(a) introduction of regional rural banks -...
TRANSCRIPT
(A) INTRODUCTION OF REGIONAL RURAL BANKS
Agriculture continues to be the mainstay of the Indian economy and an effective antidote to poverty and unemployment. Recognizing the importance of agriculture in the economic development of the country, adequate emphasis has been assigned in each successive Five Year Plans. Agricultural development was slow for the first two decades but has kept pace with the growing demand for its products since the mid sixties, registering a growth rate of 2.31% between1967-68 in food grains production and increasing it to 2.63% between1977-89 (Hanumantha Rao, 1989). The attainment of self- sufficiency in the production of food grains and edible oils is not a small achievement if viewed with a steady upward trend in the growth of country’s population. However, in the last decades science of stagnation and even some degree of deceleration in a few crops has been noticed and this trend calls for immediate attention.
The annual growth rate in agriculture has to be at least four percent during the present decade enable the country to achieve full employment on the needed scale. It is not mere growth and development of conventional agriculture but the modernization and diversification of the agriculture system and maximization of the potential of the agri- business that hold the answer for this formidable challenge and daunting task. If proper measures are adopted in adequately it can create 100 million permanent and year jobs for the rural and urban manpower, besides adding Rs 77000 crores to the agricultural income and take the growth of GDP by four percent annually (Raghavan, 1992). Further, the growth in agriculture requires a much larger investment to enable better use of all the existing resources. But the startling fact is that the rate of investment in agriculture has declined in the recent years. The growth rate of capital formation which was 5.2 percent during 1960s has been continuously declining since then and reached one percent during 1980s reflecting stagnation in Indian agriculture.
With the breakthrough in farm technology, now a day’s agriculture has become increasingly capital intensive in order to augment the productivity of both land and human resources. The adoption of new
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technology requires a sizeable additional amount of capital for the purchase of variable inputs viz., seeds, fertilizers, plant protection chemicals etc.
Added to this, the new technology calls for massive investment for building infrastructure on the farm front by the farming community. Farmers cannot meet this huge investment in the farm sector out of their own savings. Thus the cultivators have to inevitably depend on external finances for the adoption of new farm technology.
The farm credit has become a strategic input in agricultural development in view of the longer gestation period of farm enterprises, lower resource base and poor savings of the farmers.
Among the factors responsible for the economic development and poverty alleviation, the role of financial institutions, which supply capital for the production of goods and services and in turn, raise the income and standard of living of the people, is considered very significant. The planners of our country have strategically decided to use the organized part of Indian banking system as an instrument for accelerating rural development. Providing affordable credit to the rural population has long been a prime component of the development strategy. The central Monetary Authority could never lose sight role of the strategic role of agriculture and agro- based activities in the rural areas in promoting a balance, equitable and self-reliant pattern of development.
Efforts to build up the institutional credit system for agriculture commenced with the adoption of the Cooperative Societies Act in 1904 to institutionalize credit channels, since the system of loans advanced by the government under Taccavi was a failure for a number of reasons. Gradually, the Cooperative assumed more positive role and there was not only a steady quantity expansion in their numbers but also a growing diversity in their functions. The performance of Cooperative however was far from satisfactory as was evident from the All India Rural Credit Survey Committee Report (1954). The Committee observed that in the year 1951-52, only 7.3% of the rural credit was supplied by institutional sources (Government 3.3%, Cooperatives 3.1% and commercial banks
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0.9%). The cooperative movement has undergone far reaching changes based on the recommendations made by successive bodies and expert committees like the All India Rural Credit Survey Committee (1952), the National Development Council (1958), Shri Mehta Committee (1960), Shri Patel Committee (1961), the conference of state Ministers of Cooperation (1964), All India Rural Credit Review Committee (1966) etc. so as to embrace all aspects of the economic tool in the overall economic development did not produce the desired results. The weaknesses of the Cooperative credit agencies have been brought out in the report of the committee (working group) on Rural Banks, Reserve Bank of India (RBI) (1957) the Report of the Study Team on the overdues of cooperative Credit Institutions, RBI (1974) and the report of the committee on integration of Cooperative Credit Institutions.
The main limitations were lower credit share of small holders, lack of provision for non cultivators, dormancy, inability to shoulder the responsibility, deficiency in lending policies and increasing overdues, all of which affected the ability of the cooperatives to extend further credit facilities, besides putting in serious doubt the credit-worthiness of the Cooperative themselves.
In view of the limitations of the cooperatives and considering the large and growing gap in meeting the credit needs of developing agriculture and allied activities, the Government encouraged commercial banks to provide more and more credit to agriculture and other allied sectors. The nationalization of 14 commercial banks in 1969 was regarded as a watershed in this direction.
Commercial bank too had their weaknesses. Even with much increased network of rural branch offices, the commercial banks could not reach out to the interior and rural hinterlands. Commercial banks were participating in rural banking only as allied to this field, since they were programmed for meeting the financial requirements of trade and commerce. The commercial banks continued to use the deposits mopped up by their rural branches for meeting the credit needs in urban areas. Commercial banks have gone wherever cooperatives were well established and extend credit
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to the segments enjoying cooperative credit.
The Review Committee on Regional Rural Banks observed, that the agricultural credit by Commercial banks has been additive and has not helped to cover the geographical areas not having the availability of credit facility from the cooperatives (RBI, 1978). The high cost structure and lack of rural orientation have been the major handicaps of commercial banks. Over the years, the productivity, efficiency and profitability of the system have suffered. Notwithstanding all the tall claims made by the Government at the time of each policy change, Indian banks continue to be essentially lenders only, rather than being development agencies and change agents.
The Banking Commission in 1972 mooted the proposal for setting up some sort of ‘rural banks’. It recommended such banks for a compact group of villages, mostly autonomous in character and also to be managed by the local leadership to ensure local response and participation.
The Government of India also felt that it was necessary to establish “New Institutions on the basis of attitudinal and operational ethos entirely different from those obtaining in the public sector bank”. In pursuance of this view, the Government of India appointed a working group on Rural Banks on 1 st July 1975, under the chairmanship of Shri Narasimham (then Additional secretary in the Department of banking and later Governor of RBI) to examine in depth the setting up of new Rural Banks as subsidiaries of public sector banks to cater to the financial requirement of rural people
The group identifies the various weaknesses of the cooperative credit agencies and commercial banks and felt that the existing institution with their present structure would not be able to fill the regional and financial gap in the rural credit system within responsible period of time even with such adoption, reorganization and restructuring might be considered. The Committee recommended for the establishment of Regional Rural banks (RRBs) which should be state sponsored, regionally based, rural oriented and combine the local feel of cooperatives as well as the degree of
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business organization of commercial banks.
The Recommendations of Working Group were mutadis mutandis accepted by the Government and on 26th September 1975, the Government of India promulgated an ordinance to provide for the incorporation and regulation of the Regional Rural Banks to develop agriculture, trade, industry and other productive activities, by providing credit and other facilities. The Regional Rural Banks, which form the third constituent of the multi agency credit system for agricultural and rural developments, were to focus exclusively on the small and marginal farmers, agricultural labourers and rural artisans.
The first five banks in four states commenced business on 2nd October 1975, at Moradabad and Gorakhpur in Uttar Pradesh, at Bhivani Haryana, at Jaipur in Rajasthan and Malda in West Bengal. The ordinance was subsequently replaced by the Regional Rural Banks Act 1976. These Regional Rural Banks were not there to supplant the existing institutions, but only to supplement them.
The Regional Rural Banks after much experimentation have ultimately emerged as development inducing institution. It has been documented from many studies in the past about the performance of Regional Rural Banks, that they have really made good progress in many areas and made their presence felt among the rural masses in field of agricultural credit.
A remarkable feature of their performance over the past three decades has been the massive expansion of their retail network in rural areas. From a modest beginning of 6 RRBs with 17 branches covering 12 districts in December 1975, the numbers have grown into 196 RRBs with 14.446 branches working in 518 districts across the country in March 2004. RRBs have a large branch network in the rural area forming around 43 per cent of the total branches of the commercial banks. The rural orientation of RRBs is formidable with rural semi urban branches constituting over 97 per cent branch network.
The growth in the branch network has enabled the RRBs to expand banking activities in the unbanked areas and mobilize rural savings.
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The deposits mobilized have also increased from Rs 20 lakhs to Rs 8299.83 crores, where as the advances increased from Rs. 10 lakhs to Rs. 5106.88 crores during the above period.
FEATURES OF A REGIONAL RURAL BANK ARE:
1. Its area of limited to a specific region in a state comprising one or more state.
2. It carries on the business of banking & may conduct such other business as allowed under the Banking Regulation Act 1949.
3. It shall grant loans & advances to the rural poor comprising farmers, artisans, small entrepreneurs & other persons with small means.
4. The lending rate of the bank shall not be higher than that of any cooperative society in the area.
FUNCTIONS OF A REGIONAL RURAL BANK ARE:
1. To give loans to the weaker section of society, particularly those engage in agriculture, trade, commerce, industry and other productive purpose.
2. To give loans to cooperative societies for agriculture purposes;
3. To provide banking services at the door steps of the rural people, particularly in those areas which are not served by any commercial bank;
4. to generate employment n rural areas;
5. To mobilize rural saving and accept deposits and channelize them into productive activities; and
6. To reduce the cost of credit in rural areas.
These banks have also started also giving loans and advanced for the purchase of consumer durables and other purposes, on the security of gold ornaments, National Savings Certificate, India Vikas Patras to rural
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people in general up to 10 percent of their fresh lending within the overall limit of 60 percent of fresh loans to non-target group. They have also been permitted to issue guarantees on behalf of their clients without limit on 100 percent cash margin up to Rs 20 lacs and Rs 40 lacs cash margin plus collateral security of more than 50 percent, these banks also provide lockers facilities. They can purchase draft and cheque up to Rs 25,000 and Rs 1, 00,000 respectively, per customer and per bank.
These banks have also been permitted to invest their surpluses in UTI listed scheme, fixed deposit of profit making term lending institutions, bonds of nationalized banks and other public sector undertakings, non-convertible debentures of blue chip companies and in credit portfolios of their sponsoring bank subject to a maximum of 15 percent of their fresh lending during the year.
With effect from January 8, 1997, these banks have also been giving permission to invest in corporate shares and debentures and units of mutual fund up to a maximum of 15 percent of their incremental deposits. They are also allowed to buy corporate shares and debentures from the secondary market. They can also fix their own lending and deposit rate.
(B) INTRODUCTION OF MERGER AND ACQUISITION OF REGIONAL RURAL BANKS
The number and volume of merger and acquisition (M&A) have increased rapidly during the past several years. Consolidation through Merger and Acquisition has become a trend across the globe. This development could be seen through all industry sector and continents, and has gained popularity after 1990s. The move for Merger and Acquisition across the globe was driven by globalization, technological change, market deregulation and liberalization (Schweiger, 2003). The year 1998 witness more volume of Merger and Acquisition in the banking industry worldwide than any other industry. More than 25% fourth of total Merger and Acquisition deals involved banks totaling $102 billion in the year 1998 (Patnaik, 2005). Due to innovations and improvements in the service delivery channels the trend of global banking has been marked by twin phenomena of consolidation
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and convergence. Consolidation aims at attaining meaningful balance sheet size and market share whereas convergence is driven by move across the industry to provide most of the financial services under one roof like banking, insurance, cash management, etc.(Laxminarayana, 2005 and Swain, 2005).
Globalization and deregulation process started during 1990s has brought about sea change in the Indian Banking System. From a totally regulated environment, our economy has gradually moved into a market driven competitive system. To remain competitive in the changing financial services landscape, banks have to expand their product lines, add new delivery channels, develop more effective marketing system and techniques, and enhance service levels (Chopra, 2005).
Merger and Acquisition seek to provide banks with necessary size and strength to complete with domestic and international players. Generally, Merger and Acquisition are driven by the motive of increasing the shareholders wealth resulting from greater efficiency, diversification, market power, etc. The synergistic gains from Merger and Acquisition may result from more efficient management, economies of scale and scope, improved production techniques, the combination of complementary resources, the redeployment of assets to more profitable user, the exploitation of market power, or any number of value- creating mechanisms that fall under the rubric of corporate strategy (Bradly et al., 1988; Kumar (2004). Merger and Acquisition may also be driven by non-value maximizing motives, such as empire building by corporate executives or by government’s objective to make the banking system more stable. Consolidation is driven by variety of forces such as deregulation, technology, globalization and financial distress.
Merger and Acquisition in Indian banking is not new dates back to Imperial Banks of India which was formed in1921 by the amalgamation of three banks- the Bank of Bengals, Bank of Bombay and Bank of Madras (Purwar, 2005). Few mergers have taken place thereafter primarily to protect the interest of depositors of weak private banks. The mergers were not for economic considerations and usually distress
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merger, e.g. State bank of India taking over of Bank of Cochin and Kashinath Seth Bank, New Bank of India merging with Punjab Nation Bank ; GBT with OBC, etc. Of the merger, which have taken place between 1969 and 2005, in as many as 22 mergers the transferee bank was a government one (Rao, 2006). The latest merger directed by the government is the proposal to merge financially weak Ganesh Bank of Kurundwad with Kerala based federal Bank. But times bank merger with HDFC Bank, Bank of Madura and ICICI with ICICI Bank, and amalgamation of Bank of Punjab with Centurion Bank has created a wave of consolidation in Indian Banking industry for mutual benefit. These mergers are created by market driven forces for benefit of synergies and not bail out mergers.
Mergers driven by Government are seeking to address financial crisis or distressed financial position. In India Government is creating environment to encourage consolidation of Banks by way of mergers and acquisitions. Recently the government of India announced that it would give autonomy to banks. That autonomy will include the right of the bank managements to make domestic and foreign acquisition, exit nonviable businesses and close down unprofitable branches without the government’s prior approval.
Even in other countries such initiatives have been taken by government to merge the banks.
Now the Indian banking is moving towards consolidation for the creation of globally competitive strong banks. State Banks of India and ICICI Bank has already made some global acquisitions. These banks are also looking for some domestic and cross-border acquisitions. Many bank such as the Bank of Baroda, Bank of India, HDFC Bank, Corporation Bank and Punjab National Bank, are planning their strategies to increase their balance sheet size through mergers and acquisitions. Banks such as UTI Bank and Vysya Bank are also in the fray for acquisition of bank. Bank of Baroda is on the look out for a bank with presence in north, east, and south. Bangalore based Vijaya Bank is keen on buying a northern bank while PNB is looking southwards. OBC is also keeping its options open to buy-out another small bank with a presence in south India.
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The RRBs were established under the RRBs Act, 1976 with a view to create an institutional mechanism for delivery of rural credit through an entity which would have the local feel but the expertise of the commercial banks for catering to the rural credit needs. The RRBs are owned jointly by Government of India, sponsor bank and State governments of 50, 35 and 15 per cent, respectively, and were expected to have region-specific limited area of operation. Over the years, their number had increased to 196, operating in 26 states of the country, being sponsored by 27 scheduled commercial banks and one State Co-operative Bank.
The Regional Rural Banks, ever since their inception, have be subject to criticisms with regard to their concept, coverage and viability, even though these banks have made considerable impact by making banking services accessible to the rural poor and instilling banking habits in them and providing capital assistance to the target groups. With their limited size, scope and area of operations, competition from the rural branches of the commercial banks and the rising cost of operations due to upgraded wage structure at par with the commercial banks, their profitability and viability was adversely affected.
The performance of Regions Rural Banks has not been an unqualified success for various reason; most important among them are the defects in country were incurring a cumulative loss of Rs.2510 lakhs during 1976, their number went up to 179 in 1993 with accumulated loss of Rs 9045 lakhs.
The mandate of promoting banking with a rural focus, however, would be an enduring phenomenon only when the financial health of the RRBs is sound. With built-in restrictions 4 on their operations, it is common to expect that the financial health of the RRBs itself would be a matter of concern. As regards their financial status, during the year 2003-04, 163 RRBs earned profits amounting to Rs.953 crores while 33 RRBs incurred losses to the tune of Rs. 184 crores. Ninety RRBs had accumulated losses as on march 31, 2004. Aggregated accumulated loss of RRBs amounted to Rs. 2,725 crores during the years 2003-04. Of the 90 RRBs having accumulated loss, 53 RRBs had eroded their entire owned funds as also a part of their deposits. Furthermore, non-performing assets (NPAs) of the RRBs in absolute terms stood at Rs.3, 299 crores as on March 31, 2004.
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The percentage of gross NAPs was 12.6 during the year ending March 31, 2004. While 103 RRBs had gross NAPs less than the national average, 93 had NAPs more than it. In this background various committee were appointed to look into the aspect of viability. The Dantawala Committee (1977) recommended for continuation as also expansion of Regional Rural Banks, as integral element of the rural credit system. The RBI study of viability headed by Sivaraman (1981) opined that each Regional Rural Bank would required about six years, and network of 70 branches having outstanding loan business of Rupees 8 crores to attain viability. The recommendation of the Kelkar Committee, lead to the amendment of Regional Rural Banks Act (1987) to enhance authorized share capital of Rupees five crores and paid up capital to Rupees one crores. The Agricultural Finance Corporation study the instance of NABARD, recommended for establishment of urban branches with all banking facilities on the lines of commercial banks.
The recent report by Narasimhan and Khusro Committees on Financial Sector Reforms stated that non-viability of Regional Rural Banks was a built in phenomenon, which was evident from the meager number of Regional Rural Banks earning profit (27 out of 196). Narasimhan had proposed options, the implementation of which was subject to the decision of Regional Rural Banks, but Khusro was very harsh and even stated that Regional Rural Banks did not find a place in the financial sector and hence, they should be either merged with sponsor banks or eliminated by creating rural subsidiaries of commercial banks. But the Government considers the recommendations made by these committees and took a decision to revamp these Regional Rural Banks and strengthen their capital base. The Government has decided to restructure 49 suggest Regional Rural Banks. The Committee for such restructuring consisted of representatives of RBI, NABARD and the chairmen of four public sector banks such as bank of Baroda, Punjab and Sindh Bank and chairmen concerned Regional Rural Banks.
A meeting of this committee was held under the Chairmanship of Special Secretary (Banking) and modalities of restructuring were drawn up. Each Regional Rural Banks in consultation with sponsoring bank has to prepare a five-year plan to attain viability which was commonly known
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as development Action Plan (DAP). It is hoped that through this plan the Regional Rural Banks would attain viability and continue to function as a vital financial institution in the country.
The consolidation of the RRBs was first suggested by the Working Group to suggest amendments to the RRBs Act, 1976(Chalapathy Rao committee) in 2001. It had suggested that while retaining the regional character of these institutions, the number of sponsor banks may be reduced. Subsequently, the Advisory committee on Flow of Credit to Agriculture and relation Activities (Vyas Committee) had suggested in 2004 that in the first stage, all RRBs of a sponsor bank in a State should be amalgamated into a single unit in that State and at the second stage; there should be State-level consolidation of RRBs. Subsequently, the Internal Working Group on RRBs, constituted by the RBI (Sardesai Committee) in June 2005, also suggested two options for strengthening RRBs, namely, merger between RRBs of the same sponsor bank in the same State or the merger of RRBs sponsored by different banks in the same state.
The main triggers for these recommendations were the small size of the RRBs which had made their operations unviable leading to significant amount of accumulated losses – which was not considered desirable. In order to improve the operational viability of RRBs and to take advantage of the economies of scale by reducing transaction cost, Government of India initiated, in September 2005, a process of amalgamation of RRBS sponsor bank wise. The first set of amalgamation took place on September 12, 2005 when 28 RRBs were amalgamated to from 9 new RRBs. The amalgamations carried out under Section 23-A of the RRBs Act, 1976, which provides that the Central Government, after consultation with the National Bank, the concerned State government and the Sponsor Bank may amalgamate two or more RRBs. The process of amalgamation is still continuing.
As a result of such amalgamations, the number of RRBs has come down to 91 as on March 31, 2008 as against 133 and 196 RRBs as on March 31, 2006 and 2005, respectively. It needs to be noted here that this consolidation has occurred only amongst the RRBs, and not with the sponsor banks, and has been achieved without amendment to the
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governing statute of the RRBs. The structural consolidation of the RRBs has resulted in formatting of new RRBS, which are financially stronger and bigger in size in terms of business volume and outreach. Thus, the emerging RRBs will be able to take economies of scale and reduce their operational costs. With the advantages of local feel and familiarity acquired by the RRBs, they would now be better placed to achieve the objectives of rural development and financial inclusion.
Hence, the present study has been taken up with an overall objective of evaluating the performance of Regional Rural Banks in Uttar Pradesh during pre-merger period as well as post-merger period.
Table 1.1: Following is the list of amalgamated regional rural banks in UTTAR PRADESH which from part of the study
Sponsor Bank New Regional Rural Bank Amalgamated Regional Rural Bank
Allahabad Bank Lucknow KGB Bhagirath GBSarayu GBShravasti GB
Bank of Baroda Baroda Eastern U.P GB Allahabad KGBFaizabad KGB Fatehpur KGBKanpur KGBPratapgarh KGB Raebareli KGB Sultanpur KGB
Bank of Baroda Baroda Western U.P GB Bareli KGB Shahjahanpur KGB
Canara Bank Shreyas GB Aligarh GBEtah GBJamuna GB
Punjab National Bank Uttar Pradesh GB Hindon GBMuzaffarnagar KGBVidur KGB
State Bank of India Purvanchal GB Basti GBGorakhpur KGB
Union Bank of India Kashi Gomti Samyut GB Gomti GBKashi GBSamyut GB
(Source-Rural Planning and Credit Department, RBI)
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(C) ADVANTAGES OF MERGER AND ACQUISITION OF REGIONALRURAL BANKS
The merger would bring down the working expenditure and make the new entity more viable.
Change in sponsorship may help in improving the performance of Regional Rural Bank.
Change in sponsorship may improve the competitiveness, work culture, management, and efficiency of regional rural bank.
Merger and acquisition of regional rural bank helps in improving the operational viability of regional rural bank and takes advantage of economies of scale.
Amalgamation would result in economies of scale in operation, improved reach of the bank and help in investing in appropriate technology to promote rural banking and ultimately would bring better facilities to rural areas.
Due to the merger a stronger bank emerges which caters to the various needs of the customers more efficiently. Union Bank has already initiated necessary measures for smooth merger of the RRBs to ensure convenience and satisfaction of the customers.
Merger & acquisition of regional rural bank enhances profitability because a combination of two or more banks may result in more than average profitability, cost reduction and efficient utilization of resources.
This will happen because of:-
Economics of large scale
Operating economics
synergy
Merger & acquisition of regional rural banks diversifies the risk of the
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bank, particularly when it acquires those banks whose income streams are regular. Diversification implies growth through the combination of banks in unrelated business. It results in reduction of cost through substantial reduction of cyclicality of operations. The combination of management and other system strengthens capacity of combined bank to withstand the severity of the unforeseen economic factors which could otherwise be dangerous survival of the individual bank.
A merger may result in financial synergy and benefits for the bank in many ways:-
By eliminating financial constraints
By enhancing debt capacity. This is because a merger of two banks can bring stability of cash flows which reduces the risk of insolvency and enhances the capacity of the new entity to service a large amount of debt.
By lowering the financial costs. This is because due to financial stability, the merged firm is able to borrow of interest.
Limiting the severity of competition by increasing the bank’s market power. A merger can increase the market of merged bank. This improves the profitability of the bank due to economics of scale. The merged bank can exploit technological breakthroughs.
Merger & Acquisition of regional rural banks generally aims at achieving greater efficiency, diversification and market power. The synergistic gains by M&A activity accrue from more efficient management, economies of scale and scope, improved production techniques, combination of complimentary resources, redeployment of assets to more profitable uses, the exploitation of natural power or any number of value enhancing mechanisms that fall under the rubric of corporate synergistic.
Merger & Acquisition of regional rural banks is an indispensable strategic tool for expending product portfolio, entering new market, acquiring and building new generation organization with power and
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resources to compete on a global basis.
Merger & Acquisition aims at optimum utilization of all available resources, exploitation and underutilized assets and resources including human resources, eliminating or limiting the competition, achieving synergies, achieving economics of scale, forming a strong a human base, installing an integrated research platform, removing sickness, achieving savings in administrative costs, reducing tax burden and ultimately improving the profits.
Merger & Acquisition results in maximization of shareholders wealth by seeking gains in term of synergy, economics of scale, better financial and marketing advantages, diversification and reduced earnings volatility, improved inventory management, increase in domestic market share and also capture fast growing international abroad.
Merger & Acquisition of regional rural banks helps them become robust and attract capital from within and outside country.
Merger & Acquisition of regional rural banks results in systematic improvements in cost efficiency.
Consolidation is needed for customers also, intermediation costs in India remaining high because there is inefficiency in the system. Whether it is the small and medium enterprise segment or the mass-market retail segment or even the agricultural segment – all are under –served. We have sub-scale banks that cannot invest and serve their customers. So with the help of merger and acquisition, the customers are served in better ways.
(D) DISADVANTAGES OF MERGER AND ACQUISITION OF REGIONAL RURAL BANKS
Consolidation reduces the number of independent and locally owned banks. Independent and locally owned banks are important resource of funds for local businessmen and farmers. Consolidation reduces such number of independent and locally owned banks. So local
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businessmen and farmers will now find it difficult to obtain credit.
Some large banks become junior partners in new organization because some have been acquired by some banking companies.
Banks acquired large or distant bank will lend less to local borrowers because parent banks cannot make credit decisions as efficiently nor has other preferred uses for the bank funds.
Merger and Acquisition is an extremely stressful process for those involved. Job losses, new corporate culture and identity on account of merger and acquisition can create uncertainty, anxiety and resentment among the banks employees.
A bank’s productivity can drop between 25% to 50% while undergoing large scale change in the form of merger and acquisitions. Demoralization of the work force is the major reason for this.
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(A) OBJECTS OF THE STUDY
The chief objective of the study is to evaluate the effect of the merger and acquisition of regional rural banks. The area of the study is confined to Pre and Post merger and acquisition of eight regional rural banks in Uttar Pradesh. The researcher has made endeavor to study the problems in merger and acquisition of regional rural banks along with the suitable recommendations or suggestions to tackle the problem. The detailed objects of the study can be enumerated as below:
To describe problems of regional rural banks along with the idea for merger and acquisition of regional rural banks.
To discuss the methods of collection of data and analysis of data on merger and acquisition of regional rural banks.
To review performance of the regional rural banks under study incorporating profitability, deposit account, advances and non performing assets. The performance appraisal tends to deal with the data of regional rural banks pre- merger and post- merger. The researcher will also provide different types of deposits and advances accounts provided by the regional rural banks.
To describe the different customers of the banks along with the credit structure. The research will also throw a light on effect of merger on credit structure of regional rural banks.
To evaluate the role of information technology in banks. The research work also aims at discussing the status of information technology in regional rural banks pre – merger and post – merger period.
To identify and describe the problems with merger and acquisition of regional rural banks consisting of organizational problem, staff problem, customer problem, legal and other problems.
To provide an overview of amalgamated regional rural banks, their
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importance and pattern along with their future prospects. The research aims at discussion on development of amalgamated regional rural banks in U.P.
To highlight the finding of the detailed discussion based on the researcher’s work on evaluation of merger and acquisition of regional rural banks in Utter Pradesh. The researcher also aims at providing the possible suggestions/ recommendations for the problems of merger and acquisition of regional rural banks.
