . They d i rec t ly dea l
wi th the smal l indus t r ia l i s t s and t raders . In th i s connec t ion ,
they per fo rm a l a rge number o f bank ing func t ions such as
buy ing and se l l ing , remi t tance , d i scoun t ing hundies and
g iv ing loans aga ins t s tock - in - t rade . They lend money on
p romissory no tes on the persona l secur i ty o f the borrower o r
on the mor tgag e o f l and , house , e tc . ” 8 “
The Bank ing
Commiss ion [1972] has po in ted ou t tha t they a re much
sough t a f te r because of the i r f l ex ib i l i ty , absence of
fo rmal i t i es and p romptness . The Commiss ion has a l so no ted
tha t “ i f they are l inked wi th the Reserve Bank, the ent ire
f inancia l sys tem in the country wi l l ge t s trengthened .” 9
Commercia l Banking System in India
“Amongst the bank ing ins t i tu t ions in the organ ised
sec to r , the commerc ia l banks a re the o ldes t ins t i tu t ions
hav ing a wide ne twork o f b ranches , commanding u tmost
pub l ic conf idence and hav ing the l ion’s share in the to ta l
12
bank ing opera t ions . In i t i a l ly , p r iva te ind iv idua ls es tab l i shed
them as co rpora te bod ies wi th the i r shareho ld ings . Bu t
subsequen t ly , there has been a d r i f t towards S ta te ownersh ip
and con t ro l .” 1 0
Up to l a te s ix t ies , they were ma in ly engaged
in f inanc ing o rgan ised t rade , commerce and indus t ry , bu t
s ince then they a re ac t ive ly par t i c ipa t ing in f inanc ing
agr icu l tu re , smal l bus inesses and smal l bor rowers a l so .
Commerc ia l banks in Ind ia may b road ly be c lass i f i ed
based on two c r i t e r ia : [ i ] Ownersh ip and [ i i ] S ta tu to ry . On
the ownersh ip bas i s , the banks may be c lass i f i ed in to two
g roups , namely pub l ic sec to r commerc ia l banks and p r iva te
sec to r commerc ia l banks . On the s ta tu to ry bas i s , the banks
a re o f two types : Schedu led banks and non -schedu led banks .
[ i ] “Scheduled banks: Schedu led banks a re one which i s
reg i s te red in the Second schedu le under Sec t ion 42 [6 ] o f
the Reserve Bank o f Ind ia Act , 1934 . The fo l lowing
cond i t ions shou ld be fu l f i l l ed by a ban k fo r inc lus ion in the
schedu le :
[a ] The bank concerned mus t be ca r ry ing on a bus iness o f
bank ing in Ind ia .
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[b ] The bank mus t have a pa id -up cap i ta l and rese rves o f an
aggrega te va lue of no t l ess than Rs .5 l akhs .
[c ] I t mus t sa t i s fy the RBI tha t i t s a f fa i r s a re no t be ing
conduc ted in a manner de t r imen ta l to the in te res t o f the
depos i to r .” 1 1
“The schedu led banks have the fo l lowing ob l iga t ions :
[ i ] To main ta in an account wi th the Reserve Bank o f Ind ia
and to keep cash rese rve as p rescr ibed by the Reserve Ban k .
[ i i ] To submi t a week ly re tu rn abou t i t s f inanc ia l a f fa i r s to
the Reserve Bank .
[ i i i ] To keep accoun ts ready fo r per iod ica l inspec t ion by the
Reserve Bank and
[ iv ] To comply wi th d i rec t ions g iven by the Reserve Bank
f rom t ime to t ime . ” 1 2
Presen t ly , th e RBI has prescr ibed a min imum cap i ta l o f
Rs.100 c ro re for s ta r t ing a new commerc ia l bank . “The
schedu led commerc ia l banks have var ie ty of p r iv i leges l ike
re f inance fac i l i ty , cu r rency ches t fac i l i ty and they can
ob ta in f inance f rom the Reserve Bank o f Ind i a whi le in
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t emporary f inance d i f f i cu l ty .” 1 3
“Scheduled Banks may be
c lass i f i ed in to two g roups : Ind ian Schedu led Banks and
Fore ign schedu led banks . The Ind ian Schedu led Banks a re
those , which have the i r r eg i s te red o f f ices in Ind ia and a re
reg i s te red in the second schedu le o f the Reserve Bank o f
Ind ia . As aga ins t th i s , fo re ign schedu led banks compr i se
those commerc ia l banks which a re reg i s te red in the sa id
schedu le bu t have the i r reg i s te red o f f ices ou ts ide Ind ia .” 1 4
[ i i ] “Non - scheduled bank: A non-schedu led bank i s one
which i s no t inc luded in the Second schedu le o f the RBI
Act , 1934 . Such banks a re main ly engaged in money -
lend ing , d i scount ing and co l lec t ing b i l l s and do severa l
agency se rv ices . They have no re f inance and red iscoun t ing
fac i l i t i e s f rom the Reserve Bank o f Ind ia .” 1 5
The above
in fo rmat ion i s dep ic ted in a char t No . 1 .2 as fo l lows:
15
Evolut ion o f Publ ic sector banking through bank
nat iona l i sa t ion
Publ ic sector banks came in to ex i s tence due to the
impac t o f na t iona l i sa t ion . The g rowth o f pu b l ic sec to r in
bank ing took p lace in four s tages :
[ i ] “Nat iona l i sa t ion s ta r ted in 1948 , one year a f te r
Independence , when the Cen t ra l Bank o f the coun t ry , the
Reserve Bank o f Ind ia [RBI] , was b rough t under
Government ownersh ip .” 1 6
[ i i ] Na t iona l i sa t ion o f Imper ia l Bank o f Ind ia in 1955 and
i t s seven assoc ia te banks in 1959 -60 .
[ i i i ] Na t iona l i sa t ion o f the four teen majo r commerc ia l banks
in 1969 .
[ iv ] Nat iona l i sa t ion o f s ix more commerc ia l banks in 1980 .
The p ioneer ing a t t empt o f in t roduc ing pub l ic sec to r
bank ing in Ind ia was made on 1s t
Ju ly , 1955 by the
Government o f Ind ia when i t na t iona l i sed the Imper ia l Bank
o f Ind ia and conver ted i t in to the S ta te Bank o f Ind ia [SBI] .
La te r on , dur ing 1959 -60 , seven of the subs id ia r ies o f SBI
[Append ix A] were a l so na t iona l i sed to fo rm the SBI g roup .
16
Subsequen t ly , on 19t h
Ju ly , 1969 , four teen majo r Ind ian
schedu led banks [wi th depos i t s o f over Rs .50 c ro res ] were
na t iona l i sed by the Government wi th the ob jec t ive o f
deve lop ing the economy in conformi ty wi th na t iona l
p r io r i t i es . F ina l ly , on 15t h
Apr i l 1980 , the Government
na t iona l i sed s ix more schedu led banks each wi th depos i t s o f
Rs .200 c ro re o r above . Thus , f rom 1980 onwards
Government came to own twen ty -e igh t banks inc lud ing the
SBI and seven subs id ia r ies . Subsequen t t o the merger o f the
New Bank o f Ind ia wi th the Pun jab Nat iona l Bank in
Sep tember 1993 , the to ta l number o f pub l ic sec to r banks
came down to twen ty seven .
Nat iona l i sa t ion o f commerc ia l banks a l t e red the
ownersh ip pa t te rn in favour o f pub l ic sec to r and p rov i ded
wide- rang ing powers to the Government to in f luence the
bank ing po l icy and o r ien ta t ion . At the t ime o f
na t iona l i sa t ion , the soc io -economic ob jec t ives were
exp l ic i t ly l a id down and the banks were asked to con t r ibu te
to the max imum poss ib le ex ten t towards economic and
soc ia l deve lopment o f the coun t ry . I t was rea l i sed tha t the
t rad i t iona l bank ing e th ics were no t compat ib le wi th the
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needs o f economic deve lopment and tha t ba lanced
deve lopment was no t poss ib le wi thou t s t reng then ing the
ho ld o f commerc ia l bank s in the backward and neg lec ted
a reas .
P r io r to na t ional i sa t ion and even a f te r independence ,
the bank ing sec to r remained in p r iva te hands . Large
indus t r ies who had the i r con t ro l in the management o f the
banks were u t i l i s ing major por t ion o f f inanc ia l resou rces o f
the banking sys tem fo r the i r persona l development and as a
resu l t , l ow pr io r i ty was accorded to p r io r i ty sec to rs . The
main purpose o f na t iona l i sa t ion o f commerc ia l banks was to
make them as an ins t rument o f economic and soc ia l change .
Private secto r banking
“Pr iva te sec to r banks a re those which a re owned by
group o f shareho lders who e lec t the i r d i rec to rs fo r manag ing
the bank .” 1 7
The word ‘The’ and ‘L imi ted’ wi l l su f f ix the i r
names . They came in to ex i s tence to supp lement the
per fo rmance o f Pub l ic s ec to r banks and se rve the needs o f
the economy be t te r . S ince pub l ic sec to r banks a re
Government owned , they lacked in i t i a t ive to make p ro f i t s
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and improve the i r f inanc ia l hea l th . Na t iona l i sa t ion of
commerc ia l banks k i l l ed the compet i t ive env i ronment , which
i s essen t ia l fo r mak ing p ro f i t s .
