RURAL BANKING PERFORMANCES

REGIONAL RURAL BANKING PERFORMANCE IN KARNATAKA: POST LIBERALIZATION

INTRODUCTION:

The RRBs in India and for that matter in Karnataka have had a long standing of nearly more than thirty years. The main objective of these institutions has been to promote the aggrerian sector. But as the time passed by they were made to accept the functions of sponsor, commercial and Nationalised Banks. Further due to great inputs given to rural development, specially after math of 1991-1992 banking reforms and adhering to the goal of globalization, the RRBs have been entrusted with the task of financing rural industries weaker sections and people below the poverty line in the course of time due to proximity of branch locations with Commercial Nationalized Banks (CNB’s) and overlapping of activities and finance, they had a great set back by the end of 20th century.

The RBI and NABARD undertook a bailout programme through the sponsor bankers. Added to this, by the end of 2004-2005 they were subject to amalgamation that means 196 banks were reduced to 133 and in Karnataka itself 13 banks were reduced to 7 banks. This is no small an act which has made radical change in the structure and functions of RRBs. ON the one hand the CNB’s and their staff have opposed amalgamation. But the staff of the RRBs started feeling themselves as real than not as cousin brothers of the staff of CNB’s that means that the Act helped to get their personal gains maximize. This is not without having any inconsequence effect on the operation of the RRBs. Therefore, there is need for the study of performance of RRBs. Specially in a agriculturally poor but growing industrially rich states in the country i.e. Karnataka.

Justification:

It is needless to say that from 1998-99 to 2005-2006 is a period which really makes a drastic change in the functioning of the RRBs. Because, not just agriculture but the entire rural development help to weaker section artisans, rural industries such as handlooms, power looms and pottery. diary, piggery and other SSI industries and self help group have to be financed by RRBs. The RRBs have been making enough progress even to the extent of encouraging export earning for rural and rural household and SSI industries in Karnataka. But being not only small in terms of capital but subject to four controls (by sponsor CNBs, NABARD, RBI and state-govts, the attitude and thinking of the staff has made a substantial impact on the working of the RRBs. Therefore, in the state like Karnataka a more recent and uptodate study on the performance is need of the hour.

The following are the important objectives of the study.

v      The first important objective is to make indepth analysis of the origin, structure and changes therein among the RRBs in Karnataka.

v      To undertake a detailed analysis of growth of RRBs such as number of bank districts covered branches. Deposits, loan and advances etc.

v      To assess the progress of RRBs in terms of income, expenditure C.D. Ratio and other aspects.

v     To evaluate the performance in terms of interest on investment as % to income, interest on advance as % to income assets per staff and other crucial determent.

v     Similarly, to undertake micro level evaluation of performance i.e. an inter bank approach to measure performance.

v     To make important suggestions and policy suggestions to improve the working of RRBs.

v     Besides these objectives it may be noted that the present study also makes a comparison of performance in the context of the policy of independence v/s amalgamation of RRBs in the state.

The Hypothesis:

Some of the important hypothesis regarding the performance of RRBs in Karnataka after globalization have been formulated which are as noted below.

q     The RRBs in Karnataka have made a substantial quantitative progress.

q     The qualitative progress of RRBs have been found to be highly impressive.

q     The macro performance is highly substantial.

q     The inter bank analysis of performance shows no need for amalgamation.

Scope and coverage of the study:

The scope of the present study has the following outlines.

Ø      It covers all the 13 banks working in 29 districts.  

Ø      It also cover all the branches about 1100 branches located in the different districts.

Ø      The study covers a specific period from 1998-99 to 2005-06 i.e. after globalization.

Ø      There is macro evaluation of performance of all the banks in the state.

Ø      There is also individual bank evaluation of performance and various alternative variables or parameters.

Ø      The scope of the study also includes a comparison of performance at least for only one and one year after amalgamation in 2005-2006.

Ø      The scope of the study geographically covers all the banks and branches located in the state.

REVIEW OF LITERATURE:

The study such as the performance of RRBs after the period of globalization is a very lengthy economic aspect. Similarly there is also enough depth in the study of this kind. Therefore, a systematic approach surely requires as a preliminary step to undertaken review of literature. The review of literature is also is no less important as it helps to find the existing gaps which requires a fresh look. In this situation, the present chapter in its purpose has been following steps. The origin of RRBs has a great historical background. For the origin of planning completion of 4 and 5 year plans have been constantly struggling with the age old problem of rural indebtedness, the extent of required rural credit, rural development and weaken sections etc. Given this, the first part explains, the keeping aside the background.