(B) PURPOSE OF THE STUDY
The purpose of the study is to highlight the impact of Merger and Acquisition of Regional Rural Banks on economy and the efficiency of operations in Utter Pradesh (U.P).
The Researcher has selected the state of U.P because in the recent past there were large number of Merger and Acquisition of Regional Rural Banks. Agriculture is the main occupation of 66 per cent of the population of the state. Regional Rural Banks were established with the sole objective to boost economic development of rural area. In rural areas, the main occupation of people consists of agriculture and allied activities. The main of objective of Regional Rural banks is to provide credit to farmers, artisans and small labourers. The growth of farmers, artisans and small labourers would, in turn, contribute towards the economic development of the region.
Uttar Pradesh has made rapid advance and has posted a consistently high rate of growth of GDP-in excess of 10 percent on an average over the past five years. The Eleventh Plan affords an opportunity of building on the base that has already been created, sustaining the tempo of growth that has been generated and making it a more inclusive process by spreading its benefits to all sections of the society and to all parts of the state equally.
To achieve all round development within the prescribed time frame, the financial support is required to be available as and when needed to the industrial/domestic customers along with the voluminous rural sections of
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the society. As has been said earlier in the study, around 70% of the populations in India belong to rural population. To achieve all round development in the state and country, the rural population is required to be uplifted in terms of financial and social structure. The financial status of the rural population can be uplifted to a larger extent by assistance from regional rural banks in the form of adequate and timely availability of funds by them as Regional Rural Banks are meant to provide finance to rural sector consisting of agricultural labourers, small farmers, artisans etc.
For the above purpose, the regional rural banks should be able to combat the need of people. The regional rural banks are required to possess necessary infrastructure and funds at their disposal.
However due to globalization, liberalization, newer technologies and more competitive environment, some regional rural banks are adversely affected. The large banks were damaging the very existence of regional rural banks. Hence, to sustains and develop the adversely affected regional rural banks, merger and acquisition of weaker banks with the stronger banks seems to be the best option at the moment as also emphasized by the financial analysts and experts on the matter.
The researcher tends to deal with the evaluation of merger and acquisition of regional rural banks to contribute towards the growth of the rural sector with the help of findings and suggestion on the matter.
Hence, the study “Evaluation of Pre and Post Merger and Acquisition of Regional Rural Banks in U.P” aims to serve the best purpose in the interest of Banks (along with rural sector) in U.P.
(C) HYPOTHESIS OF THE STUDY
Hypothesis means a mere assumption or some supposition to be proved or disproved.
Hypothesis may be defined as a proposition or a set of propositions set forth as an explanation for the occurrence of some specified group of phenomena either asserted merely as a provisional conjecture to guide
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some investigation or accepted as highly probable in the light of established facts. Quite often research hypothesis is a predictive statement, capable of being tested by scientific method that relates an independent variable to dependent variable.
In this study following are the hypotheses used by the researcher-
1) The position of the banks will be stronger after merger and acquisition.
2) The degree of the concentration in the banking sector has been declining in the reform period.
3) The performance of the banks may deteriorate initially during the adjustment provide, but the performance will improved later on.
4) The banks will perform batter after merger and acquisition and will thus contribute to an improvement in overall banking performance.
5) The deposits and advances of the merged banks will increase considerably and NPA will come down.
(D) RESEARCH METHODOLOGY
Researches in common parlance refer to a search for knowledge. One can also define a research as a scientific and systematic search for pertinent information on a specific topic. In the fact, research is an art of scientific investigation. The advanced learner’s Dictionary of current English lays down the meaning of research as a “a careful investigation or inquiry especially through search for new fact in any branch of knowledge.” Redman and Mory define research as a “systematized effort to gain new knowledge.” Some people consider research as a movement, a movement from known to unknown. It is actually a voyage of discovery. We all possess the vital instinct of inquisitiveness for. When an unknown situation confronts us, we wonder and inquisitiveness makes us probe and attain full and fuller understanding of the unknown. The inquisitiveness is the mother of all knowledge and the method, which a man employs for obtaining the knowledge of whatever the unknown, can
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be termed as research. Research is an academic activity and such as the term should be used in a technical sense.
According to Clifford Woody research comprises defining and redefining problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis.
Researcher is, thus, an original contribution to the existing stock of knowledge making for its advancement. It is in pursuit of truth with the help of study, observation, comparison and experiment. In short, the search of knowledge through objective and systematic method finding solution to a problem is research. The systematic approach concerning generalization and the formulation of a theory is also research. As such the term ‘research refers to the systematic method concerning of enunciating the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusions either in form of solutions(s) towards the concerned problem or in certain generalization for some theoretical formulation.
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are used by researcher in studying his/her research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology. Researcher not only need to know how to apply particular research techniques, but they also need to know which of these methods or techniques, are relevant and which are not, and what would they mean and indicate and why. Researchers also need to understand the assumption underlying various techniques and they need to know the criteria by which they can decide that certain problems and other will not. All this mean that it is necessary for the researcher to design his/her methodology for her problem as the same may differ from problem to problem.
For example, an architect, who designs a building, has to continuously
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evaluate the basis of his decisions, i.e. he has to evaluate why and on what basis he selects particular size, number and location of doors, windows and ventilators, uses particular materials and not others and the like.
Similarly, in research the scientist has to expose the research decisions to evaluation before they are implemented. He has to specify very clearly and precisely what decisions he selects and why he selects them so that they can be evaluated by others also.
From what has been stated above, we can say that research methodology has many dimensions and research methods do constitute a part of the research methodology. The scope of research methodology is wider than that of research methods. Thus, when we talk of research methodology we not only talk of research method but also consider the logic behind the methods we use in the context of our research study and explain why we are using a particular methods or techniques and why we are not using others so that research result are capable of being evaluated either by the researcher himself or by others.
The proposed study deals with the case study of Regional Rural Banks and their merger with the sponsor bank. The Regional Rural Banks selected for the purpose of the study are banks in Uttar Pradesh. The data shall be collected in two ways:
Primary Data
Primary data required for the study have been collected through personal visits, interviews and discussion with senior officials of the concern. The questionnaire has been prepared and has been analyzed after filling up by the relevant personnel.
Secondary Data
Secondary Data have been taken from the published annual reports of the industry, periodicals, newspaper, government publication and reports. The research has also taken embrace data as were available in the form of books, journals, articles and the relevant government publications.
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For proper analysis and interpretation of current assets management, techniques such as inventory analysis, ratio analysis, current assets analysis and keeping in mind the ideal current ratio; have been applied to achieve the objective of the study.
(E) REVIEW OF LITERATURE
A vast research had already been down on Regional Rural Banks and their different aspects namely, role of Regional Rural Banks for different sections of the society, performance appraisal, and case study on various Regional Rural Banks in different state and universities of the country. However, little emphasis has been paid on merger and amalgamation of Regional Rural Banks. The research work done on the Regional Rural Banks is as under:-
Role of Regional Rural Bank in Uttar Pradesh (a case study of Aligarh Gramin Bank)-By Sri Umesh Chandra Sharma.
Role of Regional Rural Bank in Economic upliftment of worker section of rural society with special reference to Farukhabad Gramin Bank-By Sri Ranjan Gau.
A critical Analysis of Role of Regional Rural Banks in India-A case Study of Haryana State- By Sri Virendra Kumar Agrawal.
Regional Rural Bank and Rural Development of Haryana-By Sunil Kumar.
Role of Nationalized Banks in Upliftment of Poor under Differential Rate of Interest Scheme-By Sri Manjeet Singh.
Rural Credit and working of lead Banks Scheme with special reference to District Yamuna Nagar-By Amit Bansal.
Role of U.P State Cooperative Land Development Bank in Providing Long term Finance to Agriculture Sector in U.P(with special reference to primary cooperative Agricultural and Rural Development Banks working in District Saharanpur)-By Sri Neeraj Sharma.
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Performance appraisal of Regional Rural Banks in Western U.P-By Deepak Kumar Garg.
Credit Management in Rural Area of Faridkot region of Punjab with special reference to Regional Rural Bank-By Sri. Raj Kumar Goel.
Role of NABARD Potential Linked Credit plans in Rural Development in District Panipat (Haryana)-By Naveen Goyal.
Role of Banking Sector in Providing Credit Facilities to Muslim in Muzaffarnagar District-By Ranchay Arora.
An Analytical Study of Role Ganga Yamuna Gramin Bank for Development of Agriculture and small scale Industries in Garhwal Region-By Anupam Jain.
Regional Rural Bank in Western U.P an analytical Study-By Pravin Kumar.
Role of Industrial Development Bank of India in the Industrial Finance of India-By Sri. Satyandra Kumar Jain.
Role of Bank Credit to Agriculture under district credit Plan-A case Study of District Bulandshahr- By Sri. Surendra Kumar Goel.
Role of State Bank of India in Agricultural Finance- By Sri. Jagdish Prasad Sighal.
Role of Nationalized Bank in the Promotion of Rural Industrialization in Uttar Pradesh with special reference to Ghaziabad District-By Sri Ambrish Kumar.
Role of Co-operative Banks in the Agriculture Economy of Punjab-By Sri Narendra Kumar Sahani.
Role of Rural Bank in the Economics and Industrial Development Western U.P with special reference to Ghaziabad district-By Sri Bhupendra Singh Tomar.
Role of Co-operative Bank in Agriculture Economy of Haryana-By
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Sri Ajmer Singh.
Role of Development Bank in the Financing of Large and Medium Industries in Uttar Pradesh-By Sri Pawan Kumar.
Organization Climate in Banking Industry-A case Study of Banks in Delhi-By Sri P.Satya Narayan.
District Credit Plans of the lead Bank in uplifting the poor in District Saharanpur-By Sri Ghan Shyam Das.
An Analytical Study of working efficiency of State Bank of India and its Subsidiaries-By Sri Akhil Mohan Kaushik.
An Appraisal of the performance of Export import Bank of India in Relation to India Export Finance-By Sri Suresh Ku.Gupta.
An Analytical Study of working Capital Requirement of SSI and Follow up by Commercial Banks-An Empirical Study-By Km.Raavi Jain.
(F) EFFECT OF THE STUDY
Effect of the study is that it will be helpful to strengthen the weak Regional Rural Banks which are affected by the globalization, newer technology, liberalization and increased competition and competitive business environment. Consolidation is the best option to survive in the competitive business environment.
Functioning of Regional Rural Banks is affected due to increased competition faced by them not from within the country but from outside the country. To survive in the market every bank should adopt newer technology in functioning.
Weak and small bank do not have much fund to adopt never technology and never method of doing banking business such as installation of computerization in branches expending their product mix and soon Regional Rural Bank is a rural financial institution for developing the rural economy by providing the credit to small and marginal framers,
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agricultural labourers, artisans and small entrepreneurs.
Closure of Regional Rural Banks will affects our frames because Regional Rural Banks provide finance to them. So Merger and Acquisition of Regional Rural Banks is the best option to survive in the market.
When some small and weak Regional Rural Banks are merged with big bank than does not lose their customer.
Merger and Acquisition may result in retention of the old customers of merged Regional Rural Banks. The business of resulting bank will also expend due to consolidation of one or more banks.
Moreover, with Merger and Acquisition economies of scale will be achieved. Merger and Acquisition may result from efficient management, economies of scale, more profitable use of asset, exploitation of market power. Merger and Acquisition are quite important form of external growth. Consolidation through Merger and Acquisition has become a major trend across the globe.
Almost all industries are adapting reorganization and consolidation because they face too much competition from within the country and from outside the country and business firm can survive only where specialized knowledge is king.
Merger and Acquisition activity has been predominant in sector like aluminium, cement, auto, banking and finance, computer software, pharmaceuticals, consumer goods, food products, agro-chemical, textile etc. Merger and Acquisition aims at achieving greater efficiency through enhanced economies, improved technology, diversified product mix and satisfied target audience.
Merger and Acquisition is an indispensable strategic tool for expending products portfolios, entering new market, accepting new technologies and building new generation organization with power and resources to compete global basis.
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So our study will have positive effective on society.
(G) Scope of the Study
In the present study a holistic attempt has been made to evaluate the merger and acquisition of Regional Rural Banks in Utter Pradesh. Both quantitative as well as qualitative variables have been considered for the study. The main emphasis of the investigation is placed on the merger and acquisition of Regional Rural Banks and their overall impact on different section affected by the said process. The present study would help the planners, policy makers and administrators in policy formulations and implementation.
The study on evaluation of merger and acquisition of regional rural banks has been presented in eight chapters. The chapter -1 of the study presents the background of Regional Rural Banks since their establishment, development in rural banking system. The chapter also deals with the concept of the merger and acquisition of regional rural banks along with the advantages and disadvantages of merger and acquisition of Regional Rural Banks. It is a sort introduction of rural banking system in general and Regional Rural Banks in particular along with introduction of concept of merger and acquisition of Regional Rural Banks.
The chapter - 3 is devoted the performance appraisal of Regional Rural Banks Pre-Merger and Post Merger. In this chapter the researcher collects the quantitative data on profitability, deposits, advances and non-performing assets of Regional Rural Banks before after merger. The data have also been discussed in this chapter. The research also discusses the nature and source of data collection, tools and techniques used for analysis of data for evaluating the results.
The chapter -4 discusses the different customers of the banks. The chapter also deals with Credit –Structure appraisal of Regional Rural Banks pre-merger and post-merger.
The chapter -5 summarizes the role of information technology in banks. The chapter aims at providing insight in role of information technology in Regional Rural Banks Pre-Merger and Post Merger. The researchers have
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also discussed the quantitative data on status of information technology pre-merger and status of information technology post-merger.
The chapter -6 of the study tends to highlight the problems with merger and acquisition of Regional Rural Banks. The problems pertaining to organization, staff, customer, legal and other areas are discussed in the chapter.
The chapter -7 is devoted to development of amalgamated Regional Rural Banks. The Chapter earmarks the importance of amalgamated Regional Rural Banks their development, pattern problems. The future prospects of amalgamated regional rural banks and development of regional rural banks in U.P. are also discussed in this chapter.
The last chapter summarizes the overall findings and brings out the suggestions to improve the process of merger and acquisition of Regional Rural Banks to facilitate the policy markers. In addition there are Appendices for supplementing the study.
(H) Technique of source of data
The present study is based on both the primary as well as secondary data. The researcher has resorted to both types of data in her study. Facts information or evidence systematically collected & analyzed have been presented for purpose of the drawing inference.
Statistical information collected, compiled & presented for the purpose of establishing appropriate relationship between variables may also be included in the data which, whether statistically processed cannot play a very vital role in the research & analysis of management problems, as they do in any other area of investigation. This is the rationale of data collection in research.
Both primary and secondary data have been used for the purpose of analysis. This first-hand information bearing on any research, which has been collected by the researcher or her agent or assistant, may be called primary data. These are original observation collected for the first time. Such data facilitate original investigations & observation leading to
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useful & valuable result. The result, which based on primary data, collected & without any bias, is more reliable & dependable, and is accurate & apt for specified investigation.
Once the primary data have been put to use, the original character of these data disappear & they become secondary. The data which are primary at one time are, therefore bound to become secondary at a later stage.
The secondary data, on the other hand, are based on second hand information. The data which have already been collected, compiled & present earlier by any agency may be used for the purpose of investigation.
Diagram 2.1 Source of Data
PRIMARY SOURCES
Questionnaire
Under this method, questionnaires are sent personally or by post to various informants with a request to answer the question and return the
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questionnaire. If the questionnaire is posted to informants, it is called a mail questionnaire. Sometimes questionnaires may also through E-mail depending upon the nature of study and availability of time and resources. After receiving the questionnaires the informants read the questions and record their responses in the space meant for the purpose on the questionnaire. It is desirable to send the questionnaire with self-addressed envelopes for quick and high rate of response.
Schedule
As discussed above, a Schedule is also a list of questions, which is used to collect the data from the field. This is generally filled in by the researcher or the enumerators. If the scope of the study is wide, then the researcher appoints people who are called enumerators for the purpose of collecting the data. The enumerators go the informants, ask them the questions from the schedule in the order they are listed and record the responses in the space meant for the answers in the schedule itself. For example, the population census all over the world is conducted through this method. The difference between questionnaire and schedule is that the former is filled in by the informants; the latter is filled in by researcher or enumerator.
Interview
Interview is the most powerful tools most widely used method for primary data collection in business research. In daily routine there are numerous interviews being telecasted on various communication medium like television, radio etc on various topics related to social, business, sports, budget etc.
Interview the word of C. William Emory, ‘personal interviewing is a two way purposeful conversation initiated by an interviewer to obtain information that is relevant to some research purpose’. Thus an interview is basically a meeting between two people to obtain the information related to the purposed study. The person who is interviewing is named as interviewer and the person who is interviewed is named as informant.
It is to be noted that, the research data/information collect through this
32
method is not a simple conversation between the investigator and the informant, but also the glances, gestures, facial expressions, level of speech etc. are all part of the process. Through this method, the researcher can collect varied types of data intensively and extensively.
Interviews can be classified as direct personal interviews and indirect personal interviews.
Under the techniques of direct personal interview, the investigator meets the informants (who come under the study) personally asks them questions pertaining to enquiry and collects the desired information. Thus, if a researcher intends to collect the data on impact of merger and acquisition of banks on employees, he would go to collect concerned banks, contact the employees, interview then and collect the required information. Indirect personal interview is another technique of interview method where it is not possible to collect data directly from the informants who come under the study. Under this method, the investigator contacts third parties or witness, who are closely associated with the persons/situations under study and are capable of providing necessary information. For example, an investigation regarding bribery pattern in an office can only be conducted through interacting with third parties. In such a case it is inevitable to get the desired information indirectly from other people who may know them.
Similarly, clues about the crimes are gathered by the CBI. Utmost care be exercised that these persons who are being questioned are fully aware of the facts of the problem under study, and are not motivated to give a twist to the facts.
Another techniques for data collection through this method can be structured and unstructured interviewing. In the Structured interview, set questions are asked and the responses are recorded in a standardized form. This is useful in large scale interviews where a number of investigators are assigned the job of interviewing. The researcher can minimize the bias of the interviewer. This technique is also named as formal interview.
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In Un- structured interview, the investigator may not have a set of questions but have only a number of key points around which to build the interview. Normally, such types of interviews are conducted in the case of an explorative survey where the researcher is not completely sure about the type of data he/she collect. It is also named as informal interview. Generally, this method is used as a supplementary method of data collection in conducting research in business areas.
Now- a-days, telephone or cell phone interviews are widely used to obtain the desired information for small surveys. For instance, interviewing credit card holders by banks about the level of services they are receiving. This technique is used in industrial surveys especially in development regions.
The researcher has collected the primary data through the personal interview method with the aid of Questionnaire. Researcher have met the officials at some regional rural banks and shared their view points on merger and acquisition of regional rural banks.
Observation
The Concise Oxford Dictionary defines observation as, ‘accurate watching and noting of phenomena as they occur in nature with regard to cause and effect or mutual relations’. Thus observation is not only a systematic watching but it also involves listening and reading, coupled with consideration of the seen phenomena. It involves three processes. They are: sensation, attention or concentration and perception. Under this method, the researcher collects information directly through the reports of others. It is process recording relevant information without asking anyone specific questions and in some cases, even without the knowledge of the respondents. This method of collection is highly effective in behavioral surveys. For instance, a study on behavior of visitors in trade fairs, observing the attitude of workers on the job, bargaining strategies of customers etc.
Observation can be participant observation or non- participant observation.
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In Participant Observation Method, the researcher joins in the daily life of informants or organizations, and observes how they behave.
In the Non- participant Observation method, the researcher will not join the informants or organizations but will watch from outside.
SOURCES OF SECONDARY DATA
Published sources / unpublished sources
Published source and unpublished source methods are the popular and common methods for collecting secondary data in business research.
a) Published Source
There are various national and international institutions, semi-official reports of various committees and commissions and private publications which collect and publish statistical data relating to industry, tread, commerce health etc. These publications of various organizations are useful source of secondary data.
These are as follows:
Government Publications:
Central and State Government publish current information along with statistical data on various subjects, quarterly and annually.
For example, Monthly Statistical Abstract, National Income Statistics, Economic Survey, Reports of National Council of applied Economic Research (NCEAR), Federation of Indian Chambers of Commerce and Industry (FICCI), Indian Council of Agricultural Research (ICAR), Central Statistical Organization (CSO), etc.
International Publications:
The United Nations Organization (UNO), International Labour Organization (ILO), International Monetary Fund (IMF), World bank, Asian Development Bank (ADB) etc., also publish relevant data and reports.
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Semi-official Publications:
Sami-official organizations like Corporations, District Boards and Panchayat etc. publish reports.
Committees and Commissions:
Several committees and commissions appointed by State and Central Government provide useful secondary data.
For example, gathering the information through the report of the 10 th
Financial Commissions or Fifth Pay Commissions etc. shall be construed as secondary data.
Private Publications:
Newspaper and journals publish the data on different fields of Economics, Commerce and Trade. For example, Economic Times, Financial Express etc. and Journal like Economist, Economic and Political Weekly, Indian Journal of Commerce, Journal of Industry and Trade, Business Today etc. Some of the research and financial institute also publish their reports annually like Indian Institute of Finance. In addition to this, reports prepared by research scholars, universities etc. also provide secondary source of information.
b) Unpublished Sources
It is not necessary that all the information/ data maintained by the institutions or individuals are available in published form. Certain research institutions, trade associations, universities, research scholars, privet firms, business institutions etc., do collect data but they normally do not publish it. We can get this information from their register, files etc.
c) Electronic Source
The secondary data is also available through electronic media (through Internet). Researcher can download data from such source by entering web sites like google.com; yahoo.com; mns.com; etc., and searching for the subject for which the information is needed. Researcher can also find
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secondary data on electronic source like CDs, and the online journals published by various organizations.
Researcher has collected the secondary data through published reports in magazines, journals, articles. Newspaper and other published as well as un-published source. Moreover, Internet has also served as an important tool for collection of data for the research work.
(H) Technique of Analysis of Data
The data, after collection, have been analyzed in accordance with the outline laid down for the purpose at the time of developing the research plan. This is essential for a scientific study and for ensuring that we have all relevant data for making contemplated comparisons and analysis.
Various tools like Chi-square test, variance analysis, standard deviation, central tendencies etc are available for data analysis but tabulation, classification, diagrams, Diagrams, central average and arithmetic mean have been used to analyze the data collected through primary and secondary means during the research work. The result has been duly incorporated in the work.
Analysis refers to the computation of certain measures along with the searching for patterns of relationship that exist among data-groups. Thus “in the process of analysis, relationship or differences supporting or conflicting with original or new hypothesis should be subjected to statistical tests of significance to determine with what validity data can be said to indicate any conclusions.”12
Analysis may be categorized as descriptive analysis and inferential analysis. Descriptive analysis-“Descriptive analysis is largely the study of distributions of one variable. This study provides us with profiles of companies, work group, persons, and other subjects on any of a multiple of characteristics such as size, composition, efficiency, preference etc.”13
This sort of analysis may be in respect of one variable or in respect of more than two variables.
Inferential analysis- “Inferential analysis is concerned with the various
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tests of significance for testing hypothesis in order to determine with what validity data can be said to indicate some conclusions or conclusions. It is also concerned with the estimation of population values. It is mainly on the basis of inferential analysis that the task of interpretation is performed.
The present thesis is a descriptive type of analysis.
(I) Tools used in collection of data
Various tools like newspaper, magazine, government publication, internet, books and articles are used in collection of data. Tabulation, classification, diagrams, Diagrams, central average and arithmetic mean have been used to analyze the data collected through primary and secondary means during the research work. The results have been duly incorporated in the work.
-------:0:-------
Appraisal of performance is widely used in society. Present evaluate their children, teachers evaluate their students & employers evaluate their employees. However, formal evaluation of employers is believed to have been adopted for the first time during the First World War. At the instance of Walter Dill Scott the U.S Army adopted the ‘Man to Man’ rating system for evaluation military personal. During 1920-1930 hourly paid workers in industrial units were evaluated on the basis of rating scores. This early appraisal system was called merit rating. In the early fifties, Performance appraisal techniques were implemented to evaluate the performance of professional & managerial personal. Since then tremendous changers have take place in the concept, technique & philosophy of employee appraisal.
Concept of performance appraisal
Performance appraisal is the process of assessing the performance progress of an employee on a given job 7 hit potential for future development. It consists of all formal procedures used in working organization to evaluate personalities, contributions & potential of employees. According to flippo “Performance appraisal is the systematic, periodic & an impartial rating of an employee’s excellence in matters pertaining to his present job & potential for a better job”.
It is the process of obtaining, analyzing & recording information about the relative worth of an employee. Performance appraisal & merit rating are used synonymously. But strictly speaking performance appraisal is a wider term than merit rating.
In merit rating the focus is on judging the caliber of an employee so as the to decide salary increment. It is designed primarily to cover rank & files personal.
On the other hand, performance appraisal focuses on the performance & future potential of the employee. Its aim is not simply to diced salary increment but to develop a rational basis for personal decisions. Merit rating measures what the person is whereas, performance appraisal measure what the person does.
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The main characteristics of performance appraisal are as follows:
1) Performance appraisal is a process consisting of steps. These steps are described latter.
2) It is the systematic examination of an employee’s strength & weaknesses in the terms of job.
3) Performance appraisal is a scientific or objective study. Formal procedures are used in this study. The same approach is adopted for all jobholders. So that the results are comparable.
It is an ongoing or continuous process wherein the evaluation is arranged periodically according to a definite plan.
4) The main purpose of performance appraisal is to secure information necessary for making objective & correct decision on employees.
Diagram 3.1 PERFORMANCE APPARISAL PROCESS
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Table 3.1: Indicator of Performance of RRBs in Various Financial Parameter over the Years
Particulars Year Ended 2002-
03
Year Ended2003-
04
Year Ended2004-
05
Year Ended2005-
06
Year Ended2006-
07
Year Ended2007-
08
Year Ended2008-
09
Year Ended2009-
10
No of RRBs 196 196 196 133 94 90 86 82
No of branches 14433 14446 14484 14489 14563 14790 15524 15475
Staff employed 69547 69249 68912 68629 68289 68005 68526 68729
Net profit Before tax
729 769 748 617 593 1027 1335 1884
Owned funds 4666 5438 6181 6647 7286 8733 10910 12670
Borrowings 4799 4595 5524 7303 9776 11494 12736 12690
Deposits 50098 56350 62143 71329 83144 99093 120189 145035
Loan-out-standings
22158 26114 32870 38520 47362 57568 66609 79157
Loan-issued 12641 15579 21082 25427 33043 38582 43367 48437
Investment 33063 36135 36762 41182 45666 48560 65910 68270
Gross NPA 3200 3299 2804 2890 3178 3566 2810 2738
(Source- Nabstats Quarterly Bulletin of Statistical Information)
The growth pattern in the selected financial indicators of the Regional Rural Banks is presented in the table 3.1.
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RRBs – Comparative Position of Key Performance Indicators
Source : RRBs Balance Sheets/Annual Report/Key Indicators/MRM returns
It could be seen from the table that only one variable in all the periods was found to be associated with negative growth i.e. Non-performing
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assets despite the decline in the number of Regional Rural Banks.