Once aga in , compet i t ion was in jec ted in to the bank ing
bus iness wi th the recommendat ions o f the Naras imham
Commit tee I in 1991 , which advoca ted f ree en t ry o f p r iva te
banks . At p resen t , bo th p r iva te as wel l as pub l ic sec to r
banks have to opera te in an increas ing ly compet i t ive
env i ronment . The compet i t ion fo r pub l ic sec to r banks i s
coming f rom the p r iva te sec to r banks . Desp i te hav ing the
advan tage o f a subs tan t ia l p resence and pene t ra t ion in the
ru ra l a reas , the pub l ic sec to r b anks a re under t remendous
p ressure to main ta in the i r marg ins and to surv ive the
compet i t ion . The cus tomer -cen t r ic approach o f p r iva te
sec to r banks have th rown open many more cha l lenges fo r the
pub l ic sec to r banks , espec ia l ly in re ta in ing cus tomers and
expand ing cus tomer base . To re ta in the ex i s t ing cus tomers
and to a t t rac t new cus tomers , bo th the pub l ic and p r iva te
sec to r banks a re adop t ing var ious measures .
19
In to ta l i ty , the re a re 183 commerc ia l banks , as on 1s t
March 2007 . Of these , 179 banks a re schedu le d commerc ia l
banks and 4 banks a re non -schedu led commerc ia l banks . Out
o f the 179 schedu led commerc ia l banks 96 banks a re RRBs,
20 banks a re na t iona l i sed banks and the remain ing 8 banks
be long to the SBI g roup . In the p r iva te sec to r , ou t o f the 55
p r iva te banks , 2 8 banks are Ind ian banks and 2 7 banks a re
fo re ign banks .
Genes is o f Commercia l Banking in India
Banking in Ancient India
“Ind ia had rud imenta ry fo rms o f bank ing s ince the
Ved ic t imes .” 1 8
“Evidence regard ing the ex i s tence o f
money- lend ing opera t i ons in Ind ia i s found in l i t e ra tu re o f
Ved ic t imes , i . e . . . , 2000 to 1400 BC. The l i t e ra tu re o f the
Buddh is t pe r iod , example , the Ja takas and recen t
a rchaeo log ica l d iscover ies supp ly ev idence o f the ex i s tence
o f S res th i s o r bankers . F rom the laws of Manu , i t appears
tha t money - lending and a l l i ed p rob lems had assumed
Out of the 20 nationalised banks, the New Bank of India was merged with the Punjab National
Bank in the long-term interest of the depositors to reduce the number of nationalised banks to 19. At
present, IDBI Limited is considered as a nationalised bank.
20
cons iderab le impor tance in anc ien t Ind ia . Manu,
1 9 who had
approved money lend ing as a l awfu l occupa t ion had a l so
p rescr ibed e f fec t ive methods o f recover ing the dues . ” The
f ive means o f recovery i n Manu Smri t i a re exh ib i ted in the
fo l lowing d iagram 1 .3 :
21
“Banking was a s ide bus iness dur ing the Vedic per iod
bu t in the Ramayana and the Mahabhara ta e ras i t became a
fu l l t ime bus iness ac t iv i ty fo r the peop le .” 2 0
“The famous
Kau t i lya’s Ar thasas t ra , wh ich i s asc r ibed to be da t ing back
to the 4t h
cen tu ry B .C, con ta ins re fe rences to c red i to rs and
l end ing . For ins tance , i t says , ‘ i f any one became bankrup t ,
deb t owed to the S ta te ha d p r ior i ty over the c red i to rs ’ .
Thus , i t appears tha t l end ing ac t iv i t i es were no t en t i re ly
unknown in the med ieva l Ind ia and the concep t such as
p r io r i ty o f c la ims o f c red i to rs was es tab l i shed bus iness
prac t ices .” 2 1
“The seven teen th cen tu ry wi tnessed the es tab l i shment
o f agency houses by the Eng l ish t raders . These agency
houses , apar t f rom engag ing themse lves in t rade and
commerce , a l so ca r r ied on wi th the bank ing bus iness . The
Br i t i sh Agency Houses , which combined bank ing bus iness
wi th the t rad ing ac t iv i t i es , were the fo re runners o f the
modern jo in t s tock ba nks es tab l i shed in the coun t ry on the
European l ines . The f i r s t jo in t s tock bank es tab l i shed in the
coun t ry was the Bank o f Hindus tan in 1770 .” 2 2
“Af te r tha t ,
Bengal Bank was se t up in 1784 and a round 1786 , Genera l
22
Bank o f Ind ia was es tab l i shed , bu t these banks cou ld no t
prov ide the se rv ices due to the i r own c r i ses . ” 2 3
Banking before independence
“Modern Commerc ia l bank ing made i t s beg inn ing in
Ind ia wi th the se t t ing up o f the f i r s t P res idency Bank , the
Bank o f Benga l , in Ca lcu t ta in 1806 . Two o ther P res i dency
Banks were se t up in Bombay and Madras in 1840 and 1843
respec t ive ly . They were pr iva te shareho lders ’ banks , though
the Eas t Ind ia Company a lso con t r ibu ted to the share cap i ta l
o f each o f them. The bu lk o f the share cap i ta l had come
f rom pr iva te shar eho lders , mos t ly Europeans . They were
amalgamated in to the Imper ia l Bank o f Ind ia in 1921 , which
was na t iona l i sed in to the S ta te Bank o f Ind ia in 1955 .”2 4
“The year 1860 i s a l and mark in the h i s to ry o f pub l ic banks
in Ind ia , s ince in tha t year the p r inc ip le o f l imi ted l i ab i l i ty
was app l ied to Jo in t S tock banks .” 2 5
Since , 1860 t i l l the
end o f the 19t h
cen tu ry , a number o f Ind ian Jo in t Banks
came in to ex i s tence . For ins tance , the Al lahabad Bank was
s ta r ted a t Al lahabad in 1865 . In 1875 , the Al l iance Bank of
Simla was s ta r ted . “The f i r s t pu re ly Ind ian Jo in t s tock bank
23
was the Oudh Commerc ia l Bank which came in to ex i s tence
in 1889 . I t was fo l lowed by the Pun jab Nat iona l Bank in
1894 and the Peop le ’s Bank in 1901 . In 1895 , the famous
Punjab Nat iona l Bank came in to ex i s tence .” 2 6
“Insp i red by the Swadesh i Movement , severa l Ind ian
en t repreneurs ven tu red in to the modern bank ing bus iness .
Dur ing the boom per iod o f 1906 -13 , thus , the re was a
mushroom growth o f banks . Many p rominen t banks a l so
came in to ex i s tence dur in g th i s per iod . These were the Bank
o f Ind ia [1906] , the Canara Bank [1906] , the Bank of Baroda
[1908] and the Cen t ra l Bank o f Ind ia [1911] .” 2 7
“The Ind ian
jo in t - s tock banks have had a h i s to ry o f checkered g rowth
f rom the i r incep t ion t i l l abou t the midd le o f the twen t ie th
cen tu ry . There were long per iods o f s low growth
in te r spersed wi th shor t per iods of rap id g rowth o f bank
fo rmat ion , fo l lowed by bank ing c r i s i s , wh ich saw the fa i lu re
o f banks in l a rge numbers . For example , dur ing the per iod
1913-36 , 480 banks fa i l ed and another 620 banks fa i l ed over
a shor te r per iod o f 1937 -48 . Thus , recur ren t bank fa i lu res
were the main fea tu re o f the g rowth o f bank ing in Ind ia over
th i s per iod . Th is was no t pecu l ia r to Ind ia as i t was a l so the
24
exper ience o f mos t o ther coun t r ies in the ea r ly s tage o f
bank ing deve lopment .” 2 8
“The progress o f bank ing dur ing
the Second Wor ld War and i t s immedia te a f te rmath was
aga in charac te r ized by over - rap id expans ion and la rge sca le
fa i lu re o f banks . When Ind ia became independen t in 1947 , i t
inher i t ed an ex t remely weak bank ing s t ruc tu re wi th 640
banks o f which on ly 96 were schedu led banks and the res t
were smal l non -schedu led banks .” 2 9
The fo l lowing tab le g ives an idea o f the g rowth o f
Ind ian jo in t s tock banks in Ind ia s ince 1920:
Growth o f Indian Jo int S tock Banks
Table 1 .1 .
Year No . o f banks Depos i t s
[ in crores o f Rupees]
1920 61 160
1930 89 150
1940 661 280
S o u r c e : S u n d h a r a m , K . P . M . , “ M o n e y , B a n k i n g , T r a d e a n d
F i n a n c e ” , p . 4 5 6 .