The origin of RRBs. the growth of RRBs has not been as smooth as it has been thought of. The growing credit needs, existence of over dues, illiteracy of among the farming community and the impending scarcity of capital for the RRBs have been the hurdles to overcome. Hence, the growth of RRBs in India and its literature has been received in part III. The literature dealing with the role of RRBs has been reviewed in part II. There is also abundant literature dealing with the performance of RRBs. It is a combination of the continuous study groups by Govt. and their reports on the one hand and the contribution made by various economists who have made their own contribution in terms of reviewing the performance of RRBs. The review of whole literature on performance of RRBs from 1975-76 to 2006-2007 has been reviewed in part IV. The brief summary and conclusion are given in part V i.e., Origin, role, evolution & growth of RRBs and performance of RRBs.

The performance of RRBs has been and is a very fashioning subjects by a number of scholars.  Similarly, there are also few but updated studies with regard to the working of RRBs in Karnataka.  Therefore a detailed review of various studies has been undertaken so as to find the research gaps.

With the objective of developing institutional credit to weaker section of rural community, a committee chaired by Sir, M. Narsimhan was appointed by the Government of India in 1975. The committee recommended in its report for establishing state sponsored, regionally based and rural oriented banks to be called “RRB” on 2nd October, 1975.

First Five RRBs in India

Sl. No.	Sponsor Bank	RRB	H.O
1.	Syndicate Bank	Prathama Bank	Moradabad (UP)
2.	State Bank of India	Gorakhpur Kshetriya Gramin Bank	Gorakhpur (UP)
3.	United Bank of India	Gaur Gramin Bank	Malda (WB)
4.	Punjab National Bank	Haryana Kshetriya Gramina Bank	Bhiwani (Haryana)
5.	United Commercial Bank	Jaipur Nagaur Anchalik Gramin Bank	Jaipur (Rajastan)

However, Karnataka did not loose time in the establishment of RRBs. In keeping with the history of banking in Karnataka, if not the syndicate bank, its contemporary, the Canara Bank become the first sponsor bank in Karnataka in the evolution of RRB namely Tungabhadra Gramina Bank established on 25.01.1976 i.e. a day before the celebration of republic day.

Development of Banking in Karnataka

Sl. No.	Banks Name	H.O.	Date of Registrar	Particulars
1.	Malnad Commercial & Banking Corporation Ltd.	Narasimharajapur	1934	Not in existence
2.	Untied Bank of Karnataka Ltd.	Bagalkot	23.10.1935	Merged with Sangli Bank in 1964
3.	Shri. Guru Govind Swissi Bank Ltd.	Bijapur	29.01.1936	Merged with Sangli Bank in 1964
4.	Provincial Bank of India Ltd.	Bangalore	19.6.1936	Dissolved in 1944
5.	Mysore Baramahal Golkonda Bank Ltd.	Information not available	16.7.1936	Dissolved in 1944
6.	Bahusar Mercantile Bank Ltd.	Banaglore	08.09.1936	Dissolved in 1941
7.	Bangalore Commercial Bank Ltd.	Bangalore	21.09.1936	Not in existence
8.	Corporation Bank Ltd.	Bijapur	21.09.1936	Merged with Corporation Bank
9.	Bank of Citizens Ltd.	Belgaum	13.1.1937	Merged with Corporation Bank in 1961
10.	Shri Sharada Banking Co Ltd.	Raichur	23.01.1937	Permission rejected by RBI in 1955
11.	Citizens Bank Ltd.	Robertisin Pete	10.4.1937	Merged with Syndicate Bank in 1963
12.	Supreme Bank of India Ltd.	Belgaum	27.5.1939	Dissolved in 1956
13.	Attur and Jawahar Bank Ltd.	Mangalore	29.6.1939	Merged with Andhra Bank in 1961
14.	Royalseema Bank Ltd.	Bellary	25.11.1939	Merged with Andhra Bank in 1961
15.	Commercial Banking Co. Ltd.	Yadugiri	14.4.1942	Not in existence
16.	Southern India Apex Bank ltd.	Udupi	25.6.1942	Merged with Syndicate Bank in 1953
17.	Indian Pidial Banking Corporation Ltd.	Bangalore	1942	Not in existence
18.	Maharastra Apex Bank Ltd.	Udupi	26.4.1943	Merged with syndicate Bank in 1953
19.	Mysore Standard Bank ltd.	Bangalore	27.03.1944	Dissolved in 1955
20.	Ramdurg Bank Ltd.	Raydurg	18.11.1944	Merged with SBM in 1963
21.	Prabhakar Bank ltd.	Mudabidre	28.3.1945	Dissolved in 1953
22.	Bank of Karnataka Ltd.	Hubbali	23.9.1946	Merged with Karnataka Bank in 1966
23.	Shri Jadeya Shankaling Bank Ltd.	Bijapur	11.5.1948	Dissolved in 1964
24.	Mandya Bank Ltd.	Mandya	Information Not available	Information not available
25.	Bank of Rural India Ltd.	Karwar	..do..	..do..
26.	Dharwad Bank Ltd.	Dharwad	..do..	..do..
27.	Mandyan Banking Co. Ltd.	Mysore	..do..	..do..
28.	Osmani Ajij Bank Ltd.	Raichur	..do..	..do..