The Regional Rural Banks did make a laudable progress. A network of branches was necessary to extend banking facilities to the people at proper places and at the right time. The Regional Rural Banks had implemented the branch expansion programme systematically, covering the nook and corner of the operational area. Thus, the number of branches increased from 14433 in 2003 to 17856 in 2013.
The staff strength increased from 69547 in 2003 to 76118 in 2013 along with the bank’s massive branch expansion programme. Owned funds and the borrowings of the bank also showed a remarkable progress over the years. The same were increased from Rs 4666 crores and 4799 crores in 2003 to Rs 19303 crores and 38267 crores respectively in 2013.
In the area of deposit mobilization, the banks had made a remarkable progress as evident from the figures given in the above table. The deposit of the bank had increased from Rs 50098 crores in 2003 to Rs 211457 crores in 2013.
Loan issued and investment also showed increasing trend. It increased from Rs 12641 crores and 33063 crores in 2003 to Rs 102161 crores and Rs 110683 crores respectively in the year 2013.
The NPA of the banks showed fluctuation over the years. In the establishment period it increased from Rs 3200 to Rs 7906 crores. But in the development period NPA showed fluctuation. At the beginning there was increase then gradually the same has decreased.
(A) PROFITABILITY
Profitability refers to the amount of profit received relative to the amount invested, often measured by a rate of profit or rate of return on investment. Profitability is the ability to earn a profit. In other words, profits can be described as money a business makes after accounting for all the expenses. Regardless of whether the business is couple of kids running a lemonade stand or a publicly traded multinational company, consistently earning profit is every company’s goal.“Profit” comes from
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Latin meaning “to make progress”. The goal of Maximization of profits is considered to be a narrow outlook. Evidently when profit maximization becomes the basis of financial decisions of the corner, it ignores the interests of the community on the one hand and that of the government, workers and other concerned persons in the enterprise on the other hand.
Most of tinkers on the subject have come to the conclusion that the aim of an enterprise should be wealth Maximization and not the profit Maximization. Prof. Solomon of Stanford University has handled the issued very logically. He argues that it is useful to make a distinction between profit and ‘profitability’. Maximization of profits with a view to maximizing the wealth of shareholders is clearly an unreal motive. On the other hand, profitability Maximization with a view to using resources to yield economic values higher than the joint values of inputs required is a useful goal. Thus the proper goal of financial management is wealth maximization.
Bank profitability
At the time of establishment of Regional Rural Banks during 1975, it was presumed that these banks would provide credit service to weaker sections of the society relegating profitability aspect to the second place. Some researcher in the past had argued that performance of the Regional Rural Banks need not be assessed in terms of profitability since they were established with the motto of service.
However, for any financial institution to sustain in long run, an element of profit becomes inevitable and in view of the recent policy implications. Like all businesses, banks earn profit by earning more money than what they pay in expenses. The major portion of a bank’s profit comes from the fees that it charges for services and interest paid on its liabilities.
The major assets of a bank are its loans to individuals, businesses, and other organizations and the securities that it holds, while its major liabilities are its deposits and the money that it borrows, either from other banks or by selling commercial paper in the money market. The traditional measures of the profitability of any business are it returns on
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assets (ROA) and return on (ROE). Assets are used by businesses to generate income. Loans and securities are a bank’s assets and are used to provide most a bank’s income. However, to make loans and to buy securities, a bank must have money, which comes primaries from the bank’s owners in the form of bank capital, from depositors, and from money that it borrows from other banks or by selling debt securities-a banks buys assets primarily with funds obtained from its liabilities as can be seed from the following classic accounting equation:
Assets =Liabilities +Bank capital (Owners’ Equity)
However, not all assets can be used to ears income, because banks must have cash to satisfy cash withdrawal requests of customers. This vault cash is held in its vaults, in other places on its premises such as teller’s drawers, and inside its automated teller machines (ATMs), and, thus, earns no interest. Banks also have to keep funds in their accounts at the Federal Reserve that, before October, 2008, paid no interest. However, because of the credit crisis that was occurring at that time, the Federal Reserve started paying interest on banks’ reserves, although it is much less than market rates. A bank must also keep a separate account-loan loan reserves-to cover possible losses when borrowers are unable to pay back their loans. The money held in a loan loss reserve account cannot be counted as revenue, and, thus, does not contribute to profits.
Table 3.2: Profitability of RRBs over the yearPhysical Parameter
Yea
r20
02-0
3Y
ear
2003
-04
Yea
r20
04-0
5Y
ear
2005
-06
Yea
r20
06-0
7Y
ear
2007
-08
Yea
r20
08-0
9Y
ear
2009
-10
Yea
r20
10-1
1Y
ear
2011
-12
Yea
r20
12-1
3
No. of RRBs 196 196 196 133 94 90 86 82 82 82 64a) in profit 156 163 166 111 79 82 80 79 80 80 64b) in loss 40 33 30 22 15 8 6 3 2 2 0Profit before Tax (Rs in crores)
729 769 748 617 593 1027 1335 1884 2420 2449 3280
(Source-Nabstats Quarterly Bulletin of Statistical Information)
In this chapter research has tried to explain the pre and post merge
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profitability, deposit, advances and non-performing asset of various amalgamated regional rural banks which forms part of the study.
The banks which from part of the under study are-
Lucknow Kshetriya Gramin Bank
Baroda Eastern Gramin Bank
Baroda western Gramin Bank
Shreyas Gramin Bank
Uttar Pradesh Gramin Bank
Purvanchal Gramin Bank
Kashi Gomti Samyut Gramin Bank
The data used in this study is gathered from the annual reports of the banks for the period 2003 to 2013. The data was divided into pre- merger and post-merger period according to each individual banks completed merger data for the descriptive equality test analysis. If a merger was completed before the middle of the year, that year is considered as the starting period of the post-merger analysis. On the other hand, if it was completed after the middle of the year, than that year is considered as pre-merger period.
Lucknow Kshetriya Gramin Bank
Lucknow Kshetriya Gramin Bank (LKGB) the largest and strongest sponsored Regional Rural Bank (RRBs) of Allahabad Bank, came into existence on 1st March’ 2006 through amalgamation of three RRBs, namely, Bhagirath Gramin Bank (Sitapur district),Shravasti Gramin Bank (Bahraich and Shravasti districts) and Sarayu Gramin Bank (Lakhimpur-Kheri district) operating in eastern and central Uttar Pradesh with head office in Sitapur.
Baroda Eastern Uttar Pradesh Gramin Bank
The RRBs were established in India under RRB Act 1976 [23(1)]. Bank of Baroda had sponsored 19 RRBs in the country of which 7 RRBs were
46
in eastern Uttar Pradesh. During the period from 1976 to 2006 banking industry had undergone various changers and RRBs were no exception. Considering the need for structural in RRBs in view of dynamically changing economic scenario, Govt. of India vide its notification dt. 23.02.2006 amalgamated 7 RRBs of Eastern Uttar Pradesh namely Allahabad Kshetriya Gramin Bank, Sultanpur Kshetriya Gramin Bank, Faizabad Kshetriya Gramin Bank, Pratapgarh Kshetriya Gramin Bank, Kanpur Kshetriya Gramin Bank, Raebareli Kshetriya Gramin Bank, Fatehpur Kshetriya Gramin Bank, thus emerged a new corporate called Baroda Eastern Uttar Pradesh Gramin Bank with their Head Offices in Raebareli.
Baroda Western Uttar Pradesh
Baroda Western Uttar Pradesh sponsored Regional Rural Bank (RRBs) of Bank of Baroda, came into existence on 31-03-2006 through amalgamation of two RRBs. These two RRBs namely Bareilly Kshetriya Gramin Bank, Shahjahanpur Kshetriya. Thus emerged a new corporate called Baroda Western Uttar Pradesh Gramin Bank with their Head Offices in Bareilly.
After a short while from this restructuring, Govt. of India vide notification dated. 31st March 2008, let the two banks Baroda Eastern Uttar Pradesh Gramin Bank and Baroda Western Gramin Bank amalgamate to form a new entity called Baroda Uttar Pradesh Gramin Bank with its Head office in Rae Bareli.
Shreyas Gramin Bank
Shreyas Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Canara Bank i.e. Aligarh Gramin Bank, Etah Gramin Bank & Jamuna Gramin Bank vide Government of India Notification F.No.1/4/2006-RRB(i) dated 01/06/2006 with its head office in Aligarh.
Uttar Pradesh Gramin Bank
Uttar Pradesh Gramin Bank sponsored by Punjab National Bank one of the leading commercial Bank of India, came into existence by
47
amalgamation of three RRBs Viz Vidur Gramin Bank, Muzaffarnagar Kshetriya Gramin Bank and Hindon Gramin Bank on 21-12-2005 with its head office in Meerut.
On 30.11.2007 Uttar Pradesh Gramin Bank has been merged into Sarva U.P Gramin Bank under subsection (1) of section 23 A of the Regional Rural Bank Act, 1976 (21 of 1976) vide Govt. of India Notification.
Purvanchal Gramin Bank
Purvanchal, the north eastern region of Uttar Pradesh and the divine land of Lord Buddha, Kabir and Gorakhnath, witnessed an important event on 12th September 2005. Exercising the powers conferred by sub-section (1) of section 23A of RRB Act 1976, the Government of India, by its notification in the Official Gazette, for the first time provided for the amalgamation of two well established and good profit making RRB’s i.e. Gorakhpur Kshetriya Gramin Bank and Basti Gramin Bank, into one Purvanchal Gramin Bank.
Purvanchal Gramin Bank having its head office at Gorakhpur operates through the network of its 340 branches, in seven districts (Gorakhpur, Mahrajganj, Deoria, Kushinagar, Basti, Siddhathnagar and Sant Kabir Nagar) of Purvanchal. 2826 dedicated employees (as on 30.06.2013) are working hard for the nobles cause of rural upliftment to enable rural masses to become self dependent and capable of contributing toward national growth in consonance with National and State Level priorities.
Kashi Gomati Samyut Gramin Bank
Kashi Gomati Samyut Bank Gramin is formed by amalgamation of three UP based RRBs sponsored by Union bank i.e. Kashi Gramin Bank, Gomati Gramin Bank and Samyut Kshetriya Gramin Bank by GOI notification No.SO-1264(E) on 12th September’ 2005. The Head Office of the Bank is situated Varanasi.
48
Table 3.3: Pre and Post Merger Profitability Statement of Lucknow Kshetriya Gramin Bank
(Amt in Lacs)
Particulars PRE-MERGER PRE-MERGER
As on31.3.03
As on31.3.04
As on31.3.05
As on31.3.06
As on31.3.07
As on31.3.09
As on31.3.011
As on31.3.13
Net Profit 1287 1389 1537 1374 2574.39 250,3.08 302,6.99 3602.85
Annual Growth-Amount
104 102 148 -163 1200.39 -71.31 523.91 575.86
Annual Growth-Percent
12.62% 7.92% 10.65% -10.60% 87.36% -2.76% 20.93% 19.02%
(Source-finance Accounts of the Bank Obtained by Personal visit)Pre-Merger: Bhagirath GB, Sarayu GB and Shravasti GB.Post-Merger: Lucknow KGB
Diagram 3.2: Diagram showing Profitability
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.05
As on 31.3.07
As on 31.3.09
As on 31.3.11
As on 31.3.13
0
500
1000
1500
2000
2500
3000
3500
4000
Net Profit
Years
Profitability position of the Lucknow Kshetriya Gramin Bank in the pre-merger period had declined over the years. The growth in profitability rate declined from 12.62% in 2003 to -10.60% in 2006 despite in the year 2005 profitability position of the bank showed a marginal increase.
49
But due to acquiring new technology in the bank, profitability position of the Lucknow Kshetriya Gramin Bank in the post-merger period does not showed declining trend but experienced fluctuation over the years. In the first year after the merger, i.e. 2006-07 the profitability of the bank was grown considerably registered growth in profitable rate by 87.36% as compared to previous year i.e. 2005-06. Thereafter barring year 2008-0\98, where there was negative growth in profitability rate, the year 2010-11 and 2012-13 again registered growth in profitability rate.
Table 3.4: Pre and Post Merger of Profitability Statement of Baroda Eastern Gramin Bank
(Rs in lacs)
Particulars PRE-MERGER POST-MERGER
As on
31.3.03
As on
31.3.04
As on
31.3.05
As on
31.3.06
As on
31.3.07
As on
31.3.09
Net Profit 189 235 127 156.48 509.12 1459.89Annual Growth- Amount
136 46 -108 29.48 352.64 950.77
Annual Growth-Percent
41.84% 24.33% -45.95% 23.21% 225.35% 186.74%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Allahabad KGB, Fatehpur KGB, Kanpur KGB, Pratapgarh KGB, Raebareli KGB and Sultanpur KGB.Post-Merger: Baroda Eastern U.P G.B.
50
Diagram 3.3: Diagram Showing Profitability
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.03
0
200
400
600
800
1000
1200
1400
1600
Net ProfitYears
Profitability position of the Baroda Eastern Gramin Bank in the pre-merger period had declined over the years.
The growth in profitability rate declined from 41.84% in 2003 to 23.21% in 2006 despite in the year 2006 profitability position of the bank showed a marginal increase.
But due to dedicated efforts made by the bank staff and acquiring new technology in the bank, profitability position Baroda Eastern Gramin Bank in post-merger period showed marginal decline.
In the first year after merger, i.e. 2006-07 the profitability of the bank was grown considerably registered growth in profitable rate by 225.35% as compared to previous year i.e. 2005-06. Thereafter profitability rate of the bank declined to 186.74%.
Table 3.5: Pre and Post Merger Profitability Statement of Baroda Western Gramin Bank
(Rs in lacs)PRE-MERGER POST-MERGER
Particulars As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
51
Net Profit 275.23 325.13 359.32 387.21 449.36 279.55
Annual Growth- Amount
112.92 49.9 34.19 27.89 62.15 --169.81
Annual Growth- Percent
69.57% 18.13% 10.51% 7.76% 16.05% 37.78%
(Source- Financial Accounts of the Bank Obtained by Personal Visit) Pre-Merger: Bareli KGB and Shahjahanpur.Post-Merger: Baroda Western U.P G.B.
52
Diagram 3.4: Diagram Showing Profitability
As on 31.3.03 As on 31.3.04 As on 31.3.05 As on 31.3.06 As on 31.3.07 As on 31.3.030
50
100
150
200
250
300
350
400
450
500
Net Profit
Years
In the pre-merger period profitability position of the Baroda Western Gramin Bank declined over the years. Profitability position of the Baroda Western Gramin Bank declined from 69.57% in 2003 to 7.76% in 2006.
But due to declined efforts made by the bank staff and acquiring new technology in the bank, profitability position of the Baroda Western Gramin Bank in the post merger period improved and it does not showed declining trend. The rate of growth of profitability of the Baroda Western Gramin Bank was from 16.05% in 2007 to 37.78% in 2009.
Govt. of India vide notification dated. 31st March 2008, let the two banks Baroda Eastern Gramin Bank and Baroda Western Gramin Bank amalgamate of form a new entity called Baroda Uttar Pradesh Gramin Bank with its Head Office in Raebareli.
Table 3.6: Profitability Statement of Baroda Uttar Pradesh Gramin Bank
(Rs in Lacs)Particulars As on 31.3.11 As on 31.3.13
Profit 4218.50 142.96
Annual Growth (Amount) 2479.05 1924.46
Annual Growth (Percent) 142.51% 45.61%
53
(Source- Financial Accounts of the Bank Obtained by Personal Visit)
The combined profit of Baroda Eastern and Baroda Western Gramin Banks was Rs 1739.45 lacs as on 31 March 2008. After amalgamation Baroda Eastern and Baroda Western Gramin Banks the Profitability of the Baroda U.P Gramin Bank increased manifold. The profit increased from Rs 4218.50 lacs to Rs 6142.96 lacs in year 2011 and 2013 respectively.
Diagram 3.5: Diagram Showing Profitability
As on 31.3.11 As on 31.3.130
1000
2000
3000
4000
5000
6000
7000
Profit
Years
Table 3.7: Pre and Post Merger Profitability Statement of Shreyas Gramin Bank
(Amt in Lacs)
ParticularsPRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
As on 31.3.11
As on 31.3.13
Net Profit 1402.50 2163.59 1248.96 1460.75 1183.80 2550.60 3231.76 4900.36
Annual Growth-Amount
181.21 761.09 -914.63 211.79 276.95 1366.80 681.16 1668.6
Annual Growth-Percent
14.83% 54.26% -42.27% 16.95% -18.95% 115.45% 26.70% 51.63%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)
54
Pre-Merger: Aligarh GB, Etah GB and Jamuna GB.Post Merger: Shreyas GB.
Diagram 3.6: Diagram Showing Profitability
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
1000
2000
3000
4000
5000
6000
Net ProfitYears
In the pre-merger period Shreyas Gramin Bank has registered growth in net profit by 54.26% during the year 2003-04 as against growth in profitability of 14.83% achieved during the year 2002-03. However, during the year 2004-05 the bank has earned lower profit as compared to previous year. The profit during the year 2004-05 was reduced by 16.95% during the year 2005-06.
First year of post-merger period i.e. 2006-07 witnessed reduction in profit by 18.95%. However, during the profitability position of the bank improved every year. During the year 2007-08 the increase in profit was 115.45% as compare to profitability during the year 2006-07. The profit was further increased by 26.70% and 51.63% during the year 2010-11 and 2012-13 respectively as compared to respective previous year. Thus, the post-merger period the bank has continuously earned increase in profit.
55
Table 3.8: Pre and Post Merger Profitability Statement of Uttar Pradesh Gramin Bank
(Rs in Lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 30.11.08
As on 31.3.09
As on 31.3.10
As on 31.3.11
Net Profit 654 912 658 175.29 358.71 879.93 1648.09 2699.71 3897.32
Annual Growth-Amount
213 258 -254 -482.71 183.25 521.22 768.16 1051.62 1197.61
Annual Growth-Percent
23.33% 39.44% -27.85% -73.36% 104.63% 145.30% 87.29% 63.80% 44.36%
(Source-Financial Account of the Bank Obtained by Personal Visit)Pre-Merger: Hindon GB, Muzaffarnagar KGB and Vidur GB.Post-Merger: Uttar Pradesh Gramin Bank.
Diagram 3.7: Diagram Showing Profitability
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.09
As on 31.3.11
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Net ProfitYears
56
During the pre-merger period the profitability position of the Uttar Pradesh Gramin Bank declined over the year. The growth in profitability declined from 23.33% in 2003 to -73.63% in 2006 despite in the year 2004 profitability position of the Uttar Pradesh Gramin Bank showed a marginal increase.
After the merger due to sound banking policy the profitability position of the Uttar Pradesh Gramin Bank experienced fluctuation over the years. In the establishment period profitability position of the Uttar Pradesh Gramin Bank showed increasing trend the growth in profitability rate from 104.63% to 145.30%. But in the development period profitability position of the Uttar Pradesh Gramin Bank showed declining trend the growth in profitability rate from 87.29% to 63.80% and then it declined to 44.36%.
Table 3.9: Pre and Post Merger Profitability Statement of Purvanchal Gramin Bank
Particulars PRE-MERGER POST-MERGER
As on
31.3.03
As on
31.3.04
As on
31.3.05
As on
31.3.06
As on
31.3.08
As on
31.3.10
As on
31.3.12
As on
31.3.13
Net Profit 339 416 503 541 800 2170 3257 5083
Annual Growth-Amount
102 77 87 38 259 1910 1087 1826
Annual Growth-Percent
30.80% 22.71% 20.91% 7.55% 47.87% 238.75% 50.09% 56.06%
(Source-Financial Account of the Bank Obtained by Personal Visit)Pre-Merger: Basti G.B and Gorakhpur G.B.Post-Merger: Purvanchal Gramin Bank.
57
Diagram 3.8: Diagram Showing Profitability
As on 31.3..3
As on 31.3,05
As on 31.3.08
As on 31.3.12
0
1000
2000
3000
4000
5000
6000
Net ProfitYears
In the pre-merger period profitability position of the Purvanchal Gramin Bank declined over the years.
The profitability rate of the Purvanchal Gramin Bank declined to 20.91% during the year 2004-05 as compared to higher decline rate of 30.08% during the year 2002-03.
But due to deduction in operating expenses of the bank the profitability position of the Purvanchal Gramin Bank in the post-merger period increased from year to year.
The rate of growth of profit rose from 7.55% in 2006 to 56.06% in 2013. Except in the year 2008 Purvanchal Gramin Bank earned tremendous profit at the growth rate of 238.75% as compared tom previous year.
58
Table 3.10: Pre and Post Merger of Profitability Statement of Kashi Gomti Samyut Gramin Bank
(Amt in Lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Net Profit 2563.27 2663.37 2763.01 2189.17 2735.59 3194.52 4349.63 4009.53
Annual Growth-Amount
76.14 100.01 99.64 -573.84 546.42 458.93 1155.11 -340.1
Annual Growth-Percent
3.06% 3.09% 3.74% -210.76% 24.96% 16.77% 36.15% -7.81%
(Source-Financial Account of the Bank Obtained by Personal Visit)Pre-Merger: Kashi G.B, Gomti G.B and Samyut K.G.B.Post-Merger: Kashi Gomti Samyut G.B.
Diagram 3.9: Diagram Showing Profitability
As on 31.3.03
As on 31.3.05
As on 31.3.08
As on 31.3.12
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Net ProfitYears
59
Profitability position of the Kashi Gomti Samyut Gramin Bank showed a very unusual trend as compared to other banks. In the per-merger period profitability position of the Kashi Gomti Samyut Gramin Bank increased slightly. The rate of growth of the Kashi Gomti Samyut Gramin Bank from 3.06% in 2003 to 3.74% in 2005.
But in the post-merger period profitability position of the Kashi Gomti Samyut Gramin Bank does not showed any specific tread. In the establishment period profitability rate of the Kashi Gomti Samyut Gramin Bank first increase from 16.77% to 36.155 and than it declined to -7.81%.
(B) DEPOSIT ACCOUNT
Deposit may refer to Deposit account, the liability owned by the bank to its depositor. A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank’s books, and the resulting balance is recorded as a liability for the bank, and represents the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited.
Banks are also called custodians of public money. Basically, the money is accepted as deposit for safe keeping. But since the Banks used this money to earn interest from the people who need money, Banks share the part of this interest with the depositors. The quantum of interest depends upon the tenor – length of time for which the depositor wishes to keep the money with the Bank – and the ease of withdrawal. The thumb rule is lesser the interest. Exceptions, however, exist. Deposits are accepted from both resident (domestic) or non- resident Indian customers.
It is the business of the bankers to accept deposit so that he can lend it to others and earn interest. Depending upon the liquidity position of the market and the size of deposit, the earnings can vary and if the size of the deposit is big enough, it is advisable to shop around and get the best rate.
60
61
Diagram 3.10: Diagram Showing Deposit
Year 2002-
03
Year 2003-
04
Year 2004-
05
Year 2005-
06
Year 2006-
07
Year 2007-
08
Year 2008-
09
Year 2009-
10
Year 2010-
11
Year 2011-
12
Year 2012-
13
0
50000
100000
150000
200000
250000
Deposit
Deposit Accounts of Regional Rural Banks increased from Year to Year. Over a period of 8 years deposit increased from Rs 50098 Crores to Rs 145035 Crores. Following the amalgamation of Regional Rural Banks the number of Regional Rural Banks has been reduced from 196 to 82. The growth in deposit has been doubled to 20.07% during the year 2009-10 as against 10.7% during the year 2004-05 and it has been 13.5% in the year 2012-13.
Table 3.12: Pre and Post Merger Deposit account of Lucknow Kshetriya Gramin Bank (Rs in Crores)
Particulars PRE-MERGER POST-MERGER
As on
31.3.03
As on
31.3.04
As on
31.3.05
As on
31.3.06
As on
31.3.07
As on
31.3.09
As on
31.3.11
As on
31.3.13
Deposit 1425.35 1326.36 1299.73 1336.56 1423.07 1745.08 1895.83 2185.78
Annual Growth-Amount
22.96 -98.99 -26.62 36.83 86.51 222.01 250.75 289.95
Annual Growth-Percent
1.58% -6.94% -2% 2.83% 6.47% 15.60% 15.24% 15.29%
(Source-Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Bhagirth GB, Sarayu GB and Shravasti GBPost-Merger: Lucknow KGB
62
Diagram 3.11: Diagram Showing Deposit
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
500
1000
1500
2000
2500
Deposits
In the pre-merger period deposit account of the Lucknow Kshetriya Gramin Bank did not showed any specific trend rather it fluctuated over the years. Initially the growth in rate of deposit of the Lucknow Kshetriya Gramin Bank declined from 1.58% in 2003 to -6.94% in 2004 and then it rose to 2.83% in 2006.But in the post-merger period due to several new savings schemes offered by the bank deposit account of the Lucknow Kshetriya Gramin Bank increased over the years. The growth in deposit rate of the Lucknow Kshetriya Gramin Bank from 6.47% in 2007 to 15.29% in 2013.
Table 3.13: Pre and Post Merger Deposit Account of Baroda Eastern Gramin Bank
(Rs in lacs)Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Deposit 207019.32 248279.32 272942.13 298728.39 356252.78 416954.73
Annual Growth- Amount
74390.19 412260.05 24662.74 25786.26 57524.39 60701.95
Annual Growth-Percent
56.08% 19.93% 9.93% 9.44% 19.25% 17.03%
(Source- Financial Accounts of the Bank Obtained by Personal Visit) Pre-Merger: Allahabad KGB, Faizabad KGB, Fatehpur KGB, Kanpur KGB, Pratapgarh KGB, Raebareli KGB and Sultanpur KGB.Post-Merger: Baroda Eastern U.P GB.
63
Diagram 3.12: Diagram Showing Deposit
As on 31.3.03 As on 31.3.05 As on 31.3.070
50000
100000
150000
200000
250000
300000
350000
400000
450000
Deposit
Deposit account of Baroda Eastern Gramin Bank declined over years in the pre-merger period.
In the pre-merger period rate of deposit of the Baroda Eastern Gramin Bank declined from 56.08% in 2003 to 9.44% in 2006.
But due to resource mobilization campaigns deposit account of the Baroda Eastern Gramin Bank in the post-merger period slightly declined.
The rate of deposit of the Baroda Eastern Gramin Bank declined from 19.25% in 2007 to 17.03% in 2009.
Table 3.14: Pre and Post Merger Deposit Account of Baroda Western Gramin Bank
(Rs in lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Deposit 48329.17 49327.39 51327.54 55329.54 62632.75 72068.40
Annual Growth-Amount
4000.05 998.22 2000.15 4002 7303.21 9435.65
Annual Growth-Percent
9.02% 2.06% 4.05% 7.79% 13.19% 15.06%
(Source- Financial Accounts of the Bank Obtained by Personal Visit) Pre-Merger: Bareli KGB and Shahjahanpur KGB.Post-Merger: Baroda Western U.P GB.
64
Diagram 3.13: Diagram Showing Deposit
As on 31.3.03 As on 31.3.05 As on 31.3.070
10000
20000
30000
40000
50000
60000
70000
80000
Deposit
During the pre-merger period deposit account of Baroda Western Gramin Bank did not showed any specific trend although it fluctuated over the years. Deposit rate of the Baroda Western Gramin Bank first declined from 9.02% to 2.06% and then it rose from 4.05 to 7.79%.