Banking a f ter independence
The deve lopment in the Bank ing sec to r a f te r
independence has been d i scussed in th ree phases :
25
[ i ] Post - independence Era [1947 -1969]
After independence , Ind ia fo l lowed a bank ing s t ruc tu re
in the l ines o f the Br i t i sh Banking sys tem. Accord ing to
Mrs . Ind i ra Gandh i , fo rmer Pr ime Min is te r o f Ind ia , “ the
bank ing sys tem was con t ro l led by a co te r ie o f indus t r ia l i s t s
and bus iness magna tes who had used pub l ic funds to bu i ld
up p r iva te indus t r ia l empi res .” 3 0
“The bank ing scene in
Ind ia p r io r to 1969 was charac te r ized by concen t ra t ion o f
bus iness in met ropo l i t an and u rban cen t res wi th the majo r
indus t r ies and wholesa le t rade c la iming a l a rge chunk of
bank c red i t and the con t ro l and management o f majo r banks
be ing he ld by lead ing bus iness tycoons in the coun t ry .
Loans were advance d no t on the bas i s o f the v iab i l i ty o f the
scheme bu t on the c red i t -wor th iness o f the bor rowers . The
per fo rmance o f a bank was judged by the amount o f p ro f i t i t
made and the d iv idend i t dec la red .” 3 1
“Between 1939 and 1945 , the to ta l vo lume o f depos i t s
of schedu led banks rose f rom Rs .260 c ro res to over Rs .1 ,020
c ro res . S ide by s ide wi th the expans ion o f bank depos i t s ,
the re has been a con t inued expans ion o f bank c red i t ,
26
re f lec t ing the rap id expans ion o f indus t r i a l and agr icu l tu ra l
ou tpu t .”3 2
“There was no u n i fo rm law govern ing the bank ing
sys tem as an ins t rument o f economic change s ta r ted when
the p lann ing e ra was ushered in the f i f t i es . Fo l lowing the
examples o f the na t iona l i sa t ion of many European Cen t ra l
Banks a f te r the Wor ld War I I , the Reserve Bank o f I nd ia
was na t iona l i sed with e f fec t f rom January 1 , 1949 .”3 3
“The
beg inn ing o f pos t - independence per iod saw the pass ing o f
Bank ing Regu la t ion Act in 1949 which gave wide powers to
RBI to regu la te the banks and con ta ined numerous
p rov is ions fo r improv ing the qua l i ty o f bank management .
“In i t s r epor t submi t ted in 1954 , the Al l Ind ia Rura l Cred i t
Survey Commit tee recommended the c rea t ion o f one s t rong ,
in teg ra ted , s ta te sponsored , s ta te par tnered commerc ia l
bank ing ins t i tu t ion wi th an e f fec t ive mach inery o f b r anches
sp read over the whole coun t ry . In pursuance o f i t s
recommendat ions , the Imper ia l Bank was na t ional i sed and
renamed as S ta te Bank o f Ind ia f rom Ju ly 1 , 1955 .
Nat iona l i sa t ion of the Imper ia l Bank o f Ind ia hera lded the
en t ry o f pub l ic sec to r in to comme rc ia l bank ing .” 3 4
Due to
27
the commit tee ’s recommendat ions , the commerc ia l bank ing
sys tem moved to the ru ra l a reas as wel l . “The fa i lu re o f the
Pala i Cen t ra l Bank L imi ted and the Laxmi Bank Limi ted in
1960 a t t rac ted the a t t en t ion o f the Government to the ne ed
fo r p reven t ing such a happen ing in fu tu re . To p ro tec t the
in te res t s o f smal l bank depos i to rs , the Depos i t Insurance
Corpora t ion was c rea ted on January 1 , 1962 . The Soc ia l
Con t ro l over the commerc ia l bank ing sys tem wi th e f fec t
f rom February 1 , 1969 wi th the main ob jec t ives o f ach iev ing
a wider d i sposa l o f bank c red i t , p reven t ing i t s misuse ,
d i rec t ing i t s f low to p r io r i ty a reas and making i t more
e f fec t ive ins t rument o f economic deve lopment cons t i tu tes
the mos t impor tan t l andmark in the bank ing h i s to ry in the
coun t ry .”3 5
“Commerc ia l banks have done wel l in the mobi l i sa t ion
o f sav ings . By sus ta ined pub l ic i ty , e f fo r t s to b ranch ou t to
un banked a reas and be t te r se rv ice to cus tomers , they have
con t r ibu ted g rea t ly to the deve lopment o f bank ing hab i t
among the p eople . S ince 1950 -51 , bank depos i t s have
increased near ly 500 per cen t o r f ive - fo ld .”3 6
28
The t rend o f increase o f depos i t s and c red i t o f
schedu led banks i s shown be low:
Table 1.2
Trend of deposits and credit
Year Bank Depos i t s
[Rs in crores]
Bank credi t
[Rs in crores]
1951-52 820 580
1955-56 1040 760
1960-61 1750 1320
1965-66 2950 2290
1967-68 3890 3100
S o u r c e : S u n d h a r a m , K . P . M . , “ M o n e y , B a n k i n g , T r a d e a n d
F i n a n c e ” , p . 4 6 0 .
[ i i ] Post -nat ional i sa t ion Era [1969 -1991]
“ Ju ly 19 , 1969 marks an impor tan t mi les tone in the
h i s to ry o f the Ind ian Bank ing because on tha t day by a
Pres iden t ia l Ord inance , the 14 majo r Ind ian commerc ia l
banks , each hav ing to ta l depos i t s o f no t l ess than Rs .50
c ro res a t the end o f June , 1969 was na t ional i sed . ” 3 7
[Appendix A]
29
M.Gopalakr i shnan , a p rofess iona l banker s ta te s tha t
“ the s t r ik ing fea tu re o f the pos t -na t iona l i sa t ion bank ing
scene i s the rap id i ty wi th which the b ranch ne twork has
mul t ip l ied i t se l f . The ra te o f b ranch expans ion has been
unpara l le led anywhere e l s e in the wor ld” 3 8
“The ch ie f
ob jec t ive o f bank na t iona l i sa t ion was to sp read bank ing
fac i l i t i e s and thereby to c rea te bank ing hab i t in
economica l ly backward a reas and open b ranches par t i cu la r ly
in ru ra l a reas wi th a v iew to p romot ing rap id deve lopment
o f the these a reas .” 3 9
“ In th i s pos t na t iona l i sa t ion per iod
the emphas i s was on the opening o f l a rge number o f
b ranches in ru ra l and semi -u rban a reas , backward reg ions
and s ta tes which were h i ther to under banked . Be tween 1969
and 1991 , the to ta l number o f b r anches increased near ly
e igh t fo ld f rom 8 ,262 to 50 ,220 . The bu lk o f th i s inc rease
was on accoun t o f ru ra l b ranches . The share o f ru ra l and
semi -u rban b ranches combined in the to ta l number o f
b ranches reached 76 percen t in 1991 whi le i t was on ly 26
per cen t in 1969 .” 4 0
“To he lp the commerc ia l banks march
towards v i l l ages , the Reserve bank fo rmula ted the Lead
Bank Scheme [LBS] which was in t roduced in December ,
30
1969 . The es tab l i shment o f Regiona l Rura l banks in the
coun t ry marks ano ther impor tan t l andmark i n the bank ing
h i s to ry o f the coun t ry . The main ob jec t ive o f es tab l i sh ing
the RRBs i s to p rov ide c red i t and o ther fac i l i t i e s , e spec ia l ly
to the smal l and marg ina l fa rmers , ag r icu l tu ra l l abourers ,
ar t i sans and smal l en t repreneurs in ru ra l a reas .”4 1
“Pol ic ies ,
a t tha t t ime , ensured c red i t f lows to ce r ta in impor tan t
sec to rs o f the economy. Impor tan t ly , the Government a l so
used the bank ing sec to r a s an ins t rument to f inance i t s own
def ic i t . Whi le th i s was fac i l i t a ted th rough h igh Cash
Reserve Rat io [CRR] and S ta tu to ry L iqu id i ty Ra t io [SLR] to
keep the bor rowing cos t o f the Government low, the in te res t
ra te on bank loan was f ixed a t lower than marke t ra tes .
Along wi th h igh CRR and SLR, the opera t iona l f reedom of
the banks was cur ta i l ed wi th h igh p r io r i ty lend ing n orms [as
h igh as 40 per cen t o f the to ta l l end ing] . Whi le some of
these measures were adopted to enhance soc ia l wel fa re , they
a f fec ted the e f f i c iency and p roduc t iv i ty o f the bank ing
sec to r adverse ly . Also , due to the expans ionary po l icy
pursued by the RBI , banks had to open a ce r ta in number o f
b ranches in the ru ra l a reas . Many o f these b ranches were
31
economica l ly no t v iab le due to which the number o f loss
mak ing b ranches increased which whi t t l ed away the
resources o f the bank ing indus t ry . Fur ther , due to
res t r i c t ions on the opera t ions o f p r iva te and fo re ign banks
the dominance o f the pub l ic sec to r banks p reva i led ,
resu l t ing in l ack o f compet i t ion .” 4 2
“Af te r the na t iona l i sa t ion o f 14 majo r banks on Ju ly
19 , 1969 and es tab l i shment o f RRBs, ano ther majo r
deve lopment in the sphere o f comme rc ia l bank ing was the
na t iona l i sa t ion on Apr i l 15 , 1980 o f s ix more banks in the
p r iva te sec to r hav ing to ta l depos i t s no t l ess than Rs .200
cro res in Ind ia as on March 14 , 1980 .” 4 3
[Appendix A] .