Sponsor bank wise distribution of RRBs in Karnataka

Sl. No.	Name of the sponsor bank	No. of RRBs	% of total shares
1.	Canara Bank	4	30.76
2.	Syndicate Bank	4	30.76
3.	State Bank of Mysore	2	15.38
4.	State Bank of India	1	7.70
5.	Corporation Bank	1	7.70
6.	Vijaya Bank	1	7.70
	Total	13	100.00

MY SUGGESTIONS TO RURAL BANKS :

q     There should be inter district operations of the RRBs which does not exists in Karnataka this will help to optimize their business.

q     There are many districts such as Bangalore (U) Dakshina Kannada, Udupi, Bangalore (R), Chamrajnagar, Mandya, Shimoga, Tumkur, which have more per capita income and have less number of banks therefore with peoples participation with equity share establishment of new banks may be encouraged.  The state will have to support a move.

q     The RRBs have not been dynamic and enthusiastic in increasing their clientele.  Further there are many rich people who should be taught banking habit which would increase deposit collection.

q     The other suggestions which is very much important emerging from our study is that they should appoint more field level staff on commission basis in terms of village to village and household to household opening of bank accounts.

q     The RRBs have to readjust and bring more professionalism and use computers so that reducing staff and also side by side there will be reduction in wage bill.

q     The RRBs have to make an important change in their decision making with regard to their investments.  Because it is found in our study that interest on investment as percent to income of the RRBs is decreasing.

q     The RRBs have to be very careful and reduce the operating expenses, because it has been found from our study that these expenses have increased the total expenditure of the banks.

q     Amalgamation has not been a boon but a bain.  Therefore, further amalgamation of banks should be stopped forthwith.

q     There should be year to year preparation and auditing of balance sheet.

q     Further there should be transparency in the balance sheet.  The CRAMEL approach should be adopted to all the RRBs for measuring performance every year and this will help to establish new banks and their branches.

q     They have to expand their activities to cover weaker sections non-regd SSI’s and handicrafts.

q     The RRBs have to give due preference to the micro-credit scheme and encourage in the formation of self help group.

q     There should be year to year preparation and auditing of balance sheet.

q     Further there should be transparency in the balance sheet.  The CRAMEL approach should be adopted to all the RRBs for measuring performance every year and this will help to establish new banks and their branches.

q     They have to expand their activities to cover weaker sections non-regd SSI’s and handicrafts.

q     The RRBs have to give due preference to the micro-credit scheme and encourage in the formation of self help group.

q     The location of RRBs should be decentralized and more number of branches have to be established in rural areas and agglomerations.

q     They should change their location so that they become specialized institutions than locating closure to branches of nationalized banks.

q     They should findout new areas for extending credit in the agriculture sector in particular seri-culture and floriculture.  Because the HDFC, nationalized commercial banks have been competing in providing credit as crop loans, loans for irrigation and purchase of other machinery and equipments.