But due to dedicated efforts made by the bank staff deposit account of the bank increased. Deposit rate of the Baroda Western Gramin Bank rose from 13.19% to 15.06%.
Table 3.15: Deposit of Baroda U.P Gramin Bank
(Rs in lacs)
Particulars As on 31.3.2011 As on 31.3.2013
Deposit 593839.56 714284.26
Annual Growth Amount 104816.42 120444.7
Annual Growth Percent 21.43% 20.28%(Source- Financial Accounts of the Bank Obtained by Personal Visit)
65
Diagram 3.14: Diagram Showing Deposit
As on 31.03.2011 As on 31.03.20130
100000
200000
300000
400000
500000
600000
700000
800000
Deposit
The combined Deposit of Baroda Eastern and Baroda Western Gramin Banks were Rs 489023.14 lacs as on 31 March 2013. After amalgamation Baroda Eastern and Baroda Western Gramin Banks the deposit of the Baroda U.P Gramin Banks increased manifold. The deposit increased from Rs 593839.56 lacs ti Rs 714284.26 lacs.
Table 3.16: Pre and Post Merger Deposit Account of Shreyas Gramin Bank
(Amt in Crores)PRE-MERGER POST-MERGER
Particulars As on31.3.03
As on31.3.04
As on31.3.05
As on31.3.06
As on31.3.07
As on31.3.09
As on31.3.11
As on31.3.13
Deposit 439.71 464.65 484.33 1090.37 1301.38 1601.61 1930.51 2455.41
Annual Growth –Amount
26.47 24.94 19.68 606.03 211.01 300.22 328.90 524.89
Annual Growth -Percent
6.40% 5.67% 4.23% 125.12% 19.35% 23.096% 26.53% 27.18%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Aligarh G.B, Etah G.B and Jamuna G.B.Post-Merger: Shreyas G.B.
66
Diagram 3.15: Diagram Showing Deposit
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
500
1000
1500
2000
2500
3000
Deposit
In the pre-merger period deposit account of the Shreyas Gramin Bank did not reflected any specific tread, although they fluctuated much from year to year. First the rate of deposit account of the bank declined f4om 6.40% in 2003 to 5.67%in 2004 as compared to the respective previous year. But after that it increased from4.23% in 2005 to 125.12% in 2006.
But in the post merger period due to several new schemes, expansion of area of operation, deposit account of the bank increased over the years. The deposit account has increased by 19.35% during the year 2006-07 as compared to the year 2005-06.
Thereafter the bank witnessed growth in deposit account every year. The growth rate in deposit account was reached to the level of 27.18% during the year 2012-13 as against growth rate of 26.53% during the year.
67
Table 3.17: Pre and Post Merger Deposit Account of Shreyas Gramin Bank
(Rs in Crores)
Particulars PRE-MERGER POST-MERGER
As on
31.3.03
As on
31.3.04
As on
31.3.05
As on
31.3.06
As on
31.3.07
As on
31.11.08
As on
31.3.09
As on
31.3.10
As on
31.3.11
Deposit 313.29 322.88 395.70 485.37 509.15 1594.27 1819.61 2085.79 2532.21
Annual Growth -Amount
17.89 9.59 72.82 89.67 104.77 1004.12 225.34 266.17 446.42
Annual Growth -Percent
15% 3.06% 22.55% 22.66% 21.58% 170.14 14.13% 14.62% 21.40%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Hindon GB, Muzaffarnagar KGB and Vidur GB.Post-Merger: Uttar Pradesh Gramin Bank.
Diagram 3.16: Diagram Showing Deposit
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.09
As on 31.3.11
0
500
1000
1500
2000
2500
3000
Deposit
During the pre-merger period the deposit account of the Uttar Pradesh Gramin Bank did not showed any specific trend although it fluctuated over the years. Initially the rate of deposit of the Uttar Pradesh Gramin
68
Bank declined from 15% to 3.05% and than it rose to 22.66%.
But in the post-merger period due to several new saving scheme made by the bank and resource mobilization campaign launched by the bank staff deposit account of the Uttar Pradesh Gramin bank increased over the years. The growth in deposit rate of the Uttar Pradesh Gramin bank from 21.58% in2007 to 21.40% in 2011 despite in the year 2007 deposit account of the Uttar Pradesh Gramin bank showed tremendous increase.
Table 3.18: Pre and Post Merger Deposit Account of Purvanchal Gramin Bank
(Rs in Lacs)PRE-MERGER POST-MERGER
Particulas As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Deposit 132421 146131 156422 168426 182488 212225 253012 298850
Annual Growth -Amount
2602 13710 10291 12004 14062 29737 40787 45838
Annual Growth -Percent
2.0% 10.35% 7.04% 7.67% 8.34% 16.29% 19.21% 18.11%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Basti G.B and Gorakhpur G.BPost-Merger: Purvanchal Gramin Bank.
69
Diagram 3.17: Diagram Showing Deposit
As on 31.3.03
As n 31.3.05
As on 31.3.08
As on 31.3.12
0
50000
100000
150000
200000
250000
300000
350000
Deposit
Deposit account of the Purvanchal Gramin Bank in the pre-merger period did not show any specific trend, although it fluctuated much from year to year. Initially the rate of deposits account increased from 2% in 2003 to 10.35% in 2004 and then it declined to 7.04% in 2005.
In the post merger period due to resource mobilization campaign launched by the bank staff and launching of new schemes deposit account of the bank increased over the years.
In the establishment period it rose from 7.76% in 2006 to 8.34% in
2008.During the development period it raised from 16.29% in 2010 to
18.11% in 2013.
In the year 2010 deposit account of the bank showed a remarkable
growth. It raised upto 19.21% as compared to the year 2011-12.
Table 3.19: Pre and Post Merger Deposit Account of Kashi Gomti Samyut Gramin Bank
(Amt in crores)
70
PRE-MERGER POST-MERGER
Particulars As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Deposit 1213.42 1375.31 2213.01 2429.82 2666.84 3058.60 3502.47 4070.03
Annual Growth -Amount
187.01 161.88 837.70 216.81 237.01 391.75 443.86 567.56
Annual Growth -Percent
18.22% 13.34% 60.91% 9.79% 9.75% 14.68% 14.51% 16.20%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre –Merger: Kashi G.B, Gomti G.B and Samyut K.G.B.Post –Merger: Kashi Gomti Samyut G.B.
71
Diagram 3.18: Diagram showing Deposit
As on 31.3.03
As on 31.3.05
As on 31.3.08
As on 31.3.12
As on 31.3.13
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Deposit
In the pre-merger period any specific trend was not witnessed by the Kashi Gomti Samyut Gramin Bank in its deposit account. First the rate of deposit account of Kashi Gomti Samyut Gramin Bank declined from 18.22% in 2003 to 13.34% in 2004 and than it rose to 60.91% in 2005 as compared to the pervious year.
But due to several new saving scheme and expansion of area of operation deposit account of the Kashi Gomti Samyut Gramin Bank in the post-merger period increased from year to year. The rate of growth of deposit account of the Kashi Gomti Samyut Gramin Bank rose from 9.79% in 2006 to 14.68% in 2010 and than it rose to 16.20% in 2013 as compared to the year 2011-12.
C) ADAVANCE- WORKING CAPITAL, TERM LIABILITIES
Advance is a credit facility granted by the banks. Banks grants advances for short-term purposes, such as purchase of good trade in and meeting other short-term trading liabilities as well as long term purposes, such as purchase of plant & machineries, fixed assets etc. Advance granted by commercial bank are highly beneficial to individuals, firms, companies and industrial concerns. Advance granted by banks help in meeting short-
72
term and long-term financial needs of business enterprises.
WORKING CAPTIAL
Working capital loans are short-term loans meant to increase a small business’ working capital which can then be used to fund daily operation or growth initiatives of the business. Working capital loans are granted from one year.
A working capital advance helps the business to continue its operation. The advance sum can be repaid through future receivables. Since the money is repaid through future receivables, there is on fixed repayment schedule.
TERM LOAN
Term loan are the long term loans to meet specific requirements. They typically carry fixed interest rate and monthly or quarterly repayment schedules and include a set maturity date. Term loans are most appropriate for established small/ large businesses that can leverage sound financial statement and substantial down payments to minimize monthly payments and total loan costs.
The best use of a term loan is for construction; major capital improvement; large capital investment, such as machinery; purchases of existing businesses.
Bankers tend to classify term loans into two categories: Intermediate- term loans:
These loans are commonly set for three years. These loans are generally repaid in monthly installments (sometimes with balloon payment) from a business’s cash flow. According to the American Bankers Association, repayment is often tied directly to the useful life of the asset being financed.
Long-term loans:
These loans are commonly set for more than three years. Most are
73
between three and 10 years, and some run for as long 20 years. Longs –term loans are collateralized by a business’s assets and typically require quarterly or monthly payments derived from profits or cash flow.
Table 3.20: ADVANCE OF REGIONAL RURAL BANKS OVER THE YEARS
ParticularsYear2002-
03
Year2003-
04
Year2004-
05
Year2005-
06
Year2006-
07
Year2007-
08
Year2008-
09
Year2009-
10
Year2010-
11
Year2011-
12
Year2012-
13
No. of RRBs 196 196 196 133 94 90 86 82 82 82 64
Advances 22158 26114 32870 38520 47326 57568 66609 79157 71724 82538 102161
Annual Growth Amount
2374 3956 6756 5650 8806 10242 9041 12548 -7433 10814 19623
Annual Growth Amount
15.4% 17.9% 25.9% 17.9% 22.9% 21.7% 15.7% 18.9% -9.4% 15.1% 23.7%
(Source-Nabstats Quarterly Bulletin of Statistical Information)
Diagram 3.19: Diagram showing Advances
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-130
20000
40000
60000
80000
100000
120000
Advance
Advance Account of the Regional Rural Banks increased from year to year. Over a period of 8 years advances increased from Rs 22158 crores to Rs 102161Crores. Following the amalgamation of Regional Rural
74
Banks the number of Regional Rural Banks has been reduced from 196 to 64.
Table 3.21: Pre and Post Merger Advances of Lucknow Kshetriya Gramin Bank
(Rs in Crores)
PRE-MERGER POST-MERGER
Particulars As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
As on 31.3.11
As on 31.3.13
Advances 213.01 283.04 376.03 457.02 535.66 603.58 718.53 831.63
Annual Growth –Amount
56.80 70.03 92.98 80.99 78.64 67.92 114.95 113.10
Annual Growth –Percent
36.36% 32.87% 32.85% 21.53% 17.20% 12.68% 19.14% 15.73%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Bhagirath GB, Sarayu GB and Sharavasti GB.Post –Merger: Lucknow KGB.
Diagram 3.20: Diagram Showing Advances
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
200
400
600
800
1000
1200
1400
Advances
In the pre-merger period advance account of the Lucknow Kshetriya Garmin Bank declined over the years.
75
The rate of decline of advance of the Lucknow Kshetriya Garmin Bank was 5.37% in 2003, which further declined to 3.21% in 2006.
But in post-merger period, advance account of the bank did not show any specific trend but they fluctuated significantly from year to year.
In the establishment period the rate of the advance account of the Lucknow Kshetriya Garmin Bank rose from 26.56% to 14.05%. But in the development period the rate of the advance account of the Lucknow Kshetriya Garmin Bank first rose to 17.10% and then in declined to 16.42%.
Table 3.22 Per and Post Merger Advance of Baroda Eastern Gramin Bank
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Advances 89432.19 93739.32 96232.39 98739.12 117947.83 134005.86
Annual Growth- Amount
6053.96 4307.13 2493.07 2506.63 19208.17 16058.03
Annual Growth- Percent
7.26% 4.81% 2.65% 2.60% 19.45% 13.61%
(Source- Financial accounts of the bank obtained by personal visit)Per –Merger: Allahabad KGB, Faizabad KGB, Fatehpur KGB, Kanpur KGB, Raebareli KGB and Sultanpur KGB.Post –Merger: Baroda Eastern U.P.G.B.
76
Diagram 3.21: Diagram Showing Advances
As on 31.3.03 As on 31.3.05 As on 31.3.070
20000
40000
60000
80000
100000
120000
140000
160000
Advances
During the pre-merger period advance account of the Baroda Eastern Garmin Bank declined over the years.
The rate of decline in advances of the Baroda Eastern Garmin Bank in the pre-merger period was 7.26% in 2003 and then slipped to 2.60% in 2006.
But due to dedicated efforts made by the bank staff advance account of the Baroda Eastern Garmin Bank in the post merger period declined slightly.
The rate of decline in advances of the Baroda Eastern Garmin Bank in the per-merger period from 19.45% in 2007 to 13.61% in 2009.
77
Table 3.23: Pre and Post Merger Advances of Baroda Western Garmin Bank
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Advances 19320.12 22340.32 23540.17 27540.12 36860.41 43500.87
Annual Growth-Amount
8992.8 3020.2 1199.85 3999.95 9320.29 6640.46
Annual Growth-Percent
87.07% 15.63% 5.37% 16.99% 33.84% 18.01%
(Source- Financial accounts of the bank obtained by personal visit)Pre –Merger: Bareli KGB and Shahjahanpur KGB.Post –Merge: Baroda Western U.P.G.B.
Diagram 3.22: Diagram Showing Advances
As on 31.3.03 As on 31.3.05 As on 31.3.070
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Advances
In the pre-merger period advance account of the Baroda Western Garmin Bank did not showed any specific trend but showed fluctuation over the year.
78
First the rate of advance account of the Baroda Western Garmin Bank showed declining and it declined from 87.07% to 15.63% and than the rate of advance account of the Baroda Western Garmin Bank showed upward trend and it rose from 5.37% to 16.99%.
But in the post-merger period advance account of the Baroda Western Garmin Bank did not showed fluctuation but showed declining trend and the rate of advance account of the Baroda Western Garmin Bank declined from 33.84% to 18.01%.
Table 3.24: advances of Baroda U.P Gramin Bank
(Rs in lacs)Particular As on 31.03.2009 As on 31.03.2011Advances 203911.89 222378.96Annual Growth Amount
26405.15 18467.07
Annual Growth Percent
14.87% 9.05%
(Source- Financial accounts of the bank obtained by personal visit)
The combined advance of Baroda Eastern and Baroda Western Gramin Banks were Rs177506.74 lacs as on 31 March 2008. After amalgamation Baroda Eastern and Baroda Western Garmin Bank the advance of the Baroda U.P. Gramin Bank increased manifold. The advances increased from Rs 203911.89 lacs to Rs 222378.96 lacs.
79
Diagram 3.23: Diagram showing Advances
As on 31.3.2009 As on 31.3.2011190000
195000
200000
205000
210000
215000
220000
225000
Advances
Advances
Table 3.25: Pre and Post Merger Advances of Shreyas Garmin Bank
(Amt in crores)
Particulars PRE-MERGER POST-MERGER
As on
31.3.03
As on
31.3.04
As on
31.3.05
As on
31.3.06
As on
31.3.07
As on
31.3.09
As on
31.3.11
As on
31.3.13
Advances 204.20 260.07 328.46 656.69 805.27 1026.42 1266.42 1460.76
Annual Growth –Amount
31.05 55.87 68.39 328.23 148.58 221.15 239.80 114.54
Annual Growth –Percent
17.93% 27.36% 26.29% 99.92% 22.62% 27.46% 23.36% 15.36%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre –Merger: Aligarh G.B, Eath G.B and Jamuna G.B.Post –Merger: Shreyas G.B.
80
Diagram 3.24: Diagram Showing Advances
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
200
400
600
800
1000
1200
1400
1600
Advances
The advance account of the Shreyas Garmin Bank showed a very different trend as compared to advance of other banks. The advance account of the bank during the pre-merger period showed increasing trend.
The advance account witnessed 27.36% increased during the year 2003-04 which further increased by 26.29% showing marginal decrease in rate of growth during 2004-05. The growth in the advances has further improved to 99.92% during the year 2005-06.
However, the post-merger period of the bank reflected growth in advances at fluctuated trend. The increase in advances during the year 2006-07 was 22.62% which further increased by 27.46% during the next year 2010-11 and 2012-13 the growth in advances was less as compared to previous year. The advances rose by only 23.36% and 15.36% during the year 2009-10 and 2012-13 respectively.
Table 3.26: Pre and Post Merger Advances of Uttar Pradesh Garmin Bank
(Rs in Crores)Particulars PRE-MERGER POST-MERGER
As on31.3.03
As on31.3.04
As on31.3.05
As on31.3.06
As on31.3.07
As on31.11.08
As on31.3.09
As on31.3.10
As on31.3.11
81
Advances 1136.34 136.24 178.89 244.97 347.50 796.85 964.18 1094.33 1312.65
Annual Growth -Amount
20.51 19.90 42.65 66.08 102.53 449.35 167.33 130.14 218.32
Annual Growth -Percent
19.24% 17.10% 31.30% 36.94% 41.85% 129.30% 20.99% 13.49% 19.95%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Hindon GB, Muzaffarnagar KGB and Vidur GB.Post-Merger: Uttar Pradesh Gramin Bank.
Diagram 3.25: Diagram Showing Advances
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.09
As on 31.3.11
0
200
400
600
800
1000
1200
1400
Advances
The advance account of the Uttar Pradesh Gramin Bank showed a very unusual trend as compared to advance of other banks. The advance accounts of the bank during the pre-merger period showed increasing trend. The advance account witnessed 31.30% increased during the year 2004-05 which further increased by 36.94% showing marginal decrease in rate of growth during 2003-04.
However, the post-merger period of the bank reflected growth in advances at fluctuated trend. In the establishment period advance account of the bank showed increasing trend but in the development period advance account of the bank showed declining and increasing trend. In the establishment period advance account of the rose from 41.85% to 129.30% and in the development period advance account of the bank first decline from 20.99% to 13.49% and than rise to 19.25%.
82
Table 3.27: Pre and Post Merger Advances of Purvanchal Gramin bank
(Rs in Lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Advances 38753 49752 59733 64672 73126 83735 97950 124688
Annual Growth -Amount
14991 10999 9981 4939 8454 10609 14215 26738
Annual Growth -Percent
63.08% 28.38% 20.06% 8.26% 13.07% 14.50% 16.97% 27.29%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Basti G.B and Gorakhpur G.BPost-Merger: Purvanchal Gramin Bank.
83
Diagram 3.26: Diagram Showing Advances
As on 31.3.03
As on 31.3.05
As on 31.3.08
As on 31.3.12
0
20000
40000
60000
80000
100000
120000
140000
Advances
Advances
Advance account of the Purvanchal Gramin Bank had declined from year to year in the pre-merger period.
The rate of advance account of the Purvanchal Gramin Bank declined from 63.08% in 2003 to 28.38% in 2004 and then it declined to 20.06% as compared to previous year.
But due to massive credit deployment programme advance account of the Purvanchal Gramin Bank increased from year to year in the post–merger period.
The rate of advance of the Purvanchal Gramin Bank rose from 8.26% in 2006 to 14.50% in 2010 and then it rose to 27.29% in 2013.
84
Table 3.28: Pre and Post Merger Advances of Kashi Gomti Samyut Gramin Bank
(Amt in crores)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Advances 487.53 597.23 640.17 772.46 843.27 943.32 1050.48 1164.47
Annual Growth -Amount
90.56 109.70 42.94 132.29 70.81 100.05 107.16 113.99
Annual Growth -Percent
22.81% 22.50% 7.81% 20.56% 9.16% 11.86% 11.35% 10.85%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre –Merger: Kashi G.B, Gomti G.B and Samyut K.G.B.Post –Merger: Kashi Gomti Samyut G.B.
Diagram 3.27: Diagram Showing Advances
As on 31.3.03
As on 31.3.05
As on 31.3.08
As no 31.3.12
0
200
400
600
800
1000
1200
1400
Advances
During the pre-merger period of the Kashi Gomti Samyut Garmin Bank advance account declined over the years.
The rate of advance account of the Kashi Gomti Samyut Garmin Bank declined from 22.81% in 2003 to 7.18% in 2005.
85
But in the post-merge period advance account of the Kashi Gomti Samyut Garmin Bank did not show any specific trend although they fluctuated widely year to year.
In the establishment period rate of advance account of the Kashi Gomti Samyut Garmin Bank declined from 20.66% to 9.16% but in the development period the rate of advance account of the Kashi Gomti Samyut Garmin Bank rose to 11.35%.
(D) NON PERFORMING ASSETS (NPA)
NPA (Non Performing Assets) is defined as an advance for which interest or repayment of principal or both remain out standing for a period of more than two quarters.
The level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resource.
Non Performing Assets means an asset or account of borrower, which has been classified by a bank or financial institution as sub standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by The Reserve Bank of India.
Thirty days past due
An amount due under any credit facility is treated as “past due” when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement system, recovery climate, upgradation of technology in the banking system, etc., it was declined to dispend with ‘past due’ concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shall be an advance where:
Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan,
The account remains ‘out of order’ for a period of more than 180 days, in respect of an overdraft/ cash Credit (OD/CC),
86
The bill remains overdue for a period of more than 180 days in the case of bill purchased and discounted,
Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agriculture purpose, and
Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.
Many institutions now try to sell their non-performing assets through companies like KIM-LAR, INC. which helps facilitate the sale of these bundled portfolios. The non-performing assets often include mortgage loans, car loans, credit card debt and installment loans.
Ninety days overdue
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the ’90 days overdue’ norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect form March 31, 2004, a non-performing assets (NPA) shell is a loan or an advance where:
Interest and/ or installment of principal remains overdue for a period of more than 90 days in respect of a Term Loan,
The account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft/ cash Credit (OD/CC),
The bill remains overdue for a period of more than 90 days in the case of bill purchased and discounted,
Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agriculture purpose, and
Out of order
An account treated as ‘out of order’ if the outstanding balance remains
87
continuously in excess of the sanctioned limit/ drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned limit/ drawing power, but there are no credits continuously for 6 months as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, this account should be treated as ‘out of order’.
Table 3.29: Changes in Gross NPA of Regional Rural Bank Over the years
ParticularsYear2002-
03
Year2003-
04
Year2004-
05
Year2005-
06
Year2006-
07
Year2007-
08
Year2008-
09
Year2009-
10
Year2010-
11
Year2011-
12
Year2012-
13
No. of RRBs 196 196 196 133 94 90 86 82 82 82 64
Gross-NPA 3200 3299 2804 2890 3178 3566 2810 2738 3712 5859 7907
Annual Growth Amount
67 99 -495 86 288 388 -756 -72 974 2147 2048
Annual Growth Amount
8% 3.09%
-15% 3.06%
9.96%
12.20%
1.20%
-2.56%
35.5%
57.8%
34.9%
(Source-Nabstats Quarterly Bulletin of Statistical Information)
Diagram 3.28: Diagram Showing NPA
Year 2002-03
Year 2003-04
Year 2004-05
Year 2005-06
Year 2006-07
Year 2007-08
Year 2008-09
Year 2009-10
Year 2010-11
Year 2011-12
Year 2012-13
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Gross- NPA
88
The level of NPA of Regional Rural Bank has been Fluctuation over the years. The annual growth percentage of NPAs was reflecting increase from the year 2005-06 (3.06%) to 2007-08 (12.20%). However, during the year 2008-09, the NPAs level decreased significantly by 21.20% and than further decreased by 2.56% during the year 2009-10 and then it satarts increasing at a significant rate and it was 34.9 % increase in year 2012-13.
Table 3.30: Pre and Post Merger Non Performing Assets of Lucknow Kshetriya Gramin Bank
(Rs in Lacs)
Particulars PRE-MERGER PRE-MERGER
As on31.3.03
As on31.3.04
As on31.3.05
As on31.3.06
As on31.3.07
As on31.3.09
As on31.3.11
As on31.3.13
Gross NPA 2857 2987 3201 3309 3597.32 3522.32 2057.84 1377.44Annual Growth-Amount
132 130 214 108 270.18 -74.86 -1464.48 -680.4
Annual Growth-Percent
4.84% 4.55% 7.16% 3.37% 8.16% -2.08% -41.57% -33.06%
(Source-finance Accounts of the Bank Obtained by Personal visit)Pre–Merge: Bhagirath GB, Samyut GB and Shravasti GB.Post–Merger: Lucknow KGB.
Diagram 3.29: Diagram Showing NPA
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
500
1000
1500
2000
2500
3000
3500
4000
Gross NPA
89
Non-performing asset of the Lucknow Kshetriya Gramin Bank in the per- merger period increased from year to year. The level of Non-performing asset of the Lucknow Kshetriya Gramin Bank has increased from Rs 2857 lacs in 2003 to Rs 3309 Lacs in 2006.
But in the post-merger period the bank made all out effort to minimize incidence of Non-performing asset, since these assets do not earn any income. So in the post-merger period the Non-performing asset of the Lucknow Kshetriya Gramin Bank declined over the years. The level of Non-performing asset of the Lucknow Kshetriya Gramin Bank declined from Rs 3597.18 lacs as on 31-3-2007 to Rs 1377.44 lacs as on 31-3-2013.
Table 3.31: Pre and Post Merger Non Performing Assets of Baroda Eastern Gramin Bank
(Rs in lacs)
Particulars PRE-MERGER PRE-MERGER
As on 31.3.03
As on31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Gross NPA 20298.31 21197.19 23239.12 21397.19 19293.01 24738.21
Annual Growth-Amount
900.19 898.88 2041.93 -1841.93 -2104.18 5445.2
Annual Growth-Percent
4.64% 4.42% 9.93% -7.92% -9.83% 28.22%
(Source-finance Accounts of the Bank Obtained by Personal visit)Pre–Merge: Allahabad KGB, Faizabad KGB, Fatehpur KGB, Kanpur KGB, Pratapgarh KGB, Raebareli KGB and Sultanpur KGB.Post-Merger: Baroda Eastern U.P G.B.
90
Diagram 3.30: Diagram Showing NPA
As on 31.3.03 AS on 31.3.05 As on 31.3.070
5000
10000
15000
20000
25000
30000
Gross NPA
Non-performing asset of the Baroda Eastern Gramin Bank in the per- merger period did not showed any specific tread although it showed fluctuation over the years.
First the level of Non-performing asset of the Baroda Eastern Gramin Bank increased from Rs 20298.31 lacs in 2003 to Rs 21197.19 lacs in 2004 and than it rose Rs 23239.12 lacs in 20095 and than the Non-performing asset of the Baroda Eastern Gramin Bank declined to Rs 21397.19 lacs in 2006.
But in the post-merger period the Non-performing asset of the Baroda Eastern Gramin Bank did not showed fluctuation but it showed increasing trend. The level of Non-performing asset of the Baroda Eastern Gramin Bank increased from Rs 293.01 lacs to Rs 24738.21 lacs.
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Table 3.32: Pre and Post Merger Non Performing Assets of Baroda Eastern Gramin Bank
(Rs in lacs)
Particulars PRE-MERGER PRE-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.07
As on 31.3.09
Gross NPA
2231.13 2431.12 2637.13 2738.23 1564.41 3126.24
Annual Growth-Amount
219.12 199.99 206.01 101.1 -1173.82 1561.83
Annual Growth-Percent
10.89% 8.96% 8.47% 3.83% -42.86% 99.83%
(Source-finance Accounts of the Bank Obtained by Personal visit)Pre-Merger: Bareli KGB and Shahjahanpur KGB.Post-Merger: Baroda Western U.P G.B.