One more mi les tone in the deve lo pment o f the bank ing
sec to r i s the es tab l i shment o f the Nat iona l Bank fo r
Agr icu l tu re and Rura l Deve lopment [NABARD] on Ju ly 12 ,
1982 for p rov id ing c red i t fo r p romot ion o f ag r icu l tu re ,
smal l - sca le indus t r ies , co t tage and v i l l age indus t r ies ,
hand ic ra f t s and o ther ru ra l c ra f t s and o ther a l l i ed economic
ac t iv i t i e s in ru ra l a reas .
32
[ i i i ] Post - l ibera l i sa t ion Era [ from 1991 onwards]
“The per iod o f re fo rms in Ind ian bank ing commenced
in the second ha l f o f 1991 . The Government o f Ind ia
appo in ted Naras imham Commit t ee , which sugges ted su i tab le
measures . The recommendat ions made by th i s h igh - leve l
commit tee on the f inanc ia l sec to r re fo rms p rov ided the b lue
p r in t fo r bank ing re fo rms in Ind ia . The re forms sugges ted by
the Naras imham Commit tee t r i ed to enhance the e f f ic i ency
and v iab i l i ty o f the banking sys tem.” 4 4
“Accord ing to
Dr.C.Rangara jan , fo rmer Governor , Reserve Bank o f Ind ia ,
the cen t ra l ob jec t ive o f re fo rm in the f inanc ia l sec to r has
been to improve the e f f ic iency , compet i t iveness and
p roduc t iv i ty o f the sys te m.” 4 5
The main reason fo r the
appo in tment o f the Naras imham Commit tee by the
Government was the unsa t i s fac to ry per fo rmance o f the
banks . The f inanc ia l p ic tu re o f the banks was very g loomy
in 1991 . “The opera t iona l e f f ic iency o f bank ing sys tem had
been unsa t i s fac to ry charac te r i sed by low pro f i t ab i l i ty , h igh
and g rowing non per fo rming asse t s and re la t ive ly low
cap i ta l . In 1992 -93 , the ne t p ro f i t s o f pub l ic sec to r banks
were [ - ] 1 .00 per cen t o f work ing funds . Severa l banks were
33
in fac t no t in a pos i t ion to m ake adequa te p rov is ion fo r
doub t fu l deb ts . The pa id -up cap i ta l and rese rves to depos i t s
o f pub l ic sec to r banks was a round 2 .85 per cen t in 1990 -91 ,
which was much lower than the in te rna t iona l s tandards . The
ba lance shee t per fo rmance o f bank ing sec to r was t hus a
mixed one which was la rge in asse t base , s t rong in widen ing
the c red i t coverage , bu t weak as fa r as v iab i l i ty and
sus ta inab i l i ty was concerned .” 4 6
“Deregu la t ion , en t ry of
pr iva te banks , eas ing o f S ta tu to ry L iqu id i ty Ra t io [SLR] and
Cash Reserve Rat i o [CRR], p rov id ing more f reedom to banks
fo r f ix ing in te res t ra tes on advances /depos i t s , r ec ru i tmen t
po l ic ies , b ranch ne twork , e tc . were in i t i a ted on the
recommendat ions o f the Commit tee . Fur ther , p ruden t ia l
norms fo r c lass i f i ca t ion o f NPAs were in t roduced wi th
adop t ion o f p rov is ion ing as per the g lobal s tandards . New
and exc i t ing bank ing p roduc ts l ike F lex i depos i t s , r e t a i l
loans and fo rex bank ing were in t roduced . Use o f in te rne t
based bank ing , phone bank ing , ATMs and o ther
t echno log ica l too l s improved ef f ic iency , economy and
e f fec t iveness in the i r work ing . 4 7 “
A s t rong and e f f ic ien t
f inanc ia l sys tem i s c r i t i ca l to the a t t a inment o f the
34
ob jec t ives o f c rea t ing a marke t -d r iven , p roduct ive and
compet i t ive economy. F inanc ia l s t ab i l i ty requ i res
appropr ia te ac t io n bo th a t the macro and micro leve l s in
t e rms o f ins t i tu t ions , marke t s and in f ras t ruc tu re . A major
e lement o f f inanc ia l sec to r re fo rms in Ind ia has been a se t
o f p ruden t ia l measures a imed a t impar t ing s t rength to the
bank ing sys tem as wel l as ensur ing sa fe ty and soundness
th rough g rea te r t ransparency , accoun tab i l i ty and pub l ic
cred ib i l i ty .” 4 8 “
These re fo rms a re expec ted to have an
impac t on the opera t ions o f banks . Wi th reduced s ta tu to ry
requ i rements , banks wi l l have more funds a t the i r d i sposa l
fo r commerc ia l l end ing . And in te res t ra t e l ibe ra l i sa t ion i s
expec ted to b r ing f lex ib i l i ty and compet i t ion in to the
bank ing sys tem. Compet i t ion i s a l so in fused by open ing up
the banking sec tor fo r the p r iva te and fo re ign banks . Along
wi th these f l ex ib i l i t i e s , ce r ta in regu la to ry re fo rms we re a l so
in t roduced , which were mean t to make s t rong enough the
banks to face f luc tua t ions in the economy. Overa l l , these
re fo rms a re a imed a t improv ing the per fo rmance o f banks .”4 9
“The f i r s t phase o f banking sec to r re fo rms s ta r t ed in
November , 1991 and the second phase began in Apr i l 1998
35
on the bas i s o f the Naras imham Commit tee ’ s
recommendat ions . “ In the f i r s t phase o f bank ing re fo rms ,
the focus was on a r res t ing qua l i ty de te r io ra t ion o f
per fo rmance o f banks judged by parameter s o f as se t qua l i ty ,
p ro f i t ab i l i ty and ne t wor th . The task in the second phase o f
re fo rms was to draw up s t ra tegy fo r enhanc ing the ab i l i ty o f
bank ing sys tem to mee t cha l lenges o f in te rna t iona l
compet i t ion and adopt i t s func t ion ing to chang ing
env i ronment .”5 0
Deve lopment o f Commercia l banks a f ter nat iona l i sa t ion
Nat iona l i sa t ion , which was adop ted as a soc ia l con t ro l
measure by the Government o f Ind ia had a t remendous
impac t on the g rowth o f the commerc ia l banks . There was
s ign i f ican t g rowth in the number o f banks and b ranches ,
espec ia l ly in rura l and semi -u rban a reas , which were
h i ther to unexp lo red so fa r by the bank ing sec to r . There was
subs tan t ia l g rowth in depos i t s and advances by bank
b ranches .
36
Expans ion o f commercia l banks
There has been a vo luminous g rowth in the number o f
commerc ia l banks in Ind ia s ince the na t iona l i sa t ion o f
commerc ia l banks in 1969 . The number o f schedu led
commerc ia l banks has increased 2 .45 t imes in 2007 when
compared to 1969 when the banks were na t iona l i sed which
can be c lea r ly unders to od wi th the he lp o f the t ab le 1 .3 .
37
Table 1 .3
Progress o f Commercia l banks in India [1969 -2007]
No. o f
Commerc ia l
Banks
June
1969
March
1999
March
2000
March
2001
March
2002
March
2003
March
2004
March
2005
March
2006
March
2007
Scheduled
banks 73 302 297 296 294 289 286 284 218 179
Non-
scheduled
banks
16 1 5 4 5 5 4 4 4
89 303 297 301 298 294 291 288 222 183
Source : www.rb i .o rg . in .
Th is has been represen ted in the char t No . 1 .4 :
38
Branch expans ion
“The per iod fo l lowing the na t iona l i sa t ion o f majo r
commerc ia l banks wi tnessed an unprecedented g rowth in the
b ranch ne twork o f banks . Th is phenomenal increase has
b rough t abou t a wider spa t ia l and func t iona l sp read of
bank ing fac i l i t i e s in the count ry . I t i s no t mere ly the
increase in the number o f bank ing of f ices , bu t the i r
d i s t r ibu t ion over the re l a t ive ly backward and h i ther to un
banked areas tha t i s s ign i f ican t . ” 5 1
The g rowth o f b ranches o f Commerc ia l banks i s
dep ic ted in th e be low ment ioned tab le No .1 .4 as fo l lows:
39
Table 1 .4
Growth o f branches in Commercia l banks in India [1969-
2007]
Year Rural Semi -urban Urban Metro Tota l
No . Percent No. Percent No. Percent No. Percent No. Percent
1969 1832 22 .4 3322 40 .1 1447 17 .5 1661 20 8262 100
1991 35042 58 .3 11323 18 .8 8081 13 .4 5667 9 .4 60113 100
2002 32423 49 14688 22 10540 16 8625 13 66276 100
2003 32315 49 14786 22 10665 16 8644 13 66410 100
2004 32080 47 .9 15018 22 .4 10990 16 .4 8882 13 .2 66970 100
2005 30755 44 .9 15174 22 .1 11678 17 10942 16 68549 100
2006 30776 44 .3 15370 22 .1 12008 17 .3 11263 16 .2 69417 100
2007 30633 42 .7 16310 22 .7 12925 18 11913 16 .6 71781 100
S o u r c e : O v e r v i e w o f B a n k i n g D e v e l o p m e n t 1 9 4 7 - 2 0 0 7 ,
S h r i . D . T . P a i , p p . 1 2 4 - 1 2 5 .
Th is has been represen ted in char t No .1 .5 :
40
There has been a man i fo ld increase in the number o f
b ranches a f te r na t iona l i sa t ion . As a resu l t , the number of
b ranches has increased f rom 8262 in 1969 to 71781 in June
2007 .
Depos i t mobi l i sa t ion and Credi t deployment
Mobi l i s ing the sav ings o f the pub l ic i s one o f the
p r ime func t ions o f commerc ia l banks . Nat iona l i sa t ion has
resu l ted in pub l ic conf idence and as a r e su l t the depos i t s
have increased spec tacu la r ly f rom Rs .5173 c ro res in 1969 to
Rs .26 ,08 ,309 c rores in March 2007 record ing an 504 fo ld
increase in depos i t s s ince na t iona l i sa t ion .
The very purpose o f mobi l i s ing depos i t s i s to dep loy
the amount in a p ro f i t ab le way . The advances made by
commerc ia l banks have subs tan t ia l ly increased f rom Rs .3729
c ro res in 1969 to R s .19 ,28 ,913 c ro res .
The tab le 1 .5 dep ic t s the da ta regard ing the depos i t s
and advances o f commerc ia l banks in Ind ia be tween 1969
and 2007 .
41
Table 1 .5
Depos i t s and advances o f commercia l banks in India
[1969-2007]
[Rupees in Crores]
Year
Depos i t s
Advances
Credi t
depos i t
ra t io %
1969 5173 3729 72 .1
1991 200036 132510 66 .2
2002 1100454 637943 57 .9
2003 1304347 741770 56 .9
2004 1533052 856685 55 .9
2005 1708610 1092008 63 .9
2006 2109049 1507077 71 .5
2007 2608309 1928913 74
S o u r c e : O v e r v i e w o f B a n k i n g D e v e l o p m e n t , S h r i . D . T . P a i ,
p . 1 2 3 .
Thi s t ab l e ha s been r ep r e se n t ed i n cha r t No . 1 .6 :
42
The Cred i t depos i t r a t io [CDR] i s one o f the measur ing
rods o f the f inanc ia l per fo rmance o f commerc ia l banks .
“Cred i t depos i t r a t io i s the p ropor t ion o f loan -asse t s c rea ted
by banks f rom the depos i t s rece ived . The h igher the ra t io ,
the h igher the loan -asse t s c rea ted f rom depos i t s . The c red i t
depos i t r a t io revea l s the ef f ic iency wi th which the
commerc ia l and f inanc ia l in te rmedia r ies a re t app ing sav ings
f rom the ava i lab le source s and channel i s ing them in to
var ious p roduc t ive ac t iv i t i es o f the economy . ” 5 2
The CDR
was 72 .1 per cen t in 1969 i . e . a t the t ime o f na t iona l i sa t ion .
In 1991 , i t r educed to 66 .2 per cen t . I t fu r ther reduced to 57
per cen t a f te r which i t g radua l ly increas ed to 74 per cen t in
2007 .
The Cred i t depos i t r a t io has been worked ou t by us ing
the fo l lowing fo rmula :
Credi t depos i t ra t io = Tota l loans and advances X 100
Tota l depos i t s
The commerc ia l banks have been fac ing innumerab le
changes and cha l lenges af te r the in t roduc t ion o f f inanc ia l
re fo rms in 1991 . The coex is tence o f publ ic sec to r , p r iva te
43
sec to r and fo re ign banks has genera ted compet i t ion in
bank ing sec to r l ead ing to a s ign i f ican t improvement in
e f f i c iency and cus tomer se rv ice and the mant ra o f t oday i s
the Surviva l o f the f i t t es t .
S ta tement o f the Prob lem
Cred i t i s a very scarce resource par t i cu la r ly in a
coun t ry l ike Ind ia . Th is i s very much t rue in case o f p r io r i ty
sec to r loans where the Government p lays a very impor tan t
ro le in p rov is ion o f c red i t to the economica l ly weaker
sec t ions o f the soc ie ty , which have a l l a long been neg lec ted
by the secur i ty o r ien ted bank ing sys tem. “ In a p ruden t ia l
economy, bo th lend ing and recovery a re l ike b rea th ing ou t
and b rea th ing in . The one i s no t poss ib le wi th ou t the
o ther .”5 3
In o ther words , wi thou t recovery the banking cyc le
i s no t comple te . Recovery o f p r io r i ty sec to r loans i s the
pers i s ten t p rob lem faced by the commerc ia l bankers . Whi le
inadequate and improper a l loca t ion o f c red i t endangers the
bas ic soc io -economic ph i losophy o f the coun t ry , mount ing
overdues o f c red i t endangers the very founda t ion on which
the bank ing sys tem res t s . The p rob lem of overdues i s
44
phenomenal in respec t o f p r io r i ty sec to rs . Th is has no t on ly
cu r ta i l ed the recyc l ing of funds , bu t a l so imposed on the
banks’ , s t a tu to ry p rov is ion ing agains t sub - s tandard ,
doub t fu l and bad deb ts . The t imely recovery o f funds len t , i s
a mus t fo r con t inuous recyc l ing o f funds . P i l ing o f overdues
resu l t s in poor recyc l ing o f funds , which in tu rn dep ic t s
poor recovery management by the com merc ia l banks . N on-
repayment o f loans by bor rowers , on the one hand , l ead to
b lock ing up o f funds in the hands o f few, and u l t imate ly the
benef i t s o f c red i t canno t be passed on to a l a rge sec t ion o f
peop le who a re in d i re ne ed o f c red i t . Mount ing o f overdues ,
on the o ther hand , weakens the co rpora te s t reng th o f the
commerc ia l banks . Therefo re , a jud ic ious dep loyment o f
c red i t and t imely repayment o f c red i t a re very impor tan t fo r
hea l thy and e f fec t ive func t ion ing o f any bank in g sys tem.
The p resen t s tudy becomes essen t ia l now to f ind ou t the
measures adop ted by the commerc ia l b anks fo r recover ing
the p r io r i ty sec to r loans .
45
Scope o f the s tudy
The s tudy i s conf ined to T i ruch i rappa l l i d i s t r i c t . Areas
ou ts ide T i ruch i rappa l l i d i s t r i c t a re no t covered in th i s s tudy .
For compara t ive ana lys i s , on ly the pub l ic sec to r and p r iva te
sec to r have been taken in to cons idera t ion . The coopera t ive
banks , Reg iona l Rura l Banks , fo re ign banks and Loca l Area
Banks a re beyond the purv iew of the s tud y . The researcher
has conf ined her s tudy on ly to recovery o f p r io r i ty sec to r
loans . The o ther loans d i sbursed by commerc ia l banks a re
no t covered in the s tudy . Even though , there a re 22 banks in
the pub l ic sec to r and 13 banks in the p r iva te sec to r , on ly 4
banks f rom the pub l ic sec to r and 4 banks f rom the p r iva te
sec to r have been chosen fo r the s tudy . Only 200 bor rowers
have been chosen fo r the s tudy .
Objec t ives o f the s tudy
The p r imary ob jec t ive o f the s tudy i s to eva lua te the
recovery per fo rmance o f comm erc ia l banks regard ing
p r io r i ty sec to r loans in Ti ruch i rappa l l i d i s t r i c t and to make
a compar i son o f the recovery per fo rmance o f pub l ic sec to r
banks wi th tha t o f the p r iva te sec to r banks .
46
The fo l lowing a re the ob jec t ives o f the s tudy :
1 . To s tudy abou t t he incep t ion and deve lopm ent o f
commerc ia l banks in Ind ia .
2 . To c rea te a genera l awareness abou t the p r io r i ty sec to r
loans p rov ided by commerc ia l banks and the measures
adop ted by the bankers in recover ing the loans .
3 . To make a compara t ive s tudy abou t t he p r io r i ty sec to r
loans demanded by pub l ic and pr iva te sec to r commerc ia l
banks and to f ind ou t the ex ten t to which such loans have
been recovered in T i ruch i rappa l l i Dis t r i c t .
4 . To make a compar i son o f the repayment per fo rmance o f
bor rowers o f pub l ic a nd p r iva te sec to r banks in
T i ruch i rappa l l i d i s t r i c t .
5 . To f ind ou t the reasons fo r poor recovery o f p r io r i ty
sec to r loans by the commerc ia l bankers and non-payment o f
p r io r i ty sec to r loans by bor rowers wi th in the s t ipu la ted
t ime .