Diagram 3.31: Diagram Showing NPA
As on 31.3.03 As on 31.3.05 As on 31.3.070
500
1000
1500
2000
2500
3000
3500
Gross NPA
Non-performing asset of the Baroda Western Gramin Bank during the pre-merger period increased from year to year.
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The level of Non-performing asset of the Baroda Western Gramin Bank increased from Rs 2231.13 lacs in 2003 to Rs 2738.23 lacs in 2006.
The Non performing asset of Baroda Western Gramin Bank during the post-merger period also increased from year to year. The level of Non performing asset of Baroda Western Gramin Bank increased from Rs 1564.41 lacs in 2007 to Rs 3126.24 lacs in 2009.
Table 3.33: Non-Performing Assets of Baroda U.P Gramin Bank (Rs in lacs)
Particulars As on31.3.2011
As on31.3.2013
Gross NPA 9816.60 10615.70
Annual Growth Amount -18047.85 799.1
Annual Growth Percent -64.77% 8.14%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)
The combined NPA of Baroda Eastern and Baroda Western Gramin Banks were Rs 27864.45 lacs as on 31 March 2008. After amalgamation Baroda Eastern and Baroda Western Gramin Banks the NPA of the Baroda U.P Gramin Bank increased manifold. The level of NPA increased from Rs 9816.60 lacs to Rs 10615.70 lacs.
Diagram 3.32: Diagram Showing NPA
As on 31.03.2011 as on 31.03.20139400
9600
9800
10000
10200
10400
10600
10800
Gross NPA
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Table 3.34: Pre and Post Merger Non Performing Assets of Shreyas Gramin Bank
(Amt in Lacs)
Particulars PRE-MERGER PRE-MERGERAs on
31.3.03As on
31.3.04As on
31.3.05As on
31.3.06As on
31.3.07As on
31.3.09As on
31.3.11As on
31.3.13Gross NPA
2999.39 3032.68 2191.24 4303.17 4200.88 3685.63 3636.34 2992.84
Annual Growth-Amount
151.89 33.29 -841.44 2111.93 -102.29 -515.25 -49.29 -643.5
Annual Growth-Percent
5.33% 1.10% -252.92% 96.38% -2.37% 12.26% -1.33% 17.69%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Aligarh GB, Etah GB and Jamuna GBPost-Merger: Shreyas GB
Diagram 3.33: Diagram Showing NPA
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Gross NPA
In the pre-merger period Non-performing asset of the Shreyas Gramin Bank did not show any specific trend although it fluctuated over the years.
The Non-performing asset level as on 31-03-2003 was 2999.39 lacs which further increased to Rs 3032.68 lacs 31-03-2004. The level of Non-performing asset has improved to Rs 2191.24 as on lacs 31-03-2005, but the same has deteriorated and reached at the level of Rs 4303.17 lacs as on 31-03-2006.
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But in pre-merger period Non-performing asset of the Shreyas Gramin Bank declined every year. The decline was seen as major relief for the bank because Non-performing asset do not earn any income. The level of Non-performing asset has declined from Rs 4200.88 lacs as on 31-03-2007 to Rs 2992.84 lacs as on 31-03-2013.
Table 3.35: Pre and Post Merger Non Performing Assets of Uttar Pradesh Gramin Bank
(Rs in Lacs)
Particulars PRE-MERGER POST-MERGER
As on31.3.03
As on31.3.04
As on31.3.05
As on31.3.06
As on31.3.07
As on31.11.07
As on31.3.09
As on31.3.11
As on31.3.13
Gross NPA 142.39 211.43 262.53 395.65 274.99 1603.10 1749.28 1393.14 3581.54
Annual Growth -Amount
52.97 69.04 51.1 133.12 -120.56 1328.11 146.18 -356.14 2188
Annual Growth -Percent
44.93% 48.48% 24.16% 50.70% -30.49% 482.96% 9.11% -20.35% 157.08%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Hindon GB, Muzaffarnagar KGB and Vidur GB.Post-Merger: Uttar Pradesh Gramin Bank.
Diagram 3.34: Diagra3m Showing NPA
As on 31.3.03
As on 31.3.05
As on 31.3.07
As on 31.3.11
As on 31.3.13
0
500
1000
1500
2000
2500
3000
3500
4000
Gross NPA
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The Non-performing asset of the Uttar Pradesh Gramin Bank during the pre-merger period had increased from year to year. The level of the Non-performing asset of the Uttar Pradesh Gramin Bank increased from Rs 142.39 lacs in 2003 to Rs 395.65 lacs in 2006.
So the Uttar Pradesh Gramin Bank has made all efforts to minimize the incidence of the Non-performing asset since these assets do not earn any income. Therefore in the post-merger period Non-performing asset of the Uttar Pradesh Gramin Bank did not showed increasing trend although it showed fluctuation over the years. The level of the Non-performing asset of the Uttar Pradesh Gramin Bank in the establishment period showed decreasing trend and it declined from Rs 274.99 lacs to Rs 1603.10 lacs. But in the development period the level of the Non-performing asset of the Uttar Pradesh Gramin Bank showed increasing trend and rise from Rs 3193.14 lacs to Rs 3581.54 lacs.
Table 3.36: Pre and Post Merger NPA of Purvanchal Gramin bank
(Rs in Lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Gross NPA
4583 5592 6055 7445 10040 9981 6840 6488
Annual Growth -Amount
645 1009 463 1390 2595 -59 -3141 -352
Annual Growth -Percent
16.19% 22.01% 8.27% 22.95% 34.85% -0.58% -31.46% -5.14%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre-Merger: Basti G.B and Gorakhpur G.BPost-Merger: Purvanchal Gramin Bank.
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Diagram 3.35: Diagram Showing NPA
As on 31.3.03
As on 31.3.05
As on 31.3.08
As on 31.3.12
0
2000
4000
6000
8000
10000
12000
Gross NPA
The Non-performing asset of the Purvanchal Gramin Bank during the pre-merger period had increased from year to year. The level of the Non-performing asset of the Purvanchal Gramin Bank increased from Rs 4583 lacs in 2003 to Rs 6055 lacs in 2005.
So the Purvanchal Gramin Bank has made all efforts to minimize the incidence of the Non-performing asset since these assets do not earn any income. Therefore in the post-merger period Non-performing asset of the Purvanchal Gramin Bank did not showed increasing trend although it showed fluctuation over the years.
The level of the Non-performing asset of the Purvanchal Gramin Bank in the establishment period showed increasing trend and it increased from Rs 7445 lacs to Rs 10040 lacs. But in the development period the level of the Non-performing asset of the Purvanchal Gramin Bank showed decreasing trend and decline from Rs 9981 lacs to Rs 6840 lacs and then it declined to Rs 6488 lacs.
97
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Table 3.37: Pre and Post Merger NPA of Kashi Gomti Samyut Gramin Bank
(Amt in lacs)
Particulars PRE-MERGER POST-MERGER
As on 31.3.03
As on 31.3.04
As on 31.3.05
As on 31.3.06
As on 31.3.08
As on 31.3.10
As on 31.3.12
As on 31.3.13
Gross NPA 6083.27 7087.39 9080.97 5094.03 3969.21 4328.86 3575.03 6009.28
Annual Growth -Amount
991.14 1004.12 1993.58 -3986.67 -1124.82 359.65 -753.83 2434.25
Annual Growth -Percent
19.46% 16.50% 28.12% -43.90% -22.08% 9.06% -17.41% 68.09%
(Source- Financial Accounts of the Bank Obtained by Personal Visit)Pre –Merger: Kashi G.B, Gomti G.B and Samyut K.G.B.Post –Merger: Kashi Gomti Samyut G.B.
Diagram 3.36: Diagram Showing NPA
As on 31.3.03
As on 31.3.05
As on 31.3.08
As on 31.3.12
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Gross NPA
The Non-performing asset of the Kashi Gomti Samyut Gramin Bank in the pre-merger period had increased from year to year. The level of the Non-performing asset of the Kashi Gomti Samyut Gramin Bank increased from Rs 6083 lacs in 2003 to Rs 9080 lacs in 2005.
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So the Kashi Gomti Samyut Gramin Bank has made all efforts to minimize the incidence of the Non-performing asset since these assets do not earn any income. Therefore in the post-merger period Non-performing asset of the Kashi Gomti Samyut Gramin Bank did not showed increasing trend although it showed fluctuation over the years. The level of the Non-performing asset of the Kashi Gomti Samyut Gramin Bank in the establishment period showed decreasing trend and it decreased from Rs 5090.03 lacs to Rs 3969.21 lacs. But in the development period the level of the Non-performing asset of the Kashi Gomti Samyut Gramin Bank showed increasing trend and it rise from Rs 4328.86 lacs to Rs 3575.03 lacs and then it rise to Rs 6009.28 lacs.
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CREDIT STRUCTURE APPRAISAL
Credit is a critical factor in development of agriculture and rural sector as it enables investment in capital formation and technological upgradation. The word ‘credit’ has originated from the Latin word, ‘credo’ which means ‘I believe’. Credit is a matter of faith, the person faith in person and no less than the security offered.
In the words of Cole: “Credit is purchasing power not derived from income; but created by financial institutions either as on offset to idle incomes held by depositors in the banks, or as net addition to the total amount of purchasing power”.
For a modern economy, credit is inevitable. In the advanced countries of the west, even for the purchase of consumer goods, credit is obtained by people and it is provided without much inconvenience to them by the banks. In fact, no economy can function without credit; all economic transactions are settled by means of credit instruments to day. It is the very life-blood of the modern business and commercial system. One can know the importance of credit for the modern economic system by knowing the ways in which it serves the economy.
We very briefly refer to these.
Credit provides the most convenient and economic medium of exchange by either supplementing or superseding other forms of money.
It facilities the production and exchange of goods and services.
It increases the level of aggregate demand and level of consumption in the country.
It promoted thrift by providing productive channels of employment for savings in the economy.
It facilities development of large scale enterprises and specialized
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industries.
It facilities the optimal use of the capital resources of the economy.
It influences the level of output and employment in the economy by influencing the rate of capital formation in the country, especially during the period of trade cycle.
It provides the financial system with powers to render useful services to the economy in providing a system of exchange and a system of capital of supply.
It benefits to the society as a whole.
And so credit is indispensable for a modern economy. It is the life blood of business and industry and banks are the institution which is directly responsible for the creation of credit.
The main objective of setting up of Regional Rural Banks (RRBs) was to provide institution credit to the weaker sections, especially to the small and marginal farmers, agriculture labourers, artisans and small entrepreneurs in the rural areas, and bring about a progress with social justice to the rural poor. RRBs had tried to touch the doors of each and every neglected household to accomplish their objectives. They devote special attention to the weaker sections and target groups in order to enable them to participate in the activities and share the benefits of rural development. Their advances are predominantly confined to the needs of the weaker section.
RRBs provide short-term and medium-term loan to the rural poor. In course of time, they are intended to eliminate money lenders altogether. However, there were no set up to replace Co-operative Credit Societies but to supplement them. According to the Working Group on Rural Banks in 1975, “What is needed in the institution which combines the local feel and familiarity with rural problems which the co- operatives process and the degree of business organization, business ability to mobilize deposits, access to central money markets and ‘mobilized’ outlook which the commercial banks have” (Working Group on Rural
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Banks, 1975).
RRBs have been active participants in programmes designed to provide credit assistance to identified beneficiaries under the 20-point Economic programme, Integrated Rural Development and other special programmes for Scheduled Castes and Scheduled Tribes. They are also implementing differential rates of interest (DRI) schemes for the weaker sections and physically handicapped persons.
The RRBs in the country have acquired a good name among the rural masses for timely and need based lending to the weaker sections-covering agricultural and allied activities and also the non- agricultural sector. In order to extend banking benefits to the maximum number of eligible persons and raise their standard of living, every RRBs has undertaken various types of loaning business, granting of loans and advances, particularly to small and marginal farmers, agricultural labourers whether individually or in group, agricultural marketing societies, agricultural farming societies, primary agricultural credit society of farmers, rural artisans, small traders, small entrepreneurs, self-employed person, etc.
Hence strengthening of rural financial institutions, which deliver credit to the sector, has been identified by NABARD as a thrust area. Various initiatives have been taken to strengthen the cooperative credit structure and the regional rural banks, so that adequate and timely credit is made available to the needy.
In order to reinforce the credit functions and to make credit more productive, NABARD has been undertaking a number of developmental and promotional activities such as:-
Help cooperative banks and Regional Rural Banks to prepare development actions plans for themselves.
Enter into MOU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe.
Help Regional Rural Banks and the sponsor banks to into MOUs
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specifying their respective obligations to improve the affairs of the Regional Rural Banks in a stipulated timeframe.
Proved financial assistance to cooperatives and Regional Rural Banks for establishment of technical, monitoring and evaluations cells.
Credit appraisal is the step which decides everything. Credit Appraisal is process by which a lender appraises the creditworthiness of the prospective borrower. It is a very important step in determining the eligibility of a loan borrower for a loan. Every potential borrower has to go through the various stages of a credit appraisal process of the bank, which might include an interview with the bank officials.
However, just like every banks charges different rates for different loans from different customers, in the same way, each bank has its own set criteria that one must satisfy to qualify as a certified borrower of money/assets from the bank. All banks have their own rules to decide the credit worthiness of their borrowers.
The eligibility of a borrower for a loan depends on her/his creditworthiness. Creditworthiness of a customer lies in assessing if that customer is liable to repay the loan amount in the stipulated time, or not. Here also, every bank has their own methodology to determine if a borrower is creditworthy or not. It is determined in terms of the norms and standards set by the banks. Being a very crucial step in the sanctioning of a loan, the borrower needs to be very careful in planning his financing modes.
However, the borrower alone doesn’t have to do all the hard work. The banks need to be cautious, lest they end up increasing their risk exposure. All banks employ their own unique objective, subjective, financial and non- financial techniques to evaluate the creditworthiness of their customers.
While assessing a customer, the bank needs to know the following information: Incomes of applicants and co- applicants, age of applicants, educational qualifications, profession, experience, additional sources of income, past loan record, family history, employer/business, security of
104
tenure, tax history, assets of applicants and their financing pattern, recurring liabilities, other present and future liabilities and investments.
Credit Structure of Regional Rural Banks
Indian agriculture is characterized by low productivity, which leads to low income. Due to low income levels and high marginal prosperity to consume, the investment made in agriculture is also low. If this vicious circle has to be broken, money gas to be injected into the system in the form of agricultural credit. The provision of agricultural credit has increased production and productivity to a great extent.
The Regional Rural Banks, which from the third constituent of the multi agency credit system for agricultural and rural development, were to focus exclusively on the small and marginal farmers, agricultural labourers and rural artisans.
AGRICULTURAL CREDIT
The emphasis on agricultural credit has been on progressive institutionalization for providing timely and adequate credit support to farmers with particular focus on small/marginal farmers and weaker sections of society to enable them to adopt modern technology and improved agricultural practices for increasing production and productivity.
The Government of India has taken many policy initiatives for strengthening the rural credit delivery system to support the growing credit needs of the agricultural and rural sections.
The policy essentially laid emphasis on augmenting credit flow at the ground level through credit planning, adoption of region-specific strategies and rationalization of lending policies and procedures.
Agricultural credit is disbursed through multi-agency network consisting of Commercial Banks (CBs), Regional Rural Banks (RRBs) and Cooperatives. Cooperatives Institutions both the short and long term structure, have emerged over the years as the prime Institutional agencies
105
for dispensation of agricultural credit.
In terms of network, coverage and outreach, the Cooperatives have a sizeable presence and play a significant role in meeting the credit requirements of agriculture. Cooperative has a vast network of outlets, which covers almost 100% village’s country.
In terms of network, coverage and outreach, the cooperatives account for 14% share in rural credit flow for agriculture, 31% in rural deposits and the small farmers constitute 44% of their total membership.
These, the incomes of applicants are the most important criteria to understand and calculate the credit worthiness of the applicants. As stated earlier, the actual norms decided by banks differ greatly. Each has certain norms within which the customer needs to fit in to be eligible for a loan.
Based on these parameters, the maximum amount of loan that the bank can sanction and the customer is eligible for is worked out. The board tools to determine eligibility remain the same for all banks.
The rural populace, especially agriculturist, can obtain three kinds of loan from the financial institutional agencies like Regional Rural Banks.
a) Short-Term Loans: These are also called production loans or crop loans. These are available for the duration of a crop harvest and sale. Typically, the loan is available for a maximum period of 18 months and has to be returned in one lump sum after harvesting and marketing the crop. This can be compared with the working capital loan given to industrial establishment. The loan amount is fixed for each crop district, which covers the cost of seed, fertilizers, pesticides, and wages to be paid to the labourers. It is worth nothing that this loan is available to the agriculturist without any collateral security, with the understanding that as it grows, the crop gets hypothecated to the bank. Crops are insured to safeguard the credit. These types of loans are issued by commercial banks, cooperatives and regional rural banks.
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b) Medium-Term Loans: Agriculturist can avail this loan for investment on a small scale. These include purchase and installation of a pump set in an existing well, purchase of a milch cow or buffalo, purchase of a pair of work bullocks, and other similar investments involving lower amount of capital. These loans have to be repaid in installments spread over a period of five to eight years depending upon the status of the farmer. In this case, collateral security is required and sometimes, in special cases, the asset acquired becomes the collateral security. Normally commercial banks, cooperatives and regional rural banks advance these loans.
c) Long-Term Loans: These loans are given for high investment purpose like, purchase of a tractor and implements, land improvement, digging a well, installing a pump set for irrigation, establishment of fruit orchards or coconut groves, and other such long gestation period activities. This type of loan requires collateral security to be pledged to the bank and has to be returned in installment which can extend over a period of twenty years. In most of the cases, interest has to be repaid during the first few years, since the activity for which money is borrowed would not cover both principal and interest. Roughly, it is estimated that ninety percent of the tractor purchases are made on the strength of these loans.
The credit structure of amalgamated Regional Rural Banks in all the sectors viz, priority sectors, non – priority sector along with bifurcation on credit in all the segments are given below in tabular form. The table reflects considerable increase in volume of credit over the past seven year’s up to the year 2008-09.
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Table 4.1: Credit Structure of Amalgamated Regional Rural Banks in various Financial Parameters over the Years
(Rs. in Crores)
Particulars Year 2002-
03
Year 2003-
04
Year 2004-
05
Year 2005-
06
Year 2006-
07
Year 2007-
08
Year 2008-
09
Year 2009-
10
Year 2010-
11
Year 2011-
12
Priority Sector(A)
8847 11722 16568 20658 26502 31708 36141 39573 45976 53906
Non Priority Sector (B)
3794 3858 4514 4655 6542 6874 7226 8051 8426 8963
Total Loans Issued (A+B)
12641 15579 21082 25313 33043 38582 43367 47824 54402 62869
Short Term (Crop Loans)
4834 6133 9883 12575 17031 20377 22851 24235 28694 33658
Term Loans (Agri & Allied)
1045 1042 2043 2144 3198 3461 3648 4256 4562 5246
Rural Artisans
238 276 316 304 320 326 552 675 823 1007
Small Scale Industries
138 167 210 342 342 638 670 710 905 1260
Retail Trade
1421 1653 1967 1841 1984 2024 2370 2520 2860 3352
Self-Help Groups
350 510 858 1171 1406 2107 2388 2612 3012 3487
Other Priority Sector
819 1941 1290 2282 2222 2775 3662 4565 5120 5896
(Source-Nabstats Quarterly Bulletin of Statistical Information)
It is clear evident from the above table 4.1 that the credit structure of
108
amalgamated RRBs under different sectors has increased over the years. The loan and advances under priority sector has increased from Rs 8847 crores in 2002-03 to Rs 53906 crores in 2011-12. The loan and advances have increased from Rs3794 crores during the year 2002-03 to Rs 8963 crores during the years 2011-12 under non-sectors.The short-term and long-term advances of the amalgamated RRBs indicated an increasing trend over the years. The short-term increased from Rs 4384 crores in 2002-03 to Rs 33658 crores in 2011-12. This increase was mainly attributed to the massive credit deployment programme launched by the RRBs. Credit under various sectors such as rural artisans, small scale industries, retail trade, self-help group and other priority sector also showed increasing trend.
(A) DIFFERENT CUSTOMER OF BANKS
Any person or business wishing to deposit money, or borrow money, or to convert money into a different from of currency, is potentially a customer for a bank. A Customer for a bank is a person who does some business with the bank.
The business could be anything like:
Depositing cash
Holding account
Withdrawing cash
Use debit or credit cards
Foreign Exchange conversions
Insurance needs
Stock Trading requirements etc.
Bankers have to deal with customers. In a simple way, ‘customer is one who is accustomed to buy things or services from a particular place of business. In order to term a person ‘a customer’ of the bank, the
109
following points must be remembered:
The person should open an account – savings, current, or fixed deposit with the bank.
Any single transactions with the bank may constitute a customer.
The transactions should be of the nature of banking business.
Frequency of transactions is not important but transactions should be likely to be frequent.
Customer may include any individual or a group of individual, firms, company, Local Corporation, institution, or government & even the bank itself (with another bank).
Depending upon the nature of transaction undertaken by the customer with the banker, the customer can be of different types:
DEPOSITOR
Depositor is a person who has deposited money in a bank or similar institution.
A depositor is the creator of a deposit record, who submits digital items and associated data for review, approval and uploads to the depository.
The Depositors are mostly middle class businessmen, salaried persons and pensioners, educational and religious institutions apart from the Government transactions and deposits, etc. Most of the depositors belong to the low income group as well as the salaried middle income group besides some other classes.
Depositor maintain deposit account and deposit account is a current account at a banking institution that allows money to be deposited and withdrawn by the account holder, with the transactions and resulting balance being recorded on the bank’s books.
Depositor maintain several types of deposit account such as
110
Type of deposit accounts
1. The Fixed Deposit Account
2. Demand Deposit
o Savings Account
o Current Account
Most of the other products offered by the Banks viz. Recurring Deposit Account, multi Option Deposit Account, Special Term Deposit Accounts, Current and Fixed Account etc. are essentially combinations of the above basis type of accounts and are packaged by different Banks to attract different groups of customers.
Fixed Deposits
The term ‘fixed’ here denotes tenure. Fixed Deposit, therefore, presupposes a length of time for which the depositors decides to keep the money with the Bank and the rate of interest payable to the depositors is decided by this tenure. Rate of interest differs from Bank to Bank. Generally, the rate is highest for deposits for 3-5 tears.
This, however, does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn before the period is over. However, the amount of interest payable to the depositor, in such cases goes down.
Saving Account
This account is ideal for parking our temporary savings. This account gives a nominal rate of interest and we can withdraw money as and when the need arises. The position of account is depicted in a small book called ‘Pass Book’. Such accounts should be treated as a temporary parking area because the rate of interest is much less than Fixed Deposits. As soon as our savings accumulate to an amount which we can spare for a cretin length of time (even three months), shift this money to Fixed Deposit. It should be understood that ours returns on the money kept in saving Bank
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account are the least but the flexibility to withdraw is the highest, Rate of Interest on Saving Account is fixed by RBI and currently 4%.
Current Account
Current Account is an account with minimum amount of restrictions. Most individuals do not need this account. We need this account only if we make a number of deposits and withdrawals in a single day and many of the deposits are drawn on outstation banks. Banks accept deposits in current account and allow unlimited differs from Bank to Bank. No interest is payable on a current account. Opening of a current account is indicated in case of a business enterprise or high worth individuals, who deal with a lot of third party cheque, drafts etc. or who may at times need to borrow money from the Bank against some security.
Recurring deposit
The Recurring deposit is meant for some for a one who wants to invest a specific sum of money on a monthly basis for a fixed rate of return. Recurring deposit (RD) account is opened for the purpose of aggregating monthly savings for the purpose of lump sum return at the end of the pre- fixed tenure and can be opened by individuals (singly/jointly), clubs & associations, registered bodies/ organization etc. RD account may be opened with an initial deposit of Rs. 10/- for a period of one year to 10 Years on equated monthly deposits.
The Rate of Interest is calculated & paid on compounding basis, at the rate linked to tenure of the RD account and paid with the principal amount at the time of maturity and if in the case of need, loan up to 90% of the deposited amount may be obtained before the maturity date of the account. The account may also be prematurely closed. In RD account Nomination facility is available. Bank has initiated special drive for “Women Empowerment through Financial Inclusion”, under which women are encouraged to open Single named account with suitable nomination of her own choice.
The depositor may avail insurance coverage under ‘Grahak Bima Yojana’ for Rs.1.00 lacs against Accidental death/ Permanent total disability by
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paying a nominal premium of Rs.10/- for one year or Rs.20/-for two years or Rs.28/- for three years.
BORROWERS
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.
In a loan, the borrower initially receives or borrower an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installment, or partial repayments; in an annuity, each installment is the same amount.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.
Types of loans
Secured
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase house. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security on:
A lien on the title to the house and Until the mortgage is paid off in full.
If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, recover sums owing to it.
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In some instances, a loan taken out to purchase a new or used car may be secured by the car; in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter – often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a customer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the customer.
A pre-settlement loan is a non-recourse debt, this is when a monetary loan is given based on the merit and awardable amount in a lawsuit case. Only certain types of lawsuit cases are eligible for a pre- settlement loan. This is considered a secured non-recourse debt due to the fact that if the case researches a verdict in favor of the defendant the loan is forgiven.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrower’s assets. These may be available from financial institutions under many different guises or marketing packages:
Credit card debt
Personal loans
Bank overdraft
Credit facilities or lines of credit
Corporate bonds
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law.
Credit Card Debt
Credit Card is a Small card that authorizes the person named on it to charge goods or services to his or her account. It differs from a debit card, with which money is automatically debuted from the bank account of the
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card holder to pay for the goods or services.
A credit card allows consumers to purchase products or services without cash and to pay for them at a later date. To qualify for this type of credit, the consumers must open as account with a bank or company, which sponsors a card. They then receive a line of credit with a specified amount. They can use the card to make purchases from sellers until they reach his credit limit.
Every month the sponsor provides a bill, which tallies the card activity during the previous 30 days. Depending on the terms of the card, the customer may pay interest charges on the amount that they do not pay for on a monthly basis. Also, credit cards may be sponsored by large retailers (such a major clothing or department stores) or by banks or corporations (like VISA or American Express).
Credit Card Debt is an unsecured consumer debt, accessed through credit cards.
Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.
The results of not paying this debt on time are that the company will charge a late payment penalty and report the late payment to credit rating agencies. Being late on a payment is sometimes referred to as being in “default”. The late payment penalty itself increases the amount of dent the consumer has.
When a consumer has been late on a payment, it is possible that other creditors, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying. This practice is called universal default.
Personal Loans
In this loan scheme, banks provide finance for personal use such as for
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renovation of house, to buy a new laptop and financial assistance for marriage-related expenses or for child’s higher education.
In personal loan, the customers have flexible Repayment options, ranging from 12 to 60 months with easy EMIs. The rate of interest on personal loan is not very high.
In case of death or total permanent disability of the loanee, the loanee/nominee can avail of the Payment Protection Insurance (Credit Shield) which insures the principle outstanding on the loan upto a maximum of the loan amount. principle outstanding is defined as the amount of loan outstanding (not including any arrears in payment or interest thereon) at the Date of Loss, having accounted for payments made and interest accruing as determined in the Policy. Hence, the amount covered does not include any principal added because of non-payment of EMI and also will not include interest/accrued charges.