6 . To g ive sugges t ions to the bankers for improving the
recovery per fo rmance .
47
H ypo t hese s
Hypo theses f ramed for dec id ing the repayment
per fo rmance o f bor rowers
Sl. No. Variable Hypothesis
[i] Sex There is no significant relationship
between sex and repayment performance
[ii] Education Education does not have any influence
on the repayment performance
[iii] Family size Family size does not determine the
repayment performance of the borrower
[iv] Marital status
There is no significant relationship
between marital status and repayment
performance
[v]
Number of earning
members in the
family
Repayment performance of the borrower
does not depend on the number of
earning members in the family
[vi] Age Age of the borrower does not have any
influence on repayment performance
[vii] Family structure
There is no significant relationship
between family structure and repayment
performance
[viii] Monthly income of
the family
Repayment performance does not
depend on the monthly income of the
family
[ix] Status of
employment
Status of employment does not
determine the repayment performance
of the borrower
[x] Adequacy of loan
Adequacy of loan does not determine
the repayment performance of the
borrower
48
Concep tua l Def in i t ions
Clar i ty o f var ious concep ts used in a s tudy i s very
much requ i red fo r a mean ingfu l sc ien t i f i c s tudy . I t
f ac i l i t a te s the researcher to have a be t te r unders tand ing and
percep t ion o f the p rob lems under inves t iga t ion , as impor tan t
concep ts used in the s tudy a re made c lea r and any chance
fo r misunders tand ing i s avo ided . Such concep tua l i sa t ion no t
on ly he lps the researcher in the research work bu t a l so
p rov ides be t te r unders tand ing to anybody who goes th rough
the thes i s .
1 . Demand : Demand re fe rs to the aggrega te o f p r inc ipa l and
in te res t due dur ing the f inanc ia l year unde r cons idera t ion . I t
inc ludes overdues o f p rev ious years bu t exc ludes demand fo r
loans wr i t t en o f f o r reschedu led .
2 . “Recovery : The amount tha t has a l ready been rea l i sed i s
ca l led recovery . Recovery a lways re fe rs to a par t i cu la r
per iod and no t a t a par t i cu la r po in t o f t ime . I t i s genera l ly
re la ted to the demand fo r recovery dur ing the re fe rence
per iod . Thus , a cen t percen t recovery means tha t the to ta l
amount due up to the re fe rence per iod on ly has been
49
recovered . I t does no t mean tha t the en t i re loan has b een
recovered , fo r there may be ins ta l men ts o f loan tha t a re s t i l l
to fa l l due .” 5 4
3 . Recovery ra te : Recovery ra te i s def ined as tha t par t o f
to ta l demand [ i . e . overdue demand p lus cu r ren t demand]
co l lec ted by the bank f rom borrowers . I t exc ludes any
repayment made by Government ins t i tu t ions on beha l f o f
bor rowers .
4 . Del inquency : De l inquency re fe rs to shor t - run de lays in
repayment .
5 . Defaul t : Defau l t re fe rs to non - repayment o f p r inc ipa l and
in te res t tha t becomes due and payab le . I t occurs when there
i s any v io la t ion in the loan con t rac t .
6 . Non-defaul ters : Non-defau l te r s a re those bor rowers who
repay the i r loan amount a long wi th s t ipu la ted ra te o f
in te res t on o r befo re the due da te .
7 . Defaul ters : Those bor rowers who do no t repay the loan
amount a long w i th in te res t on the due da te a re iden t i f i ed as
defau l te r s .
50
8 . Wi l fu l defaul ters : Wi l fu l defau l te r s a re those who do no t
repay the loan amount due toge ther wi th in te res t in sp i te o f
the fac t tha t they have su rp lus income over expend i ture ,
which i s adequa te fo r loan se rv ice .
9 . Non-wi l fu l defaul ters : Bor rowers who a re wi l l ing to
repay the loan amount wi th in te res t in sp i te o f the fac t tha t
the i r incrementa l income i s inadequa te for loan se rv ice a re
non-wi l fu l defau l te r s .
10 . “Outs tand ings : The pr inc ipa l p l us in teres t tha t remains
to be recovered i s ca l led ou ts tand ings . The ou ts tand ings
a lways re fe r to a par t i cu la r da te , say as on 31s t
December or
as on 30t h
June .” 5 5
11 . “Overdues: The amount tha t i s payab le on a par t i cu la r
da te bu t no t recovered by tha t d a te i s ca l l ed overdue .” 5 6
12 . “Cred i t Depos i t ra t io : Cred i t depos i t r a t io i s the
p ropor t ion o f loan -asse t s c rea ted by banks f rom the depos i t s
rece ived . The h igher the ra t io , the h igher the loan -asse t s
c rea ted f rom depos i t s . The c red i t depos i t r a t io revea l s the
e f f i c iency wi th which the commerc ia l and f inancia l
in te rmedia r ies a re t app ing sav ings f rom the ava i lab le
51
sources and channe l i s ing them in to var ious produc t ive
ac t iv i t i e s o f the economy.” 5 7
13 . [ i ] Rura l branch: Rura l b ranch i s a b ranch , whic h i s
loca ted in an a rea wi th a popu la t ion less than 10000 [as per
1991 census] .
[ i i ] Semi urban branch: Semi u rban branch i s a b ranch ,
which i s loca ted in an a rea wi th a popu la t ion on 10000 to 1
l akh .
[ i i i ] Urban branch: Urban b ranch i s a b ranch , w hich i s
loca ted in an a rea wi th a popu la t ion o f 1 l akh to 10 lakhs .
[ i v ] Metropo l i tan branch: Metropo l i t an b ranch i s a
b ranch , which i s loca ted in an a rea wi th a popu la t ion o f 10
lakhs and more .
14 .ANBC or cred i t equ iva lent o f Off -Balance Sheet
Exposures: Th is deno tes the ou ts tand ing as on March 31 o f
the p rev ious year . For the purpose o f p r io r i ty sec to r l end ing ,
Adjus ted NBC (ANBC) deno tes NBC p lus inves tmen ts made
by banks in non -SLR bonds he ld in HTM category
52
Design of the s tudy
Befo re admin is te r i ng the in te rv iew schedule to the 200
responden ts , a p i lo t s tudy was conduc ted by the researcher .
The in te rv iew schedu le was p rov ided to 30 bor rowers and
the ques t ions , which were no t p roper ly unders tood by them,
were modi f ied . Af te r mak ing necessary change s in the
in te rv iew schedu le , i t was g iven to 200 bor rowers fo r
s tudy ing the i r repayment behav iour . Out o f the 200
bor rowers , 145 responden ts bor rowed f rom the pub l ic sec to r
banks and 55 responden ts bor rowed f rom the p r iva te sec to r
banks .
Methodology
Data Base
The p resen t s tudy i s an empi r ica l one based on su rvey
method . Data were co l lec ted f rom both p r imary and
secondary sources .
[ i ] Pr imary Data
Pr imary da ta were co l lec ted f rom the o f f ic ia l s and
bor rowers o f the sample un i t s o f the pub l ic and the p r iva te
sec to r banks wi th the he lp o f in te rv iew schedu les . The
53
researcher has used in te rv iew schedu le fo r co l lec t ing da ta
f rom the bor rowers as the sample responden ts cons t i tu ted
bo th educa ted and less educa ted . In the in te rv iew schedu le ,
d icho tomous ques t ions [yes o r no ] and mul t ip le -cho ice
ques t ions were g iven . The responses to these ques t ions were
co l lec ted . Data was co l lec ted f rom the borrowers to s tudy
abou t the repayment per fo rmance o f the bor rowers dur ing
November 2009 .
[ i i ] Secondary Data
The secondary da ta were co l lec ted f rom the fo l lowing
sources :
[a ] Annua l repor t s o f the Sample banks ,
[b ] Ind ian Bank Assoc ia t ion’s Bul le t ins ,
[ c ] Reserve Bank o f Ind ia [RBI] pub l ica t ions v iz . ,
[1 ] RBI Bul le t ins
[2 ] Banking S ta t i s t i cs
[3 ] Repor t on Trend and progress o f B ank ing in Ind ia
[4 ] S ta t i s t i ca l t ab les re la t ing to banks in Ind ia ,
[d ] S ta te Bank o f Ind ia Month ly Rev iew ,
54
[e ] House magaz ines o f the sample banks ,
[ f ] P rev ious s tud ies ,
[g ] Journa l s on Bank ing s tud ies and
[h ] Annua l Cred i t P lan o f the Ind ian Overse as Bank , the
l ead bank o f the d i s t r i c t and
[ i ] S ta t i s t i ca l Handbook o f Tami l Nadu .