Bank Overdrafts
A bank overdraft is when someone is able to spend more than what is actually in their bank account. Obviously the money doesn’t belong to them but belongs to the bank so this money will need to be paid back; normally automatically done when money goes into the persons account.
A bank overdraft is also a type of loan as the money is technically borrowed. Overdraft financing is provided when businesses make payments from their business current account exceeding the available cash balance. An overdraft facility enables businesses to obtain short-term funding –although in theory, the amount loaned is repayable on demand by the bank.
There are several important factors to consider when assessing the appropriateness of an overdraft as a source of funding for SME’s:
- The amount borrowed should not exceed the agreed limit ("facility”). The amount of the facility made available is a matter for negotiation with the bank.
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- Interest is charged on the amount overdrawn at a rate that is above the Bank Base Rate. The bank may also charge as overdraft facility fee.
- Overdrafts are generally meant to cover short-term financing requirements as they are not generally meant to provide a permanent source of finance.
- Depending on the size of the overdraft facility, the bank may require the SME to provide some security.
For example, the overdraft limit can be secured against tangible fixed assets, or against personal guarantees provided by the directors.
The amount of an overdraft at any one time will depend on the cash flows of the business, the timing of receipts and payments, seasonal trends in the sales and so on. However, due to timing of sales receipts compared with supplier payments, the business needs to fund a temporary overdraft during the year.
Credit Facilities or Lines of Credit
Unlike personal loans where the person borrowing the funds and the collateral are not likely to change, loans in the world of business require additional flexibility in order to meet the needs of the business as well as satisfy the requirement of the lender. Accomplishing this seemingly difficult task is done by using a credit facility which is an overall credit line that can be broken into multiple credit line and collateral. Credit facilities may be either long-term or short-term. They may also be used either as a single loan, or as an umbrella for multiple loans. The purpose of a credit facility is to provide capital to the borrower for multiple purpose and time frames without the need to structure a loan for each one. A credit facility generally permits the borrower to substitute collateral for the loans at the lender’s discretion without having to redo the loan contract. Thus, a business that uses a warehouse for collateral may sell that warehouse to do business need and substitute another hard asset as collateral. Credit facilities can be quite large and may encompass multiple terms, repayment schedules, and interest rates, or a credit facility can provide a single large pool of capital with one set of terms. A business
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should consider which provides the proper tools for managing the business’ credit. Credit facilities may be for any duration agreed upon by both lender and borrower.
Corporate Bonds
A Corporate Bonds is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expend its business. The terms is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. Sometimes, the term “corporate bonds” is used to include all bonds except those issued by governments in their own currencies. Strictly speaking, however, it only applies to those issued by corporations. The bonds of local authorities and supranational organizations do not fit in either category.
Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to convert the bonds into equity.
Demand
Demand loans are short term loans that are typical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be “called” for repayment by the lending institution at any time. Demand loans may be unsecured or secured.
ANCILLARY SERVICES
Besides from the Loans, Deposits etc., Bank offers other services to make financial dealings easy and convenient such as
A) Remittances
B) Collection services
C) Lockers
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A) Remittances
Business relations get strengthened and add to the trust when financial dealings happen on time. Bank’s remittance facility ensures instant payments and transfer of funds, saving our and our associates from waiting endlessly for funds to get credited. This facility is available for customers enabling efficient and easy transfer money. So there is less possibility of delays in transfer of funds. This facility can be used to transfer money to the beneficiary’s account in the same bank, or another bank or even to their residential/office address, thus offering convenient options.
Bank provides remittance facility and transfer of funds through Banker’s Cheque, Demand Draft, and Mail Transfer etc.
Banker’s Cheque
A Banker’s Cheque is a Cheque issued by the Bank payable to the order of specified payee for payment within a local area. Any variations of rate will be decided by Credit Committee on Remittances products. All Banker’s Cheque are pre-printed with the crossing “NOT NEGOTIABLE”.
Banker’s Cheque shall be issued for use only within the clearing area of the issuing Bank and if issued outside clearing area then the normal outstation Cheque commission is payable and should be accepted as good by the payee as it has been paid for the customer at time of issue. It cannot be returned except for technical reasons.
Banker’s Cheque are used by customers who do not have a current account but wish to make payments by cheque, or in situations when a personal cheque is unacceptable.
Demand Draft
Demand Draft was originally to benefit legitimate telemarketers, who needed to withdraw funds from customer checking accounts. However of a signature required to authorize the transfers have left demand draft open
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to fraudulent use. The only information needed to create a demand draft is a bank account number and a bank routing number – this information is found on a standard cheque. In 2005, the Federal Reserve proposed new regulations over the fraudulent use of demand draft. The regulation increases a victim’s ability to claim a refund and makes banks more accountable for cashing fraudulent cheque.
Demand Draft are frequently used to purchase items over the phone, from telemarketers. The checks also allow consumers to pay monthly bills by having them debited automatically out of their accounts, rather than having to write a new cheque each month. Demand Draft are frequently used by consumers instead of credit cards, and large companies also commonly use them.
Demand Draft are also a popular method for lending institutions to attempt to collect on overdue loans.
Mail Transfer
SMTP (Simple Mail Transfer Protocol) is a TCP/IP protocol used in sending and receiving e-mail. However, since it is limited in its ability to queue messages at the receiving end, it is usually used with one of two other protocols, POP3 or IMAP, that let the used save messages in a server mailbox and download them periodically from the server.
In other words, users typically use a program that uses SMTP for sending e-mail and either POP3 or IMAP for receiving e-mail. On Unix- based systems, send mail is the most widely-used SMTP server for e-mail. A commercial package, Send mail, includes a POP3 server. Microsoft Exchange includes an SMPT server and can also be set up to include POP3 support.
B) Collection services
a) Outward Bills for Collection
Bank have the facility of collecting Cheque, Demand Drafts, Interest Warrants, Dividend Warrants, Refund Orders, Clean Bills and
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Documentary Bills from customers and various centers. All Cheques and other instruments are collected into properly introduced accounts and sent for collecting on the day of receipt from the customers or the next working day.
b) Time Bound Collection
Banks are prompt in terms of the collections and forwarding of cheque and other instruments. If these instruments are not collected within 14 days of lodgment, interest @ 2% per annum over saving bank rate is paid and is credited to the customer’s account, without the customers having to claim it.
C) Lockers
In Today’s days Storing too much jewellery and valuables in the house at times becomes a security issue and an impediment in case of natural calamities. Bank offers a safe, trustworthy space to store valuables, jewellery, documents and other things through locker facility dear to you.
For obtaining a locker
Person must be an account holder with that Bank.
Lockers can be allotted both individually as well as jointly.
The locker holder is permitted to add or delete names from the list of persons who can operate the Locker and can have access tom it.
CUSTOMER OF REGIONAL RUREL BANKS
Agricultural Labourers
Those who do not possess cultivable land but who drive income from work in agricultural operations by way of wages. Agricultural labourers need help for acquisition of productive as sets such as dairy animals and for self-employment in activities such as forestry, animal husbandry, fisheries and processing. They also need credit for meeting their personal requirements also.
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Small and Marginal Farmers
The cultivator whose holding were less than two hectares of unirrigated land or one hectare of irrigated land. The banks provide assistance to Small & Marginal Farmers for Increasing Agriculture Production by way of providing credit for purchase of new and improved agricultural land. They are also financially assisted by the banks by way of credit for meeting their personal needs.
Rural Artisans
Those who are self employed like rope makers, blacksmiths, carpenters, cobblers, lime makers and carpet weavers. Rural artisans require credit for supply of raw material, purchase of designs and improved tools and for other capital expenditure as well as working capital requirements. Moreover, the personal needs of rural artisans are also financed by the banks.
(B) EFFECT OF MERGER ON CREDIT STRUCTURE
Regional Rural Banks in India are an integral part of the rural credit structure of the country. Since the very beginning, when the Regional Rural Banks in India (RRBs) were establishment in October 2, 1975, these banks played a pivotal role in the economic development of the rural India. The main goal of establishing regional rural banks in India was to provide credit to the rural people who are not economically strong enough, especially the small and marginal farmers, artisans, agricultural labours, and even small entrepreneurs.
Due to increased competition, globalization, technological changes the following years have not been so easy for the regional rural banks in India, as there were major concern of financial viability. This triggered move towards consolidation.
Merger is an indispensable strategic tool for expanding product portfolios, entering into new market, acquiring new technologies and building new generation organization with power & resources to compete on global basis. With the increasing number of Indian companies opting
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for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions. Till few years ago, rarely did Indian companies bid for American-European entities. Today, because of the buoyant Indian economy, supportive government policies and dynamic leadership of Indian organizations, the world has witnessed a new trend in acquisitions. Indian companies are now aggressively looking at North American and European markets to spread their wings and become global players. Almost 85 per cent of Indian firms are using Mergers and Acquisitions as a core growth strategy.
The mergers and acquisition business deals in India amounted to $40 billion during the initial 2 months in the year 2007. The total estimated value of mergers and acquisitions in India for 2007 was greater than $100 billion. It is twice the amount of mergers and acquisitions in 2006. Thus, we can say that M&A has become a day to day transaction now-a- days.
This study tries to analyze the effects of merger on credit structure. There will be conflicts and issues that arrive in a merger process. When a business adds new leadership, counterparts, structure and style, the whole organizational situation changes at that point. Every activity of the organization is affected by the changes. Mergers and acquisition have become the primary means of bank expansion, especially for banking firms seeking commanding heights in global financial markets.
With the Merger of Regional rural banks with the sponsor bank, the reach of Public sector banks in rural areas can be increased manifold. With this more loans can be provided to rural people, which the government is asking to the bank. Merger of Regional rural banks with the sponsor bank is meant to improve the quality of services provided by the bank. About two decades ago they were a bunch of loss-incurring rural credit outfits, viewed the scorn by the urban-bred bankers. In 1990-91, out of 196 Gramin banks, 152 banks were incurring losses. Their accumulated losses were Rs 369.36 crores. A few of them could never earn profit during the long period of their existence. In some of them annual wage bill was higher than the total income. Improvements in their financial result started emerging after the partial de-regulation of interest rates and relaxations in leading to non-
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target groups. In 2005, just before the consolidation process started, the number of loss incurring Gramin banks come down to 30 and the number of them having accumulated losses was 82. Steps initiated since 2005 in amalgamation them at the state level, there has been considerable improvement in their bottom line. With their number coming down as a result from 196 to 86, they have become stronger and more visible, because of the extended operational areas. A few of them have large branch network in rural areas – Uttar Bihar Gramin bank having 868 branches in Bihar and Baroda Utter Pradesh Gramin Bank having 671 Branches in Utter Pradesh. Another big bank in Bihar is Madhya Bihar Gramin Bank-407 branches. West Bengal also has a bog bank: Bangiya Gramin Vikash Bank operating with 463 branches. Interestingly, some of the Gramin Banks, which one named after prominent historical places like Magaha, Mithila, Nalanda, Pataliputra and Vaishali, have lost their identity in the process of merger.
After 34 years this gramin banks have come of age. The rustic belles have adopted sophistical banking transactions, computerized branch operations, bringing many branches under CBS. Some of them have installed bio-metric based ATMs. The process of their amalgamation at the state-levels has enabled them to expand their operational areas, improving thereby their viability. Consolidation helps the banks to widen their scope of activity.
Small gramin banks were unknown outside their states. Their branches were confined to the few districts in a selected state. The staff recruitments were very rare, as there was an embargo on addition to their staff strength. Their career prospects were not clearly defined till recently. So through consolidation some of the gramin banks have made their appearance in metropolitan centers. Sixteen of them have their head offices located in metropolitan centers and state capitals. In these centers they have 73 branches, out of the total number of 15,384 branches. Prominent among them is Aryavart Gramin Bank having 12 branches in Lucknow. Consolidation helps the bans to cross rural bridges and gives swifter remittances in the rural areas.
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Another symbolic change in their credit pattern is emergence of a couple of large advances. Before merger they had prominently small borrowing accounts, of less than Rs 25,000n per account, which are 1.62 crores in numbers. According to the 2008-09 data, now they have five accounts in the credit group of Rs 10 crores to Rs 25 crores, were the total amount outstanding is Rs.34 crores. Merger helps the bank to provide institutional credit at cheaper rate to the farmers so that they are not the mercy of the private money leanders.
Earlier due to bulk financing made to big corporate houses, to real estate developers, and to infrastructure developers, the farmers and small traders were not able to avail adequate credit. Merger and acquisition of bank extended credit those farmers and small traders which constitute 95% of population and without whose support economic viability of large projects would be a stake.
Through consolidation financial power of bank will improve and they will not only be able to augment efficiency and help in GDP growth but also get success in competing with the international big banks
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Information technology system (IT) is the study, design, development, implementation, support or management of computer-based information system, particularly software applications and computer hardware. According to the Information Technology Association of America (ITAA) IT deals with the use of electronic computers and computer software to convert, store, protect process, transmit, and securely retrieve information. As it pertains to technology, IT spans a wide variety of areas such as Process, Computer Software, Computer Hardware, Programming Languages, and Data Constructs. In short, anything that renders Data, Information or perceived Knowledge, in any visual format whatsoever, via any multimedia distribution mechanism, is considered to be a part of the domain space known as Information Technology (IT).
As it pertains to organizations within enterprises, IT represents an operational group that helps solve such problems as those related to data, Information and Knowledge capture, persistence, processing, brokering, discovery and rendering. Such organizations can be as large as multi-billion dollar structures that are common in all Fortune 500 enterprises. Today, the term information has ballooned to encompass many aspects of computing and technology, and the term has become very recognizable. IT professionals perform a variety of duties that range from installing applications to designing complex computers networks and information databases. A few of the duties that IT professionals perform may include data management, networking, engineering computer hardware, databases and software design, as well as the management and administration of entire systems. Information Technology is starting to spread farther than the conventional personal computer and network technology, and more into integrations of other technologies such as the use of cell phones, televisions, automobiles, and more, which is increasing the demand for such jobs. When computer and communications technologies are combined, the result is information technology, or “InfoTech”. Information technology is a general term that describes any technology that helps to produce, manipulate, store, communication, and/or disseminated information. The Indian information technology (IT)
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industry has played a key role in putting India on the global map. Thanks to the success of the (IT) industry, India is now a power to reckon with.According to the National Association of Software and Service Companies (NASSCOM), the apex body for software service in India, the revenue of the Information technology sector has risen from 1 per cent of the gross domestic product (GDP) in Financial Year 1997-98 to an estimated 5.8 per cent Financial Year 2008-09 and 7.1 in Financial Year 2009-10. Further, the industry expects the sector to grow over 10 per cent growth next year. India’s IT growth in the world is primarily dominated by IT software and service such as Custom Application Development and Maintenance (CADM), System integration, IT Consulting, Application Management, Software testing, and Web services.
At present there are 60 million Internet users in the country. According to the Manufacturer’s Association of IT (MAIT), the number of active Internet entities rose to 816 million by March 2009 from 7.2.million units in March 2008. MAIT has outlined ‘Goal 511’, an ambitious target that talks about 500 million Internet users, 100 million broadband connections and 100 million connected devices by 2012.
(A) ROLE OF INFORMATION TECHNOLOGY IN BANKS
There has been a revolution in technology dissemination in every walk of life and the banking sector is no exception. It is foreseen that by 2012 almost everyone will have a broadband connection and a cell phone. As the banking sector is undergoing a paradigm shift in its role and functions as a result of increased competition and growing consumer awareness, application of IT in banking has become important to face the challenges of tough competition from other players through better customer service with efficiency. With the expansion of and easy access to the digital communication across the country at an affordable cost, the customers’ expectation, for efficient service in banking, has gained momentum. Commercial Banks have road maps of technology applications in banking in various areas through recommendation of number of committees appointed by RBI such as Working Group to consider feasibility of
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introducing MICR /OCR, Technology for cheque processing, Rangarajan committee, Committee on Communication networks in Banks, Committee of payment system, Cheque Clearing, Committee on Electronic Fund Transfer and Electronic Payments, etc. The visible benefit of IT in day to day banking is quite well-known. There is ‘anytime banking’ through ATMs, and Net and Mobile banking in some banks.
In addition, IT has enabled the efficient, accurate and timely management of the increased transaction volume that comes with a larger customer base.
The Technology innovation not only enabled a broader reach for consumer banking, but also enhanced its capacity to process more business transactions.
Accordingly, in order to provide service of global standard, more banks have migrated to core banking solution, introduced e-banking products, and set-up on site and of site ATMs.
CBS has enabled the Regional Rural Banks to create a central shared database support covering the entire banking application, establishing connectivity among branches. Business processes in all the branches of RRBs led to the usage of a common database in a central server located at a data center, which gives a consolidated view of the bank’s operation. Branches function as delivery channels, providing services to the customers of the bank. CBS is an integrated application that supports real-time, multi-banking and multi-channel strategies.
The single biggest achievement behind the implementation of CBS is that each customer is truly the customer of bank and not just the customer of the branch, where his/her account is maintained. While this move could enable the RRBs to adopt better customer relationship management, it has already led to the seamless integration of off-site ATMs, introduction of debit cards, Internet Banking, and Point-of-sale terminals.
The role of Information Technology in banks can be enumerated as follows:
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Technology has opened up markets, new products, new services and efficient delivery channels for the banking industry. Online electronics banking, mobile banking and internet banking are just a few examples.
Information Technology has also provided banking industry with the wherewithal to deal with the challenges the new economy poses. Information Technology has been the cornerstone of recent financial sector reformed aimed at increasing the speed and reliability of financial operations and of initiatives to strengthen the banking sector.
The IT resolution has set the stage for unprecedented increase in financial activity across the globe. The process of technology and the development of worldwide networks have significantly reduced the cost of global funds transfer.
It is information Technology which enables banks in meeting such high expectations of the customers who are not demanding and are also more techno-savvy compared to their counterparts of the yester years. They demand instant, anytime and anywhere banking facilities.
IT has been providing solutions to banks to take care of their accounting and back office requirements. This has, however, now given way to large scale usage in services aimed at the customer of the banks. IT also facilities the introduction of the new delivery channels—in the form of Automated Teller Machines, Net Banking, Mobile Banking and the like. Further, IT deployment has assumed such high levels that it is no longer possible for banks to manage their
IT implementations on a standalone basis with IT revolution, banks are increasingly interconnecting their computer system not only across branches in a city but also to other geo Diagram ic locations with high-speed network infrastructure, and setting up local area.
Information Technology Progress in Banks covering different IT related modules
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Core Banking Solution
As of 31st March 2009, 1, 922 branches and 28 Extension Counters in India are on CBS. This covers more than 1000 centers in 34 states/union territories and approximately 94% of Bank’s domestic business. Additionally, 43 branches in 12 overseas branches on CBS account for about 79% of total overseas business.
Wide Area Network
The implementation of CBS and other centralized applications requires a robust Wide Area Network (WAN) with adequate redundancy built in at every layer. Bank has connected more than 2300 branches/offices on its wide area network with an assured uptime of more than 99.9%.
Internet Banking
The bank has launched full-fledged transactions- enabled Internet Banking in India, for both Retail and Corporate customers. Through this platform, customers have the facility to pay both Direct and Indirect Taxes online, make payment of utility bills and also book rail tickets. Customers can transfer funds from one account to another account within the Bank. Customers can also avail of the services for inter-bank transfer of funds through Internet Banking using NEFT /RTGS. Corporate also have the facility of direct salary uploads. The internet banking has also been launched in 7 overseas territories, viz., Botswana, Fiji, Mauritius, UAE, Oman, Seychelles and Tanzania.
Phone Banking
The Bank has recently launched one more delivery channel, Phone Banking facility, for our customers. This facility enables customers to get Bank’s products information, enquire balances in their account, statue of cheque, order statements of account through fax or e-mail etc.
RTGR/NEFT
All CBS branches of the Bank are enabled for inter bank remittances through RTGS and NEFT. RTGS and NEFT have also been interfaced
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with our internet banking portal. This will give our customers the facility of making inter bank money transfers online using internet banking.
Online Money Transfer Service
An online money transfer service – Rapid Funds2India – has been enabled in bank’s branches of UAE, Oman, UK, Mauritius, Seychelles, Botswana, Hong Kong, Fiji, Kenya, Guyana, South Africa, Tanzania, Uganda and Trinidad & Tobago. NRI’s in these territories can avail of this service which facilitates almost instant credit to the beneficiary’s accounts in any CBS branch in India. Where they maintain accounts with other banks, same day or next day credit is facilitated through RTGS / NEFT.
Cash Management Services
Corporate Cash Management has been launched in December 2008 in Mumbai. This service enables our corporate customers to manage their funds efficiently through bulk payment services, local/out-station fund collection (paper based or electronic) and liquidity through fund pooling facility.
Base 24 ATM Switch
It has been implemented for all domestic ATMs and for ATMs in 5 overseas territories. This new ATM Switch will ensure scalability to handle more ATMs and transactions. Currently, 1179 domestic ATMs and 36 ATMs in five overseas territories are operational.
Retail Depository Services
Retail Depository Services are made available to the customers from 275 branches. With a centralized depository application, branches are now equipped to provide depository services for both NSDL as well as CDSL. Depository customers can now avail of these services from any of the 275 designated branches. The services will be extended to cover all CBS branches of the Bank.
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City Back Offices
Centralization of back office functions at the branches has been implemented to relive the operational staff at the branches from the load of cumbersome back-office functions and focus on the sales and services.19 Services Branches and 48 Main Offices are functioning on the City Back Office model. These offices handle the entire clearing and collection functions of all branches in the city.
Regional Back Office
The first Regional Back Office at Baroda has commenced operations for the process of centralized account opening. The RBOs will cater to a cluster of 350 – 400 branches for back office activities, such as, FDR renewals, TDS certificates and some part of MIS.
Anti Money Laundering
To meet regulatory requirements, AML system has already been implemented in India and 14 overseas territories, viz. , Oman, UAE, Fiji, Mauritius, Seychelles, Tanzania, Bahamas, Kenya, Uganda, Guyana, Hong Kong, Botswana, U.K., S. Africa.
Help Desks
24x7x365 Global Help Desks is functioning at the Data Center. Bank has also set up Local Help Desks (LHDS) at all Zonal Centers manned by Bank’s trained officers to handle day-to-day operational issues and these LHDs function from 8 am to 10 pm. All branches are connected to Global Help Desk and Local Help Desks by VOIP phones.
Information system Security
A robust Information Security Management System has been put in place to protect the technology against security threat. Bank has implemented a centralized anti-virus program. Bank has also in place a comprehensive IT Security policy and associated procedures for various areas of IT security such as password policy, access control policy etc.
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Human Resource Networking for Employees Service
The bank has successfully implemented the Human Resource Networking for Employees Service with the main objective of creating a central database of its employees for facilitation decision–making, promotion and selection exercise as also for automating other HR process. Employees are provide with the functionality of self–service.
Centralized Payroll for employees
Centralized Payroll for employees has been implemented for all domestic offices in India rendering efficiency and accuracy. Centralized Payroll for employees has been implemented for all domestic offices in India rendering efficiency and accuracy.
Training
The Bank’s training establishments have trained nearly 15000 employees on CBS modules and other technology applications. Refresher courses are also conducted on week–ends covering specific Finacle modules and other applications.
Disaster Recovery and Business Continuity
To ensure Business Continuity at all time Banks has implemented a state-of-the-art Data Centre and also a Disaster Recovery site. Drills are conducted at regular intervals and operations transferred to the DR site seamlessly to ensure continuity of operations at all time.
ROLE OF IT IN REGIONAL RURAL BANK
The RRBs have been in sharp focus over the last few year with several measure initiated towards strengthening them and making them vibrant channels of credit delivery, particular of the rural sector. The most prominent of these has been the process of state–wise amalgamation of RRBs sponsored by the same sponsor bank. The process of amalgamation, initiated in 2005, is now nearing completion. As a result of the amalgamation process the number of RRBs in the country declined from 196 to 96 at the end of March 2007 and further to 88 of June 2008.
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These include 45 amalgamated banks, 42 stand alone banks and new bank (Puruvai Bharathiar Gramin Bank with jurisdiction over the Union Territory of Pondicherry).
The structural consolidation of RRBs has resulted in formation of new RRBs, which are financially stronger and bigger in size in terms of business volume and outreach. They will thus be able to take advantages of the economies of scale and reduce their operational costs. With the advantages of local feel and familiarity acquired by the RRBs, they would now be in a better position to achieve the objectives of rural development and financial inclusion.
At the end of March 2007, 27 RRBs were having negative net worth of Rs 1740.97 crores. The recapitalization of such banks, in a phase manner, was announced in the Union Budget of 2007-08. The process of recapitalization has already commenced and its completion would make all RRBs comply with the necessary prescribed minimum capital requirements. As first step to bring RRBs to international capital adequacy standards, all RRBs have been advised to disclose their Capital to Risk Weighted Assets Ratio (CRAR) as on March 31, 2008 in their balance sheet. Following this disclosure, a road–map for achieving the desired CRAR norms would be drawn up.
Further, measures have been taken to provide greater autonomy to RRBs and enlarge their business activities. A majority of the recommendations of the Task Force on Empowering RRBs Board for Operational Efficiency (Chairman: Dr K. G. Karmaker) have already been implemented. RRBs have also been allowed to open currency chests, conduct state government business as sub–agents of sponsor banks, take up corporate agency business without risk participation for distribution of all type of insurance products and open NRO/FCNR account, subject to certain conditions. The branch licensing produce for RRBs has been simplified with power now delegated to the Regional Office of Reserve Bank. The branches licensing policy has also been liberalized and the norm for opening new branches in hitherto uncovered districts have been relaxed. As a result, there has been a rapid increase in the number of
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branches of RRBs during the last one year. The spared of RRBs has also increased and at the end of June 2008, they covered 585 out of the 622 districts of the country.
Measures have also been taken to address the manpower challenges in the RRBs. A committee under the chairmanship of Dr Y.S.P. Throat, then chairman, NABARD was set up to examine and lay down parameters for staffing norms in RRBs and suggest norms and procedures for new recruitments. The reports of the committee are under examination of Government. It is hoped that many of the manpower related issues would be taken care of after the recommendations of the committee are implemented.
It is envisaged that with their increasing strength and spread, RRBs would have to enlarge their client base and become the principal vehicles for financial inclusion and rural banking in the country. However, technological changes are sweeping the banking sector. In order to survive effectively in the present scenario, the RRBs would require begin adequately equipped in terms of technology to provide efficient customer service to their clientele. While the commercial banks have gone ahead in computerization of their operation and most banks are in an advanced stage of implementing total Core Banking solutions (CBS), the RRBs are lagging behind in this area. The expectation of the Union Government and the State Governments from the RRBs are also increasing. It is envisaged that RRBs are able to render the same quality of service that commercial banks are able to give to their clients. Further, the Government, in order to reduce intermediations and reach out directly to the beneficiaries under several of its programmes, proposes to reach these persons through the electronic mechanism. It is thus becoming imperative for RRBs to become increasingly technologically sound so as to offer competitive services to their clients.
The Task Force on Empowering RRBs Boards for Operation Efficiency had reviewed the computerization scenario in RRBs and recommended that RRBs need tom take up computerization of major areas of operation, MIS in branches, controlling offices and HO in the next three years by
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adopting an Action Plane. It had also indicated board indicative norms for the same. Within such norms, the Task Force suggested that RRBs may be given autonomy to take their own decision on designing of their computerization process and they may seek guidance from their sponsor institutions wherever necessary.
SETTING UP OF WORKING GROUP
It was stated that in order to prepare RRBs to adopt appropriate technology and migrate to Core Banking Solutions (CBS) for better customer services, it is proposed to constitute a Working Group with representatives from Reserve Bank, NABARD, sponsor banks and RRBs for preparing a road- map for migration to core banking solutions by RRBs. Accordingly, a Working Group under the chairmanship of Sri G.Srinivasan, Chief General Manager in-Change, Rural Planning and Credit Department, Reserve Bank of India was set up with the following Terms of Reference:
(i) To determine the nature of core banking solutions required for RRBs having regard to the range of their business and customer services;
(ii) To examine various options including extending core banking solutions of the sponsor banks to their RRBs with necessary modifications and firewalls;
(iii) To estimate the likely costs involved and training arrangements that may be necessary; and
(iv) To draw out a time-bound road map for implementation.
The Working Group was also requested to examine the possibility of using solar power generating devices for meeting the power requirements of RRBs, especially in remote areas.
Technology has changed the face of the Regional rural banks, more particularly in the last five years. With the spread of education and inputs among rural population, technology application is no longer the luxury it
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was thought to be but a necessity for client service and competitiveness.
Computerization is no longer stand-along systems. The networking has even more significance. While the primary date is generated in branches, computerization enable centralized, processing, monitoring and feedback relieving the manpower in the field to creatively interact with the people rather than be buried in paper work. There is no limit to use of computers. They can take care of servicing deposits, loan processing, NPA monitoring, statutory and MIS returns, analysis, dissemination of knowledge, accounting, administration etc. The Indian Railways and private sector banks offer the best examples of user- friendly computerization with a combination of outsourcing the high-end tasks and training the staff for use of applications.
NEED FOR COMPUITERIZATION IN RRBS
The need for having computerization in RRBs had been felt since long and some RRBs had been taking steps in that direction. In July 2001 that Regional Rural Bank should initiate immediate steps so that Head Office, Area Offices and a minimum of 50% of branches are computerized in a phased manner in the next 5 years. Sponsor banks have also been advised to formulate Regional Rural Bank –wise Action Plans, keeping in view the financial position of the Regional Rural Bank, infrastructure facilities available in their command area and the business potential of the Regional Rural Bank branches. Necessary support to implement the above time-bound programmed should also come from the sponsor bank.
NABADA made a beginning by extending support to select RRBs by providing PCs, peripherals, standard software packages as also customized MIS package and training inputs under the NABADA SDC programmed. Almost after 5 years from the issue of above guidelines by NABADA in July 2001, a review of computerizations of Regional Rural Bank was made. The review of computerization of regional rural banks brings home the reality that while a few RRBs have achieved 100% computerizations and others around 50% most of them are lagging behind.
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ACTION PLAN
(i) The branch reorganization may be undertaken by RRBs in such a manner that 8-10 rural branches in a contiguous area linked to a nucleus branch at a center endowed with comparatively better business prospects and infrastructure. The nuclear branch may be equipped with total-branch-automation systems as also the systems necessary foe consolidation of information received in specified formats from the linked rural branches.
(ii) The rural branches may keep on feeding information to the nuclear branch on daily / weekly basis telephonically or by other modes of communication followed by a digital communication on weekly basis. The nuclear branch, in turn, may be provided with the facility of on-line linkage to the Head office as also to the District Branch to provide them access to the branch-wise information of the linked branches, as also their own, on daily basis. The District Branches may similarly be provided with the total-branch-automation systems and the systems necessary for consolidation of their own information as well as information respect of other branches in the district for necessary feedback to Head office and for their own use.
(iii) The Head office, in turn, may maintain, out of the data so received, a central data-base with various formats which may be accessible to the different departments in the H.O for the specific information only that may be relevant to them, through appropriate locking and filtration techniques for maintaining confidentiality and avoiding tampering of data. The information to be generated in Head office may also be processed and achieved at the central database though various departments. The head office should be provided with a limited built-in facility to store certain confidential data within their own system.
(iv) The systems in the Head Office may be linked on a Local Area Network (LAN) and terminals / nodes thereof in a number as may be necessary installed. The requirements of the system-designs and
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the hardware in this regard may be worked out by RRBs carefully.
(v) The Head office of each Regional Rural Bank may be provided with on-line access to the Sponsor Bank, other banks, NABARD, Money Markets, Banking Network, Infinet of Reserve bank of India, State Government’s e-governance network, NICNET and so on in order to maintain constant communication with them, on business issues. In order to keep confidentiality as also appropriate accounting of transactions with other agencies, the access of Regional Rural Bank branches to any outside agency may be provided through Head Office only and the latter should be in a position to respond to the demands of branches on business matters expeditiously
Within these broad and indicative norms, the Regional Rural Bank may be given adequate autonomy to take their own decision on designing of their computerization plan keeping in view the branch-specific requirements and local infrastructure etc. and they may seek guidance from their sponsor institutions wherever necessary. The decisions relating to configuration, environmental format and other technical specifications may need a host of technical guidance; the factors of compatibility have also to be kept in view. The provision may also be made for converting data and information from one environment to the other so that the Regional Rural Bank is in a position to respond to the versatile demands, given the existence of a vast spectrum of computer technologies in use by different agencies with which Regional Rural Bank has to correspond, off and on. A considerable amount of work has to be done by each RRB in reviewing and developing the input and output format for data flow between the different levels for ensuring an efficient and time saving system of data/work processing.
NEED FOR CBS IN RRBs
Although there is no formal definition of CBS, the term has been in used during the last few years. The advancement in technology, especially internet and information technology, has led to a new way of doing business in banking. The technologies have cut down time, working
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simultaneously on different issues and increased efficiency. The platform where information and communication technologies are merge to suit core needs of banking may be referred to as CBS. In CBs, computer software performs core operations of banking like handling and recording of transactions, maintenance of passbooks, interest calculations on deposits and loans, maintaining customer records and generating reports and statements. The software is installed at bank branches and then interconnected by means of communication lines telephone, internet and satellite communication. It allows customers to transact with the bank of any branch if it has installed CBS. This new platform has changed the way of working of banks. In an ideal CBS scenario, all products, processes, channels and customer relationship management tools are integrated and administrated via a central database of the bank with branches and channels as delivery points.
This enables data integration for various purposes including regulatory reporting and internal MIS all at considerable lower cost. The new generation private sector banks were the first to adopt CBS technologies in India followed by a few public sector banks. Gradually, the same were adopted by most of the commercial banks as part of their computerization processes.
As per the Report on Trend and Progress of Banking in India 2006-07, the process of computerization in commercial banks was now reaching near completion for most of the banks. Public sector banks continued to expand large amounts on computerization and development of communication networks. The cumulative amount spent during September 1999 to March 2007 aggregated Rs 12,827 crores. Of this, the State bank Group Bank itself had spent Rs 4,703 crores. Further, the proportion of branches proving CBS increased rapidly, from 28.9 per cent at the end of March 2006 to 44.4 per cent at the end of March 2007. Seven subsidiary banks of State Bank of India had fully implemented CBS. Additionally, eight public sector banks, viz., Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Corporation Bank, Punjab National bank, Vijaya Bank and State Bank of India had achieved full computerization of branches. At the end of March 2007, fully
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computerization branches, including branches under CBS, formed 85.6 per cent of the total branches of public sector banks. Of the 27 public sector banks, 15 banks had computerized their branches fully, while six banks had computerized between 70 to 90 per cent of their branches. Only four banks (Punjab and Sind Bank, UCO Bank, Union Bank of India and United Bank of India) had yet to computerized more than half of their branches.
The last position in this regard was sought by the committee from all sponsor banks. The data indicated that the position and significantly improved during the past year.
The committee obtained the views of sponsor banks, RRBs and the representative bodies of the RRBs on the requirement of CBS in RRBs.
Three broad views emerged: First, there was no need for CBS in RRBs at the present juncture; Second, CBS was required but not only in large or urban branches of RRBs; and Third, RRBs require CBS in order to compete with commercial banks. It was stated that CBS is a sophisticated and costly system which may not be suited to the needs of the RRBs. it was argued that though RRBs are implementing various schemes of both sates and central governments, the quantum of business handled by them was not adequate and not remunerative for moving towards CBS. Sometimes there was no fee or commission for transacting such operations. It was suggested that before moving towards CBS, both state and central governments should provide adequate fees to RRBs for strengthening their operations and keep their deposits with RRBs. A view expressed was that since many RRB branches were still at a mutual stage and had no moved towards computerization and since even TBA had not yet stabilized in most RRBs, at the first stage RRBs should complete computerization of all branches under TBA before moving towards CBS.
It was also stated that CBS, though required in RRBs, was not necessary for their entire network. There were many branches in all RRBs where the business was extremely low and the number of vouchers per day was very limited. In such branches, there would not be any need for CBS at this juncture. It was suggested that CBS may be restricted to only urban
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and semi-urban branches and such branches where the business requirement demanded it. Business criteria in terms of volume could be an indicator for fixing the limit for introducing CBS.
Third view expressed was that CBS was necessary for RRBs in view of the emerging trends in the banking sector. RRBs could not afford to remain left behinds the commercial banks. in fact, state and central governments were reluctant to give business to RRBs because they were not in a position to offer the same kind of service as commercial banks. Further, the present ALPM and TBM platforms were not able to handle large number of standard applications. However, the high cost likely to be incurred during CBS was a deterring factor and it was expressed that their stakeholders should come forward and shares the costs and financial resources should be made available to RRBs so that they are not burdened with the cost. The committee is of the opinion that RRBs cannot afford to remain isolated from the technological developments sweeping the banking sector. With the commercial banks racing towards a higher degree of technological sophistication, the RRBs would be required to adopt technology for improving the quality of their customer services.
However, given the different levels at which the different RRBs are presently placed in regard to their status of computerization; a “one strategy fits all” approach may not be workable.
The committee is of the view that as a matter of policy, all RRBs should begin moving towards CBS. The CBS in RRBs should be geared towards better management control and monitoring, wider range of services offered and enhanced level of customer satisfaction. Adopting of CBS would lead to uniformity in work environment, more informed decision making, centralized processing and better MIS and reporting and improved regulatory compliance.
OPTIONS FOR INTRODUCING CBS
The various options available for introducing CBS in RRBs were explored by the committee. In this connection, several presentations were made by various vendors who presented their solutions for achieving
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CBS in RRBs. The experience of CBS in commercial bank was also taken into account. After taking into account all the available inputs, it was observed that there could be three board approaches for introducing CBS in RRBs.
First, the individual RRBs develop their own Data Center (DC) and Data Recovery Center (DRC). A variant of this model could be the Application Service Provider (APS) Model where the entire work is outsourced to an outside agency.
Second, all RRBs in the country brought under a common DC and DRC, owned and managed by a centralized agency.
Third, all RRBs in the country brought under a common DC and DRC of the sponsor bank.
So far, the computerization efforts in RRBs have largely remained banks-specific. Only in the case of a very few sponsor banks, some uniform strategy for computerization of their RRBs has been implemented. However, CBS being a cost intensive technology, individual decisions by RRBs in going in for their own strategies may not be desirable. Moreover, most RRBs would not have the technical expertise available to take sound decisions in the matter. They would thus be exposed to the different vendors trying to push their products in the market. Further, RRBs lack the manpower skills that would be required for such technology management, particularly in the initial stages. Therefore, the first approach mentioned above, could not be considered further. A variant of the first approach discussed was the case of an Application Service Provider (ASP) which would outsource the entire work for the RRB. It would provide the DC/DRC facilities and take care of the operations for a price. However, it was viewed that for individual RRBs the proposition would be costly. It would be more advantageous if a group of RRBs adopt this approach. For logical reason, the grouping could be on sponsor bank basis. In that respect, the third approach was favoured.
The case for bringing all RRBs under the common umbrella for the
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purpose of CBS was put forth before the committee. It was highlighted that a single agency having this responsibility would lead to huge economics of scale and ensures uniform technology and processes among the entire RRB sector. It was suggested that RBI or NABARD may take up this responsibility. It was also suggested that even a separate institution or company could be created to initially install the system and thereafter manage it. This approach was examined by the committee and it was absolved that it would not be possible for RBI to enter this domain in view of its regulatory responsibilities. At the present, NABARD is the supervisory authority for RRBs and hence it may not be appropriate to entrust it with this operational area. Creating a new authority for this purpose may also be difficult in view of multiple stakeholders of RRBs and numerous sponsor banks, which include public sector banks, private sector banks and a cooperative bank. The integration of different RRBs, which are at varying stages of computerization and adopting different platforms, would also be an extremely difficult task to manage.
The third approach merited detailed consideration. Most of the sponsor banks as well as RRBs which interacted with the committee during its deliberations were of the opinion that RRBs could share the infrastructure of their sponsor banks. Almost all sponsor banks have achieved considerable experience in CBS in their banks. it was suggested that a separate database instance could be created for the RRBs in the DC and DRC of the sponsor bank. This would make the implementation cost effective. It was pointed out that Central Vigilance Commission (CVC) guidelines would not be permit extending the sponsor bank’s CBS in its entirely to their RRBs. The requirements of RRBs may also be different their sponsor banks, although not to a great extent. Under this approach, the sponsor bank could provide all necessary technical, managerial and training support to the RRBs. In the light of the above, the committee is of the opinion that the ASP model for CBS of RRBs may be suitable. However, where significant cost reduction and economics of scale result, the resource sharing model with sponsor bank may be considered.
It may be noted that out of 28 sponsor banks, 11 banks have sponsored only one RRB while 7 others have sponsored two RRBs each. These
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RRBs are mostly located in the state where the Head Office of the sponsor bank is located. The approach of these sponsor banks could be different from sponsor banks which had more number of RRBs, spread over different states. Most sponsor banks have relied upon a few providers of their CBS requirements. While 11 banks have adopted Finacle solutions provided by Infosys Technologies, State Bank of India, its associate banks and 4 other banks are on the TCS Bancs 24 platform. Two banks are using the Flexi cube solution of iflex while one bank has developed its in house system.
ASP MODEL
The Application Service Provider (ASP) model is based on outsourcing of the DC, DRC and system management process. Typically, ASPs develop, deploy, and manage specialized software services from centralized facilities for a broad customer base. ASPs offer economics of scale, enabling their customers to eliminate high upfront and fixed capital costs, and reduce ongoing maintenance costs through the sharing the application services. In addition to cost savings, ASPs also deliver continuality enhanced capabilities – freeing up a bank’s resources and enabling it to focus on its core business. Many companies have constructed DCs, DRCs, and system applications for individual banks. The committee invited selected vendors to make presentation of their products for banks and also obtained the views of sponsor banks and RRBs regarding their experience with the vendors.
One vendor made a presentation before the committee depicted a model using B@NCS 24 software, which has already been adopted by 116 banks in 35 country, including India. The software is been in the CBS of State Bank of India its seven associate banks, Allahabad Bank, Indian Bank, Central Bank of India and Bank of Maharashtra. It was mentioned that the software is a highly advance, state-of-the-art system that provide reliability, flexibility and rapid response to market pressures. Using on-line, real time transaction processing technology along with the latest in relational data base techniques, it provides a stable, resilient and flexible core banking facility. It can be scaled from the smallest organization to the largest depending on the performance required.
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The system has offline ‘store and forward ‘processing feature that enable branches operations to continue should there be a communication malfunction. This system caters for transaction data storage and posting and forward the data when the communication has been re–established. Different providers have varying products in the market. In this context, the committee is of the view that respective sponsor banks may be given the option of selecting the provider for their RRBs. This provider may be same as for the sponsor bank or different as per the requirement of the RRBs. In case a sponsor bank has developed its own software, it may consider making the same available to its RRBs.
The committee is also of the view that sponsor banks must own major responsibility in taking RRBs on the path to CBS. However, the requirements of the RRBs have to be borne in mind as these banks may not require the full suite of services that are available in sponsor bank and hence a plain vanilla tailored to their needs should be provided.
As regard connectivity, there are several method of connecting the branches, such as leased lines, ISND line, VASTs and radio connectivity. Most of the banks are using leased line connectivity for their branches with minimum 64 kbps bandwidth. As a fall back, they are using ISDN line. At remote branches, where the leased line connectivity, which provides limited bandwidth sufficient up to four users. Connectivity through VAST is cost effective too. RRBs may go in for economic connectivity options, depending upon the situational position of the branches.
USE OF SOLAR POWERED DEVICES FOR RRBs
The working Groups also examined the use of solar power devices for RRBs particularly in respect of branches located in remote areas which are not assured of continuous power supply. In this context, the experience of one of the RRBs in Uttar Pradesh, which has made a beginning in this direction, was also studied.
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Solar photovoltaic cells convert the sun’s energy into DC electricity using silicon cells called solar cells. When sunlight falls on the solar cells, a DC voltage is generated across the cells. The solar cells are connected to a battery through a charge controller and electrical energy is stored in the battery. From the energy stored in the battery, either a DC load or an AC load through inverter is operated.
As our country is amply endowed with abundant sunlight, solar energy is easily available. It is ‘green’ energy and does not pollute the environment. The ‘fuel’ (sunlight) is available everywhere and is free. It does not require any transmission mechanism and the capital can be expanded whenever required. As it is in solid state and has no movable machinery, the maintenance requirement is minimal. Moreover, solar panels have a long life of about twenty years. In the light of all these advantages, solar energy option for meeting the energy requirements of RRBs branches, particularly in rural/semi urban and remote areas where power supply may not be available for several hours in a day, is worth considering.
The power requirements of a rural branches should take into account the basic lighting needs of the branches as well the requirements for CBS infrastructure. A rural branches would typically require three computers with TFT monitor (without individual UPS), one server for CBS, one printer and scanner and five LED based lights for lighting. An average of eight hours of operation every day for five days in a week for the computers and 365 days in a year for server would be required. To meet these requirements, a 1.5 KW power solar system (stand alone) with battery and inverter would be required. The size of the solar system required would increase with the number of computer and vice versa.
One of the vendor who made a presentation before the committee indicated that the price of 1.7 to 2.05 KW power solar system would be between Rs 6.2 to 7.4 lakh. It was further stated that the users could claim 80 percent depreciation on the initial investment in the first year itself. It
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was mentioned that if the overall life the solar power system is considered, it would be far economical compared to the traditional DG sets presently begin used in branches to supply power at times of power failure.
Vijaya Bank, a public sector bank, had successfully done a pilot on powering 60 rural branches through sola power in 2006. It was also learnt that since the last one year, one of the RRBs in Uttar Pradesh (Aryavart Gramin Bank sponsored by Bank of India) has been using solar power packs for supplying power to five of its branches. The members of the committee visited the bank and also two of these branches to get a firsthand knowledge of the experience of the bank in this regard.
The system use solar power panels mounted on the roof of the building at a specified angle. It was informed that these panels provided optimum output at temperature of 25 degree centigrade, irrespective of whether it was sully or cloudy.
Recently, in order to cover slightly larger branches with area of 1200 square feet, a system with a higher capacity, capable of running two PCs (one of which can act as server), four disk less PCs, a passbook printer, a dot matrix printer, a scanner, a switch, a hub, four lights and three energy efficient fans had been installed in two branches of the banks. The cost of such a system was about Rs 3.64 lakhs. The effective operational cost of the system over a seven year period was calculated as Rs 4.11 lakhs after claiming a benefit of Rs 0.78 lakhs as saving on depreciation during the first year. In comparison, the effective operational cost of traditional DG set work out to Rs 8.06 lakhs over a seven year period. The detailed cost -benefit analysis worked out in this regard is annexed. Although the initial cost of solar power unit is far higher than a DG set that is traditionally used for power in the absent of direct power supply, the effective cost over a time period works out to be less. Thus, solar powered branches can prove to be viable and economical as compared to relying on DG sets in areas where power is a serious problem. Further, use of solar power is an
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environment friendly option and its use may be encouraged. The committee is of the opinion that RRBs branches in such areas can takes recourse to powering their branches through solar power, even in a CBS scenario.
(B) STATUS OF INFORMATION TECHNOLOGY PRE–MERGER
In the pre–merger period
Level of computerization is far behind schedule.
Even RRBs of same sponsor banks although following the same technology, are at different levels of computerization due to varied financial health, environment and local conditions which has become a problems when such RRBs have been amalgamated.
Computerization needs both capital and recurring expenses which are beyond the capability of some of the banks.
RRBs, which have progressed well, have adopted a particular technology mainly of the sponsor bank and invested sizable amounts.
Such amalgamated RRBs have growth bigger in size and volume of business is like to grow further.
While there is much benefit in standardization of technology application, it may not pose any problem for such RRBs which are in nascent stage of development; for such of the RRBs which have progressed well in computerization will face difficulties not financial implications, but also for switching over to new technology.
A few RRBs reaped the benefit of hosting their own website by way of mobilization of deposits from non traditional segments.
A few of them established direct links with money market operators for Investments.
Internet facilities have been used for faster communication with
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techno savvy customers and other agencies.
In the pre–merger period information and telecommunication with technology were the base for invention of new services and improvements of existing one. The main categories of these products are : Internet banking, electronic payments investment securities, and information exchanges. New offers provide significant amount of incomes for banks and convenience for their customer. Technological innovation not only enables a broader reach for customer banking and financial services, but also enhances its capacity for continued and inclusive growth. Through IT improvement in the quantum and quality of financial intermediation. Banks and financial institutions rely on gathering, processing, analyzing and providing information in order to meet the needs of customers.
The past few years saw us marking some major milestones in the Indian payment and settlements systems. The introduction of the Real Time Gross Settlement (RTGS) Systemically Important Payment System of the Bank for International Settlement. Its also has paved the way for risk–free basic and in central bank money.
In facts, quick, safe and efficient electronic movement of funds from virtually any part of the country to any order location is now almost guaranteed. This is enabling by the coordination with the National Electronic Funds transfer (NEFT) System and the National Electronic Clearing Service (NECS).
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Table 5.1: The status of computerization in rural banks is presented in the following table:
Name OfRRBs
Branches Sponsor banks
State Status of computerizationTill present date
Head office
Branches
Bhagirath 107 Allahabad Uttar Pradesh Fully 65Sarayu 41 Allahabad Uttar Pradesh fully 41Shrasvasti 89 Allahabad Uttar Pradesh 80% 22Allahabad KGB
91 B.O.B. Uttar Pradesh Fully 2 Banks Partially
Faizabad KGB 67 B.O.B. Uttar Pradesh Fully 9 Banks fullyFatehpur KGB 51 B.O.B. Uttar Pradesh Fully 1 Branch fullyKanpur KGB 96 B.O.B. Uttar Pradesh Fully 3 PartiallyPratapgarh KGB
71 B.O.B. Uttar Pradesh Fully 3 Branch fully
Raebareli KGB 69 B.O.B. Uttar Pradesh Fully 4 Branch fullySultanpur KGB 94 B.O.B. Uttar Pradesh Fully 1 Branch
partiallyBareli KGB 81 B.O.B. Uttar Pradesh Fully 9 Branch fullyShahjhanpur KGB
36 B.O.B. Uttar Pradesh Fully 6 Branch fully
Aligarh KGB 86 Canara Bank Uttar Pradesh 4 25 Comput erisation
Etah GB 58 Canara Bank Uttar Pradesh 3 10 Comput erisation
Jamuna GB 39 Canara Bank Uttar Pradesh 3 39 Comput erisation
Hindon GB 22 P.N.B Uttar Pradesh Yes 6 Branch computerisation
Muzaffarnagar KGB
25 P.N.B Uttar Pradesh Yes 15 Branches
Vidur KGB 41 P.N.B Uttar Pradesh Yes 40 BranchesBasti GB 105 P.N.B Uttar Pradesh Yes 5Gorakhpur KGB
200 S.B.I Uttar Pradesh Yes 21
Gomti GB 84 U.B.I. Uttar Pradesh Head office & 2
35 Branches & 1
Kashi GB 82 U.B.I. Uttar Pradesh H.O 59Branches Partially
Samyut GB 168 U.B.I. Uttar Pradesh H.O. & 6
100 Branches Partially
(Source –Report of the Working Groups on Technology Up gradation of Regional Rural Banks, Reserve Bank of India Mumbai August 2011)
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(C) STATUS OF INFORMATION TECHNOLOGY POST – MERGER
The present status of computerization in RRBs also reviewed by obtaining information from NABARD as well as the sponsor banks of RRBs. Although the data in the statements may not fully accurate, it gives a fairly true picture of the state of computerization of the RRBs sector. It may be seen that the progress of computerization varied greatly among the RRBs at the individual level, group of RRBs at state level and group of RRBs at sponsor bank level.
At the bank level, it may be seen that out of 89 RRBs, 20 (22 percent) had reported 100 percent computerization of all their branches. Among these, were four RRBs from Maharashtra, three Gujarat and Karnataka, two each from Madhya Pradesh and Punjab and one each from the states of Andhra Pradesh, Haryana, Himachal Pradesh, Kerala, Rajasthan, and Tamil Nadu.
At the bank level, it may be seen that out of 14,456 branches for which information was furnished 4,944 branches (34 percent) had achieved 100 percent computerization. In addition, 3,829 branches (26 percent) had achieved partial computerization. Thus, even part computerization not had yet taken place in as many as 40 percent of the RRBs branches.
Among states, while Gujarat and Kerala had achieved 100 percent computerization all RRBs branches, the percentage was only 3 percent and 5 percent for Jharkhand and Jammu and Kashmir respectively.
Six sponsor banks namely, Indian Bank, State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank of Patiala, State Bank of Saurashtra and Vijaya Bank had achieved 100 percent computerization of the seven RRBs sponsored by them. On the other hand, in the seven RRBs sponsored by five banks namely, Indian Overseas Bank, Punjab and Sind Bank, Union Bank of India, The Bank of Rajasthan Ltd and Uttar Pradesh State Cooperative Bank, there was no branches which had been 100 percent computerization. Further, within the same sponsor bank also, there were extreme variations in the level of computerization of RRBs.
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While some RRBs had achieved 100 percent computerization of all their branches, other RRBs had not achieved that level in any of their branches. Thus the percentage of branches computerization even within a sponsor bank ranged from zero to cent percent (for example of Maharashtra, Syndicate Bank and State Bank of India).
Further analysis carried out by NABARD revealed that total number of personal computers (PCs) in RRBs was 32,376 of which 28,587 PCs were at the branch level. The average number of PCs per branch worked out to 2.02. There were over 5,000 branches where the PCs were either not available or non–functional.
The committee is of the view that these significant difference in the level of Computerization between different RRBs needs to be taken into account while preparing any plan for further technology up gradation of RRBs.
Table 5.2: The percent status of computerization in Regional Rural Banks with reference to states under present study is given in the following table-Name of sponsor bank
Name of Amalgamated RRBs
Numbers of
Branches
BranchesComputerization
Branches (ALPM)
Branches (TBA)
100% PartialAllahabad bank
Lucknow KGB
240 0 174 0 174
Bank of Baroda
Baroda Eastern U.P Gramin bank
539 0 256 0 256
Bank of Baroda
Baroda Eastern U.P Gramin bank
116 0 97 0 97
Canara Bank
Shreyas Gramin Bank
183 0 183 183 0
Punjab National Bank
Uttar Pradesh Gramin Bank
265 0 255 0 255
State Bank of India
Purvanchal Gramin Bank
305 0 285 0 255
Union Bank of India
Kashi Gomti Samyut GB
336 0 0 329 7
(Source-Report of the Working groups on Technology Upgradation of Regional Rural Banks, Reserve Bank of India Mumbai, August 2011)
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Merger & Acquisition have become very popular throughout the world in the recent times. This has become popular due to globalization, liberalization, technological developments & intense competitive business environment. Merger and acquisition are a big part of corporate finance world. This process is extensively used for restructuring the business organization.