The researcher took lo t o f pa ins in co l lec t ing the
secondary da ta f rom the bankers because they were re luc tan t
to revea l the i r s ta tus regard ing the recovery o f loans . The
bankers were hes i tan t to p rov ide the de ta i l s because i t may
g ive an adverse p ic tu re abou t the i r e f f i c iency in recovery
management . In sp i te o f a l l these d i f f i cu l t i es , the r esearcher
was ab le to ob ta in the de ta i l s o f loans ou ts tand ing , loans
recovered and ov erdues fo r T i ruch i rappal l i d i s t r i c t fo r the
s tudy per iod 2002 -07 . The s tudy has been conf ined to 2002-
07 because da ta regard ing recovery i s no t ava i lab le a f te r
tha t per iod due to waiver o f ag r icu l tu ra l loans .
55
Construc t ion o f too l s
The in te rv iew schedu le was used fo r co l lec t ing da ta
f rom the bor rowers . Th is i s because the responden ts
cons t i tu ted bo th l i t e ra te and i l l i t e ra te bor rowers . For
cons t ruc t ing the in te rv iew schedu le fo r borrowers , p rev ious
s tud ies were re fe r red . Apar t f rom the prev ious s tud ies ,
bankers were a l so consu l ted . Wi th the he lp o f the
in fo rmat ion ga thered , the in te rv iew schedu le was p repared .
Af te r p repar ing the in te rv iew schedu le , i t was p re - tes ted
wi th 30 bor rowers [15 f rom the pub l ic sec to r banks and 15
f rom the p r iva te sec to r banks] an d the ques t ions , which were
no t p roper ly unders tood by them, were modi f ied . Af ter
mak ing necessary changes in the in te rv iew schedu le , i t was
g iven to 200 bor rowers fo r s tudy ing the i r repayment
behav iour .
Sampl ing Des ign
The publ ic and the p r iva te sec to r bank b ranches in
T i ruch i rappa l l i d i s t r i c t cons t i tu te the un iverse o f th i s
research work . The l i s t o f these banks was ob ta ined f rom the
reg iona l o f f ice o f Ind ian Overseas Bank .
56
[ i ] Se lec t ion o f Area
T i ruch i rappa l l i Dis t r i c t has been chosen fo r the s tudy
because i t i s the four th la rges t c i ty o f the Ind ian S ta te o f
Tami l Nadu [a f te r Chenna i , Co imbato re and Madura i ] . Mul t i
va r ious c rops l ike paddy , sugarcane , g roundnu t , sunf lower ,
e tc a re g rown in the d i s t r i c t and agr icu l tu re i s the main
occupa t ion fo r mos t o f the peop le in the d i s t r i c t . Apar t f rom
agr icu l tu re , the re a re severa l med ium and la rge indus t r ia l
un i t s l ike BHEL, Dalmia Cements , Ko thar i Sugars , EID
Par ry Sugars , Ord inance fac to ry and a ra i lway workshop .
The d i s t r i c t i s no ted fo r syn the t ic gem cu t t ing indus t r ies and
ready-made garments . I t i s a l so famous fo r a r t i f i c i a l
d iamonds , c igar s , hand loom, c lo th , g lass bangles and
wooden and c lay toys . The popu la t ion as per 2001 census i s
24 ,18 ,366 which cons t i tu tes 12 ,08 ,535 males and 12 ,09 ,832
females . There i s humpty number o f educa t iona l ins t i tu t ions
ca te r ing to the var ied in te res t s o f s tudy communi ty .
There fo re , the re i s enough po ten t ia l fo r bo th th e banks and
the cus tomers u t i l i s ing the se rv ices to deve lop mutua l ly in
the d i s t r i c t . Bes ides , the researcher re s ides in th i s a rea . The
57
researcher has adopted convenience sampl ing fo r se lec t ing
the a rea .
[ i i ] Se lec t ion o f Banks
In T i ruch i rappa l l i Dis t r i c t , the re a re 35 banks wi th 191
b ranches [as on 31s t
March 2005] [Vide Append ix A] . As the
number o f b ranches in t he d i s t r i c t i s l a rge in number , the
researcher has adopted the purpos ive sampl ing techn ique to
se lec t the banks and the bank b ranches .
Out o f the 35 banks , 4 publ ic sec to r banks hav ing more
than 10 b ranches and 4 p r iva te sec to r banks hav ing more
than 6 branches were chosen fo r the s tudy . The four pub l ic
sec to r banks chosen were S ta te Bank o f Ind ia , Canara Bank ,
Ind ian Bank and Ind ian Overseas Bank . The four p r iva te
sec to r banks chosen were ICICI Bank Ltd . , Karur Vysya
Bank L td . , Lakshmi Vi las Bank Ltd . and Sou th Ind ian Bank
L td .
[ i i i ] Se lec t ion o f Branches
In aggrega te , the re a re 93 b ranches in the four pub l ic
sec to r banks chosen fo r the s tudy ou t o f which 9 b ranches
cons t i tu t ing 10 per cen t o f the un iverse has been chosen for
58
the s tudy . L ike wise , the re a re 36 b ranches in the four
p r iva te sec to r banks chos en fo r the s tudy ou t o f which 4
b ranches cons t i tu t ing 10 per cen t o f the un iverse has been
chosen . To ta l ly 13 b ranches cover ing 9 b ranches f rom pub l ic
sec to r and 4 b ranches f rom pr iva te sec to r have been s e lec ted
fo r the s tudy . The b ranches and the bor rowers se lec ted fo r
the s tudy f rom the pub l ic sec to r banks were as fo l lows:
Publ ic Sector Banks
S l .
No .
Name of the
Bank
Tota l
No .
o f
branches
Sample
s i ze o f
branches
Sample
borrowers
1 S ta te Bank o f
Ind ia 22 2 29
2 Canara Bank 14 1 29
3 Ind ian Bank 26 2 33
4 Ind ian
Overseas Bank 31 4 54
Tota l 93 9 145
S o u r c e : A n n u a l C r e d i t P l a n , I n d i a n O v e r s e a s B a n k , L e a d B a n k o f
T i r u c h i r a p p a l l i d i s t r i c t
Like wise , the b ranches and the bor rowers chosen f rom
the p r iva te sec to r banks were as fo l lows:
59
Private Sector Banks
S l .
No .
Name of the
Bank
Tota l
No .
o f
branches
Sample
s i ze o f
branches
Sample
borrowers
1 ICICI Bank
L td 9 1 16
2 Karur Vysya
Bank L td 10 1 10
3 Lakshmi Vi las
Bank L td 10 1 18
4 Sou th Ind ian
Bank L td 7 1 11
Tota l 36 4 55
S o u r c e : A n n u a l C r e d i t P l a n , I n d i a n O v e r s e a s B a n k , L e a d B a n k o f
Tiruchirappalli district
[ i v ] Se lec t ion o f borrowers
Tota l ly , 200 bor rowers were chosen fo r the s tudy .
These bor rowers were in te rv iewed wi th the he lp o f an
in te rv iew schedu le . The researcher has adop ted the non -
probab i l i ty sampl ing method in se lec t ing the bor rowers .
Th is i s because the bankers have to main ta in secrecy in
main ta in ing the bor rowal accoun ts o f the i r cus tomers .
Accord ing to Sec t ion 13 o f t he Bank ing Companies
[Acqu is i t ion and Transfer o f under tak ings] Act , 1970 , the
commerc ia l banks shou ld no t revea l any mat te r concern ing
60
the i r cus tomers . In th i s s i tua t ion , i t was no t poss ib le fo r the
researcher to ge t the l i s t o f cus tomers and the i r de ta i l s
d i rec t ly f rom the banks . Among the non -probab i l i ty
sampl ing methods , t he researcher has adop ted judgment
sampl ing fo r se lec t ing the bor rowers . She had to go d i rec t ly
to the banks in o rder to co l lec t the da ta re la t ing to the
repayment per formance o f the b or rowers . The researcher
in te rv iewed those bor rowers who were wi l l ing to prov ide the
requ i red in fo rmat ion . Co l lec t ing in fo rmat ion f rom the
defau l te r s was indeed a fo rmidab le t ask for the researcher .
Among the 200 bor rowers , the re were p rompt repayers and
defau l te r s . Depend ing upon the reasons g iven by the
bor rowers fo r non -payment o f the i r dues , the bor rowers were
c lass i f i ed in to wi l fu l and non -wi l fu l defau l te r s . Non -wi l fu l
defau l t a r i ses due to na tu ra l ca lami t ies , lo s s in bus iness o r
indus t ry , misunders tan d ing among the members in a se l f -
he lp g roup , fami ly p rob lems and loss o f job . Wi l fu l defau l t
ar i ses due to misa l loca t ion o f funds bor rowed , bor rowers ’
expec ta t ion o f waiver o f loan by the Government and no t
wi l l ing to repay fo r no reason .
61
Per iod of S tudy
The s tudy covers a per iod o f f ive years f rom 2002-03
to 2006-07 .
Fie ld work
The researcher herse l f conduc ted the f ie ld su rvey ,
which was requ i red for the s tudy . Af te r ge t t ing p r ior
permiss ion f rom the branch managers , the researcher
co l lec ted the da ta f rom the 200 bor rowers . I t took near ly
one month fo r the researcher to co l lec t the requ i red
in fo rmat ion f rom the bor rowers .
Process ing o f da ta
Af te r co l lec t ing the requ i red in fo rmat ion f rom the
bor rowers th rough the in te rv iew schedu le , the comple ted
schedu les were ed i ted proper ly to make them ready fo r
fu r ther p rocess ing . For the purpose o f cod i f ica t ion o f the
da ta co l lec ted , the mas te r t ab le was p repared by the
researcher in o rder to sum up the da ta found in the in te rv iew
schedu le . Wi th the he lp o f the ma s te r t ab le , the da ta was
c lass i f i ed as per the requ i rement o f the researcher . ‘Count
and ta l ly method’ was adop ted to de te rmine the f requenc ies
62
of each c lass i f i ca t ion tab le . Al l ca lcu la t ions were done
us ing ca lcu la to r .
Sta t i s t i ca l too l s used
Da ta co l lec t ed th rough p r imary and secondary sources
were c la ss i f i ed and g rouped wi th the he lp o f f requency
t ab les . The s ta t i s t i ca l too l s , v iz . pe rcen tages , F r iedman’s
t e s t and ch i - square t es t were used wherever necessary to
es tab l i sh the fac t s and re la t ionsh ip be twee n var iab les and to
d raw infe rences . Many o f the ca lcu la t ions were made
manua l ly wi th the he lp of hand ca lcu la to rs . Tab les , char t s ,
d iag rams and g raphs were a l so presen ted to v i sua l i se the
observa t ions and in fe rences . For t es t ing the ac tua l
hypo theses re la t ed to th i s s tudy , the re levan t s ta t i s t i ca l
hypo theses were f ramed and tes ted us ing ch i - square
d i s t r ibu t ion . The s ta t i s t i ca l nu l l hypo thes is , a l so known as
hypo thes i s o f no d i f fe rence was assumed in th i s s tudy . In
mos t o f the cases , f ive per cen t t ab le va lu es were compared
wi th the ca lcu la ted va lues o f t es t s t a t i s t i c s . Th is was done
because the in fe rences d rawn shou ld g ive 95 per cen t
accuracy .
63
Limi ta t ions o f the S tudy
The researcher took every poss ib le e f fo r t to avo id the
shor tcomings and e r ro rs in the co l lec t ion of the da ta . Grea t
ca re was exerc i sed by the resea rcher whi le b r ing ing ou t the
f ind ings and a r r iv ing a t the conc lus ions o f the s tudy . In
sp i te o f a l l e f fo r t s t aken by the researcher , the p resen t s tudy
has a few l imi ta t ions wor th men t ion ing as i t de a l s wi th the
eva lua t ion o f recovery per fo rmance o f commerc ia l banks .
[ i ] The s tudy i s conf ined to on ly the commerc ia l banks , i . e . ,
the pub l ic and the p r iva te sec to r banks . As such , the
Coopera t ive banks , Reg iona l Rura l Banks , Loca l Area Banks
and fo re ign banks a re beyond the purv iew of the s tudy .
[ i i ] The s tudy re la tes to Recovery per fo rmance o f
commerc ia l banks regard ing p r ior i ty sec to r loans on ly in
T i ruch i rappa l l i Dis t r i c t .
[ i i i ] The s tudy o f recovery per fo rmance o f commerc ia l
banks have been based on the secondary da ta p rov ided by
the banks th rough the Annua l repor t s o f the respec t ive banks
and the Annua l Act ion P lan p rov ided by the l ead bank o f the
d i s t r i c t , n amely , the Ind ian Overseas Bank . The f inanc ia l
64
pos i t ion as exh ib i ted by the annual repor t s i s t rue on ly fo r
the l as t day o f the accoun t ing year and i t may no t be
app l icab le fo r the remain ing par t o f the year .
[ iv ] For wan t o f t ime and resources , the researcher has
chosen on ly 200 responden ts us ing judgment sampl ing . The
researcher faced g rea t d i f f i cu l ty in co l lec t ing da ta f rom the
bor rowers because she had to admin is te r the in te rv iew
schedu le no t on ly to p rompt repayers bu t a l so to defau l te r s .
She was ab le to co l lec t the da ta on ly wi th the he lp o f the
respec t ive bankers .
[v ] The co l lec ted da ta m ay re f lec t the a t t i tude o f the
responden ts based on the i r exper iences whi le ge t t ing the
necessary loans f rom the commerc ia l banks .
[v ] The op in ions o f the responden ts were co l lec ted dur ing
November 2009 and hence there may be cogn i t ive changes in
the i r a t t i tude as wel l as the i r op in ions due to some ex te rna l
cues .
[v i ] In the ana lys i s o f recovery per fo rmance o f commerc ia l
banks , the to ta l number o f commerc ia l banks in bo th the
pub l ic sec to r and p r iva te sec to r vary be tween years and even
65
in the same year , they vary be tween sec tors . Th is i s due to
non-ava i lab i l i ty o f the comple te da ta about the banks in the
Dis t r i c t Cred i t P lan prepared by the l ead bank o f the
d i s t r i c t , namely , Ind ian Overseas Bank . Wi th th i s d rawback ,
the resea rcher has made the ana lys i s .
Chapter scheme
1 . Chapte r I dea l s wi th the In t roduc t ion , evo lu t ion o f
commerc ia l banking , scope , ob jec t ives , hypo theses ,
concep tua l def in i t ions , methodo logy , l imi ta t ions , and
the chap te r i s a t ion scheme o f the s tudy .
2 . Chapte r I I g ives de ta i l s abou t the research s tud ies
p rev ious ly conduc ted in recovery per fo rmance .
3 . Chapte r I I I g ives a v iv id p ic tu re abou t the p r io r i ty
sec to r loans and the recovery measures adop ted by
bankers .
4 . Chapte r IV p rov ides de ta i l s regard ing the p ro f i l e o f
the s tudy a rea i . e . , T i ruch i rappa l l i d i s t r i c t .
5 . Chapte r V makes an ana lys i s abou t the l end ing and
recovery o f p r io r i ty sec to r loans in T i ruch i rappal l i
d i s t r i c t and makes a compar i son abou t the recovery
per fo rmance o f pub l ic sec to r wi th p r iva te sec to r banks
in T i ruch i rappa l l i d i s t r i c t .
6 . Chapte r VI makes an ana ly t ica l s tudy abou t the
repayment per fo rmance o f bor rowers in
66
Tiruch i rappa l l i d i s t r i c t and makes a compara t ive s tudy
abou t the repayment per fo rmance o f bor rowers o f
pub l ic sec to r banks wi th tha t o f the p r iva te sec to r
banks .
7 . Chapte r VI I g ives the summary o f f ind ings and
sugges t ions fo r improv ing the recovery per fo rmance
o f commerc ia l banks and g ives a conc lus ion .
CHART NO. 1.5
GROWTH OF BRANCHES OF COMMERCIAL BANKS IN
INDIA [1969-2007]
0
5000
10000
15000
20000
25000
30000
35000
40000
1969 1991 2002 2003 2004 2005 2006 2007
YEAR
NU
MB
ER
OF
BR
AN
CH
ES Rural
Semi-urban
Urban
Metropolitan
CHART 1.4
0
50
100
150
200
250
300
350
Nu
mb
er o
f b
an
ks
1969 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
PROGRESS OF COMMERCIAL BANKS IN INDIA
[1969-2007]
Scheduled banks Non-scheduled banks
DIAGRAM 1.2
CHART SHOWING THE STRUCTURE OF
COMMERCIAL BANKS IN INDIA
STRUCTURE OF COMMERCIAL BANKS IN INDIA
[183]
PUBLIC SECTOR BANKS
[28]
PRIVATE SECTOR BANKS
[55]
STATE BANK OF INDIA
GROUP [8]
NATIONALISED BANKS
[20]
REGIONAL RURAL BANKS
[96]
INDIAN BANKS
[28]
FOREIGN BANKS
[27]
OLD PRIVATE SECTOR BANKS
[19]
NEW PRIVATE SECTOR BANKS
[9]
SCHEDULED BANKS
[179]
NON-SCHEDULED BANKS
[4]
DIAGRAM NO. 1.3
MANU’S RECOVERY MEASURES
DHARMENA-through moral pursuance
Manu’s recovery measures
VYARALARENA-through legal process
BALENA-using force
CHHALENA-through deceit and
ACHARITHENA-through torture.
DIAGRAM NO. 1.1
PRIORITY SECTORS
AGRICULTURE
PRIORITY SECTORS
SMALL SCALE INDUSTRIES
ROAD AND WATER TRANSPORT
OPERATORS
PROFESSIONAL AND SELF
EMPLOYED PEOPLE
EDUCATION
HOUSING
EXPORTS
CONSUMPTION
MICRO CREDIT
SOFT WARE INDUSTRY
FOOD AND AGRO PROCESSING
SECTOR
CHART NO.1.6
0
500000
1000000
1500000
2000000
2500000
3000000
AM
OU
NT
1969 1991 2002 2003 2004 2005 2006 2007YEAR
DEPOSITS AND ADVANCES OF COMMERCIAL
BANKS IN INDIA [1969-2007]
DEPOSITS ADVANCES