In India, the concept of merger and acquisition was initiated by the government bodies. The Indian economic reforms since 1991 have opened up a whole lot of challenges both in the domestic and international spheres. The increase competition in the global market has prompted the Indian companies and banks to go for mergers and acquisitions. The trends of the mergers and acquisitions in India have change over the years. The immediate effects of the mergers and acquisitions have also been diverse across the various the various sectors of Indian economy and banks. The main objectives of Merger & Acquisition transitions are proper utilization of the available resources, to prevent exploitation of unutilized and underutilized assets and resources, forming a strong human base, reducing tax burden, improving profits, eliminating or limiting the competition and achieving savings in monitoring costs.
However, the merger and acquisitions of banks also lead to many problems in the banks. There are lots of problems faced by banks due to merger and acquisition which can be described as below:-
(A) ORGANIZATION PROBLEM
Basically, an organization in its simplest form (and not necessarily a legal entity, e.g., corporation or LLC) is a person or group of people intentionally organized to accomplish an over all , common goal or set of goals. Business organization can range in size from one person to tens of thousands. There are several important aspects to consider about the goal of business organization. These features are explicit (Deliberate and recognized) or implicit (operating unrecognized, “behind the scenes”).
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Ideally, these features carefully considered and established, usually during the strategic planning process.
Members of the organization often have some image in their minds about how the organization should be working, how it should appear when things are going well. Organization operates according to an overall purpose, or mission. All organizations operate according to an overall values, or purities in the nature of how they carry out their activities. These values are the personality, or culture, of the organization. Organizational member often were to achieve several overall accomplishment, or goals, as they work toward their mission. Organizations usually follow several overall general approaches to reach their goals. Organizations have merge subsystems, such as departments, programs, divisions, terms, etc. Each of these subsystems has a way of doing things to. Along with other sub system; achieve the overall goals of the organization. Often, these systems and processes are defined by plans, policies and procedures. Mergers and acquisitions are part and parcel of big business. In an ideal merger, the newly created entity pools the best features of the two merging organizations. Mergers and acquisitions are increasingly being used by firms to strengthen and maintain their position in the marketplace. While most early Mergers and Acquisition research focuses on the financial and strategic issues, the recent literature focuses on the human resources (HR) aspect of Mergers and Acquisition. Today, it is widely accepted that the way in which HR issues are handled is critical to the success of any Mergers and Acquisition. The major problem faced by bank due to merger is non-integration of human resource of both the transferor and transferee banks. It is seen that, most Mergers and Acquisition failures can be traced to poor support of HR-related issues and activities. An unsuccessful Mergers and Acquisition integration process may have detrimental effects on a bank, including loss of key personnel, a declined in employee productivity, reduced job satisfaction, communication breakdowns, and resistance to changes.
When a merger is announced, employees of the bank become worried about issues like job security, role conflicts, interpersonal conflict, cultural adaptations, etc. Such factors hold the power to make or break
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the deal. It s issues as the management fails to deal with them aptly.
So it becomes the responsibility of HR personal of the organization to take care of such issues before and after the amalgamations takes place.
Human Resource Issues:
Out of the respondent banks, 90 percent of banks have rated that human resource function is the most complicated Organizational issue in mergers. Human resource (HR) management issues like reward strategy, service conditions, employee relations, compensation and benefit plans, pension provisions law suits and trade union actions are critical to the viability for the deal and merger plan.Another problem is the difference between the organizational structures of the banks. Since the organizational structures are different, differences in compensation packages and designations can take place. The bank has to maintain employees at equal levels. Unable to do so, employees can feel dissatisfied.
Culture Issues:
Another critical issue in pre and post merger period is culture. Culture central to the institutional environment in which people have to work. Culture issues are crucial in any merger or acquisition that depends on collaboration for its success, which they increasingly do in any economy. Both parties have to commit for culture audit as a component of due diligence process. This can help both businesses understand each other’s cultures and gain a sense of the cultural traits that they hope to either preserve on or after the merger. Every bank organization has its own culture and some traditional activities. Some banks are concentrating in regional rural customer’s development like lending loans and advances to agriculture, jewels, small loans, etc to their local people. Some players are concentrating lending personal loans and housing loans. Cultural Integration is an essential pre-requisite for a successful merger, where two banks aim to take the “Best of Both” and create a new culture. (Devine, 2003). It often becomes very tough to integrate the cultures of two different banks, who often have been the competitors. The mismatch
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culture leads t o deterring working environment, which in turn ensures the downturn of the bank. As organization culture is the part of employee’s identity, if the culture issues are not effectively addressed, it may lead to loss of commitment among employees resulting in lost opportunities to retain personnel and motivate individuals.
Integration of Information Technology:
Modern commercial banking is highly Information Technology (IT) dependent. IT is not a process driven necessity along but a key strategic issue. According to McKinsey as quoted in Walter (2004), 30 to 50 percent of all bank merger synergies depend directly on Information. Technology in India, around 65 percent of branches are fully automated and only 12 percent of branches are offering core banking solutions (RBI,2005). Divergent IT platforms and software systems have proven to be important constraints in consolidation. IT people tend to take proprietary interest in their systems created over the years and they tend to be emotionally as well intellectually attached to their past achievements. Often conflicts may arise about superiority of one IT infrastructure over the other. Successful IT integration is essential to generate a wide range of positive outcomes that support the underlying merger rationale. The main issues are alignment of existing IT configuration to support the business strategy of the combined entity, and robustness of IT systems to digest a new transformation process. The core banking solution used by different public sector banks may be different. This calls for integrating the banking solution for the banks. Most of the banks are at different stages of implementation. Thus, it would pose stiff challenge to the merging entities to integrate their technology and working platform. The other issues are making the systems user friendly, system reliability and free from operational risk.
(B) STAFF PROBLEM
When two banks that have different style of functioning merge, there is a clash between the banks which pulls them together into different direction apart from their aims & objectives and in the process endanger the advantages envisaged both in the real life as well as in the scheme of
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amalgamation. Thus M&A had a great impact on the individual or group working in bank & on working conditions. Organization must effectively develop and implement assistance program for displaced employee. Such program should include advance notification, severance pay extended benefit, retaining program and outplacement activities. A bank not only needs to select a right target, but also must have culture in place that accepts the acquisition as quickly as possible. Thus in nut shell we can say that Merger and Acquisition have become common in our country’s business set up. There is a tremendous need for people.
Merger and Acquisition helps a Bank to grow in a better way but it has a great impact on the employee working in a bank & on working conditions. The employee of the companies merging and acquiring are mostly affected by Merger and Acquisition. Due to this reason, there is mostly failure of Merger and Acquisition. To break the mindset of people working in banking undergoing Merger and Acquisition and to convince them that merger is for common good & will help them in their growth is normally an uphill task.
Merger will cause problems in the market and also to the employee and investors these problems include loss of jobs, demoralization of employees, loss of investor confidence and a decline in the market area and other problems which are discussed below, from various scholar it is evident that merger often will cause more problems that advantages gained.
Effect on employees:
Planned merger adversely affect the employees of the merging banks; the merge process is a slow process and affects the employee of both banks, when announcements are made about the merger of banks the working climate in those bank change, workers are confused and anxious about what will happen when the merge takes place and this reduces productivity of these workers, employees also feel betrayed and therefore mergers will result into reduced employee loyalty. Both banks will therefore report poor performance due to reduced productivity and efficiency during the merger negotiation process.
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Job losses:
Merger involve major restructuring of the banks structure of the new bank to be formed, this is due to the fact that merging banks will eliminate duplicate processes as a way of cutting down on production costs, as a result of this employees will loosen their jobs because of this restructuring. The merger process leads to uncertainty among employees regarding the impact of merger on their career and job, for this reason therefore employees spend more time thinking about their career and job rather than their jobs and this will reduce the productivity of the employees in both banks.
Effects on managers and other top ranking employees:
Merger of two organizations is actually a merger of individuals and groups working in bank which had a great impact on individuals working in a bank such as it create ego clashes among individuals working in a bank. Managers and other top ranked employees in both banks may be deprived of their authority after the merger. This is a painful process and may affect their performance after the merger. This process demoralizes such employees and performance of the new bank formed may be even worse. This resulted in negative effect on them and consequently affects the banks performance. There are ego clashes between the top management and subsequently lack of co-ordination among them may lead to collapse of bank after merger. This problem is more prominent in cases of mergers between equals.
Merger and Acquisition affects the CEOs of the bank because they are the most creative and talented people within the organization. The resultant loss of control devastates these individuals. The stress level experienced by these executives often travels through the chain of command, affecting subordinates as well.
During the merger and acquisition process, managers often need to concentrate and invest time to the deal. As a result, they often get diverted from their work and start neglecting their core business.
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Slow negotiation process:
Mergers involves a process that takes time to complete, much time and resource are spent in the process which may adversely affect the performance of the bank, managers concentrate on the negotiation process rather than the banks operation and this will result into poor performance of both banks. During this negotiation process the workers in both banks will spend most of their time gossiping and speculating on what will happen in after the merger and for this reason there will be reduced performance in the banks.
Effect on salary/ compensation package:
Many personnel issues such as salaries, benefits, pension of employees are also affected due to Merger and Acquisition. Since the organizational structures are different, differences in compensation packages and designation can take place normally. This may result in adverse effect on the employees.
Fear of transfer/retrenchment:
There is also a separation anxiety among the employees because they think some of their co-workers will be leaving the bank. The atmosphere of apprehensions leads to bank wide rumors. The employees lose faith in their organizations and tend to become de-motivated.
Employees of the bank are mostly scared by Merger and Acquisition thinking that they will be given step motherly treatment. This question is always in the minds of employees of the transfer’s bank. This fear of transfer and retrenchment, the loss of position in the hierarchical level are some of the thoughts which always remain in the minds of employees of both the bank.
The employees face great uncertainty which in turn produces stress. Such stress ultimately affects their perception and judgment. Due to stress among employees by Merger and Acquisition, the most common reactions displaced by them are loss of identity, lack of information & anxiety, talent is lost, family repressions.
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Disturbance in working environment:
There is also lot of reorganization & restructuring in the bank during the days when Merger and acquisition process is going on. The process of Merger and acquisition by which bank is bought or sold can prove difficult, slow and expensive. This Merger and acquisition transaction typically required six to nine months and involves many steps. Locating parties with whom to conduct transaction forms one step in the overall process and perhaps it is the most difficult step in the transaction. This process of Merger and acquisition has a great impact on the work culture during those days as it disturbs whole organization of the bank.
In an acquisition, the buyer assumes the dominant parent role and the acquired bank assumes the subordinate role, acting in the role of stepchild. Just as step parents may deny stepchildren certain family resources. The acquired bank may also experience similar after an acquisition takes place. This situation is caused due to lack of fit between the two banks. Such lack of fit is an issue and it has a great impact on the acquired bank as it affects its work culture, organization and mainly on the employees working in the bank. The employees may also get emotionally confused in the new environment after the merger. Hence, the work gets hampered.
Negative impact on performance:
The uncertainties of Mergers and acquisitions shift the focus of employees from productive work to issues related to interpersonal conflicts, layoffs, career growth with the acquirer bank, compensation etc. Moreover, employees are worried about how they will adjust with new colleagues. The merger involves downsizing, hence the first thing that comes to the mind of employees is related to their job security. Merger also leads to change in the well defined career paths of employees. Due to these reasons employees find themselves in completely different situation with change in job profiles and work teams. This may have negative impact on the performance of the employees.
Employees are the main victims when M&A takes place. They may be
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hurting themselves by trying to copy with new changes. When they realize that their potential for future growth within the organization dwindles, often become withdrawn and frustrated which can affect productivity of the bank severely.
Cultural difference:
Each bank has its own set of values which may conflict with those of acquired bank. The employees may not be able to accommodate themselves in new culture and thus may lead to cultural shock. Inability to adapt to new culture increases stress level among employees and results in low job performance. The need therefore is to follow structured approach in dealing with cultural differences.
(C) CUSTOMER PROBLEM
A customer, also called client, buyer, or purchaser, is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services. However, in certain contexts, the term customer also includes by extension anyone who uses or experiences the services of another. A customer may also be a viewer of the product or service that is being sold despite deciding not to buy them.
Merger and acquisitions have had a varying problem on different clients. The growth of information and communication technology based services (such as Internet Banking) and increase in the product choice have, no doubt, benefited the majority of larger, wealthy and standard clients. But a significant minority of individuals is negatively affected by this trend as lack access to use while at the same time losing access to local branches. As a result of closure of branches and transfer of backroom functions on account of use of information and communication technology in merger and acquisitions, the level of physical local service provision is reduced requiring consumers to travel greater distances, to receive a personal service. No doubt, a significant number of consumers feel happy to conduct their financial business at any time of day through internet
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service. However, pursuant to merger and acquisition resulting in distance of their bank branch, the customers regret the loss of more personal, local face-to-face interaction. Such consumers fell that recent developments have lowered the quality of financial service provision by not providing personal and face-to-face service. Many consumers of Indian banks are poor and illiterate. They lack the modem amenities like telephone, computer etc., to reap the benefits of electronic/telephone banking, ATM,E-Banking, etc. Even for filling the necessary forms, etc, and the customer depend upon the bank staff. So closure of branches also affects such people as these banks reduce the level of physical service prevision and deny access to banking services. Emotional factors, such as feeling that their bank no longer valued them as it did before or the belief that it no longer looked out for their best interest.
These high-impact events including losing trust and confidence in their new bank, concerns about the security of account, not felling that their new bank valued them or looked out for their best interests as their old bank did and the loss of a personal relationship with bank employees.
Problems with service quality expected by customer to banker are another grey area of merger and acquisition. This includes the perception of an overall decline in service quality, especially when telephoning the bank, and felling that meeting their needs required too much time and effort. Effective integration planes place a priority on minimizing disruption and maintaining service levels during the acquisition process, with the goal of avoiding any account error during the transition that could erode customer trust.
Customer experiences to be considered span across the integration life cycle from the first day that the deal is announced through the post-conversion period. In the early stage of an acquisition, for example, customer have fundamental questions that arise as they hear news of the deals. If these questions are not addressed sufficiently and in a timely manner, there is the risk that early concerns and skepticism about the deal will become permanent. This can be aggravated by the efforts of competitors to” poach” customer. In the early stage, the morale of
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employees of the acquired bank can also suffer, with increased anxiety and concern about what happens to them, which can all translate to eroding customer service.
Customer experiences when attempting to access account information and conduct transactions are even more important. Banks may want to consider whether the transaction will be seamless for customers or whether it will instead require significant effort on their part. If the sign-in process for accessing their account online is changed, this can require a significant amount of effort for customer and lead to frustration.
The method of providing account information can also affect the customer experience. For example, if checking account statements at the acquired bank including savings account information and this are removed by the new bank, customer may view this as a reduction in service. On the other hand, if will care provided that their PIN works and they can withdraw cash.
Acquiring banks should carefully consider how changes to products offerings and prices are managed. The challenge, and opportunity, is to present these changes as providing a better value proposition for the customer –where higher prices are justified by the better value or where fewer features or service is matched by more competitive prices. If customers do not see how they will benefit from any changes in products or fees, they might consider seeking out and entertaining offers from competitions.
However, effective planning and execution goes beyond addressing obvious disruption. It involves ensuring strong communication that is consistent across channels and proactively indentifying opportunities to provide service that exceed expectations. Given the central role of employee in interacting with customers, acquiring banks can benefit from investing early in training customer –facing staff, especially in call centers, on product offerings and expectations regarding customer service. If the call center number is changed, but calls to the old number are not automatically transferred to the new number, customer may have a negative experience when first contacting their new bank.
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(D) LEGAL PROBLEM
The Merger and Acquisition process is required to be carried out within regulatory framework laid down by various authorities /guidelines. The banks involved in merger and acquisitions have to follow the laid down rules and regulations. If the regulatory framework is not followed by the banks involved in merger and acquisition, then the whole process of merger and acquisitions will become void.
Merger and Takeover are generally seen in Public Policy as activities, which, if left uncontrolled, can lead to negation of Public interests. As a result, these activities are controlled through various Statutes and Codes of Conducts. Some of the contentious issues that emphasize the need for evolving a Takeover Code are discussed below.
Sec. 111 and 390 to 396 of the Companies Acts, 1956, governs merger and acquisitions. Similarly Sections 19, 26 and 29 of the erstwhile FERA relate to transfer of shares. Where one of the transacting parties is a Non–Resident Indian, the Act prohibits the transactions except with the sanction of the Reserve Bank of India (R.B.I.). Sec. 30(A) to 30(F) of the MRPT Acts pertain to transfer of shares relating to dominant undertakings as defined in the Act. Further, Sec. 22(A) to 22(F) of the Securities Contract (Regulation) Acts, 1956, deals with the transfer of shares. Clauses 40(A) and 40(B) of the Stock Exchange Listing Agreement From also lay down the rules in case of takeover bids.
Before 1960, section 44A of the Banking Regulation Acts only provided for the voluntary amalgamation of banks. But after widespread weakness in the banking sector, the Acts was amended by the adding Section 45 to allow for compulsory amalgamation wherever necessary and on a voluntary basic wherever possible, in order to strengthen the banking system by eliminating small and weak banks. The main difference between an amalgamation and a transfer is that, under amalgamation the bank, which is taken over, ceases to extist, while under transfer the bank can opt to either go into liquidation or convert itself into a non-banking bank. Under Section 45 of the Act, RBI has power to compulsorily reconstruct or amalgamate a weak bank with any other bank.
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Section 44A of the Banking Regulation Act lays down the procedure for amalgamation of banking companies. Section 44B of the Act further empowers RBI in the matter of compromise arrangement between a bank and its creditors. These have to be approved by RBI and such compromise cannot be sanctioned even by a High Court. Under Section 36 AE of the Act, the Central Government can under advice from RBI take over a weak bank. When a bank is placed under liquidation, the High Court can appoint RBI, SBI, or any other banks as the official liquidator and monitor the speedy disposal of winding up proceedings. Part -2 C of the Banking Regulation Act deals with the acquisition of the undertaking of banking companies. Section 36-AE of the Banking Regulation Acts deals with the power of Central Government to acquire undertakings of banking companies in certain cases. Sec. 36–AF deals with the power of Central Government to make scheme and Sec. 36–AG deals with compensation to be given to shareholders of the acquired banks. The Central Government on receipt of a report from the RBI may acquire a banking bank if it fails to comply with the directions given to it under Sec. 21 or Sec. 35-A of the Banking Banks Regulation Act. Similar action may also be taken if the Banking Bank is being managed in a manner which is detrimental to the interest of its depositors, or against the banking policy. Reasonable opportunity should be given to the bank before taking such action.
If the bank involved in merger and acquisition do not follows above framework then legal problems arise. The best way to combat legal problems is to seek guidance/cooperation from legal experts on the subject.
(E) OTHER PROBLEMS
Apart from organization problems, staff problems, customer problems, and other legal problems. There are some other problems associated with merger and acquisition of regional rural bank. These relate to:
Shareholder –
Increasing the shareholder’s worth is generally a prime objective of
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most of merger and acquisitions today. The value to shareholder through merger and acquisitions could be increased either by cutting the costs by combining similar assets in the merging concerns or by enhancing capabilities and revenues, and combining complementary competencies.
However, most of the studies on the Impact of merger and acquisitions on shareholder wealth reveal that on an average, merger and acquisitions consistently benefit the target company’s shareholder, but not the acquirers’ shareholders. Various consulting firms have also estimated that from one-half to two-third of mergers and acquisitions do not come up to the expectations of those transacting them, and many resulted in divestitures (schweiger, 2003). The UNI Europe survey conducted in 2000 to study the impact of mergers and acquisitions on shareholders reveal that share price of that target company is positive, while the share price of the acquiring company is negative in the medium and long-term after the merger announcement.
A US study involving a larger sample showed that acquired companies which did well prior to the merger, deteriorated after the event. Acquired companies that did badly prior to merger went from bad to worse furthermore. It is found that 19.47% of the acquisitions were disinvested within 10 years of acquisition. Over the years, academic studies have consistently, shown that only 15 percent of merger are successful and 60 percent have negative result (Banu, 2005).
A KPMG study indicates around 82 percent respondents believed that the merger was a success but it was found that around 75 percent of these projects had failed to deliver shareholder value.
Moreover, the economies of scale are likely to accrue only up to an optimum limit beyond which it may prove unwieldy and inefficient to manager and soon economies of scale may disappears. This may adversely affect the shareholders.
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General Public-
Local characters of some of the banks are another problem arising on account of Merger and Acquisitions. It is learnt that SBI never thought of merging its associates with itself because each of the associate banks has its own regional flavor, a clientele with which is more comfortable after having nurtured it over many years, and therefore, enjoys ea niche presence. If the regional banks, for instance, State Bank of Travancore, or State Bank of Indore or State Bank of Mysore, is merged into a single gaint entity, it may affect the regional subsidiary and also the present bank. Some of these banks have strong local or regional flavor to their operations that could get eroded if they were to merge with the parent. A couple of years ago when Syndicate Bank tried to relocate its head office to Bangalore from Manipal, there were wide protest from local and politicians. Even though, later on bank moved many senior positions to Bangalore, it took more time and was more expansive as it retained its HO in Manipal. All the nationalized banks and private sector banks, even those that are weak, arouse strong local feeling. It would be difficult for a healthy profit-making bank to sacrifice if identity (Banu, 2005).
Small and Medium Enterprises-
Merger and Acquisitions may result in poor credit so to small borrowers, venture capitalist, and small and marginal farmers and a lion share may go to corporate sector. Consolidation increases the size and complexity of the business. Bigger bank have a tendency to look for bigger player to the exclusion of SME sector. But, the Small and Medium Enterprises (SME) sector has played an important role in Indian economy. The development of SMEs is critical to the overall economic growth due to their employment generating potential, contribution to exports and flexibilities in operation. The sector currently contributes 40% of total industrial production in the country and over 34% of national exports. In terms of socio-economic importance, the total number of SMEs at 11.39 million units is nearly of the 95% of the country, while providing employment to nearly 86% of the total employment in the country (Sen and Ghohs, 2005). As per National manufacturing Competitiveness Council (NMCC), in 2003-04, small enterprises segment employed 271.37 lakh
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persons and contributed nearly 6.7 % of the Country’s gross domestic production and 39.4% of its industrial production (Baxi, 2005)22. Therefore, decline in the credit flow to this sector will certainly have adverse impact on the economy.
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(A) OVERVIEW OF AMALGAMATED REGIONAL RURAL BANKS
In order to give a further boost to profitability of Regional Rural banks and to strengthen them further, a need was felt to amalgamated more than one Regional Rural banks of the same sponsor bank operating in the same state. There were 196 Regional Rural banks operating in the country as on March 31, 2004 which included 51 stand alone RRBs. Most of the sponsor banks were operating more than one RRB in one state which resulted in more operational expenditure. There were 33 RRBs having operational losses as on March 31, 2004 and to overcome the operational problems, reduce expenditure, enhance operational efficiency, etc. the Reserve Bank of India decided in August 2004 that all sponsored by a bank and operating in one state should be amalgamated into a single entity.
This decision was more relevant in the fast changing environment in banking with introducing of more and more financial products necessitating RRBs to grow bigger. Moreover, in the changed scenario, computerization and volume were considered key to success for these entities which is feasible and viable only RRBs are big in size. The process is started in early 2005 and first set of RRBs was amalgamated in September 2005.there has been a quantitative and qualitative improvement in the performance of Regional Rural Banks following the banking sector reforms process. The policy measures undertaken with respect to Regional Rural banks Viz the permission to relocate loss making branches to better business centers had a salutary effect on their financial performance, especially profits, recovery and decline in their NPAs. As a result of these, by the end of March 2005 there was remarkable improvement in the financial performance of Regional Rural Banks as compared to the position prevailing in 1994-95. As a result of amalgamation process, 145 RRBs have been amalgamated to form 45 new RRBs. As on March 31, 2006 of the total 133 RRBs, 111 RRBs posted profits and 75 of these RRBs were sustainably viable organizations having no accumulated losses. The
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number of branches of amalgamated RRBs as on March 31, 2006 14494. Total districts covered by the RRBs were 525 as on March 31, 2006. The deposits and advances of amalgamated RRBs was 71329 crore and 38520 crore as on March 31, 2006. The amalgamation process has helped in improved profitability apart from other operational efficiencies with only 3 RRBs incurring losses as on March 31, 2006.
Lucknow Kshetriya Gramin Bank
Lucknow Kshetriya Gramin Bank (LKGB) the largest and strongest sponsored Regional Rural Bank (RRBs) of Allahabad Bank, came into existence on 1st March’2006 through amalgamation of three RRBs, namely, Bhagirath Gramin Bank (Sitapur district), Shravasti Gramin Bank (Bahraich and Shravasti districts) and Sarayu Gramin Bank (Lakhimpur-Kheri district) operating in eastern and central Uttar Pradesh with head office in Sitapur. At the time of establishment of the Lucknow Kshetriya Gramin Bank total business was Rs 1,660.23 crores and the business per branch was Rs 803.85 crores. The profitability position of the Lucknow Kshetriya Gramin Bank was Rs. 283.09 crores. The deposit accounts were Rs 1,083.49 crores. The advanced accounts of Lucknow Kshetriya Gramin Bank were Rs 576.74 crores. The non-performing assets of the Lucknow Kshetriya Gramin Bank were Rs 3309 lacs in the establishment period.
Baroda Eastern Uttar Pradesh Gramin Bank
The RRBs were established in India under RRB Act 1976 [23(1)]. Bank of Baroda has sponsored in the country of which 7 RRBs were in the Eastern Uttar Pradesh. During the period from 1976 to 2006 banking industry had under gone various changes and RRBs were no exception. Considering the need for structural changes in view of dynamically changing economic scenario, Govt. of India vide its notification dt. 23.02.2006 amalgamated 7 RRBs of Eastern Uttar Pradesh namely Allahabad Kshetriya Gramin Bank, Sultanpur Kshetriya Gramin Bank, Faizabad Kshetriya Gramin Bank, Pratapgarh Kshetriya Gramin Bank, Kanpur Kshetriya Gramin Bank, Raebareli Kshetriya Gramin Bank, Fatehpur Kshetriya Gramin Bank, Thus emerged a new corporate called
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Baroda Eastern Uttar Pradesh Gramin Bank with their head office in Raebareli. At the time of establishment of Baroda Eastern Gramin Bank total business was Rs 432739.17 lacs and the business per branch was 487.23 Lacs. The profitability position of the Baroda Eastern Gramin Bank was Rs 156.48 lacs. The deposit accounts were Rs 298728.39 lacs. The advanced accounts of Baroda Eastern Gramin Bank were Rs 98739.12 lacs. The non-performing assets of the Baroda Eastern Gramin Bank were Rs 21397.19 lacs in the establishment period. The number of branches was 534 in the establishment period.
Baroda Western Uttar Pradesh Gramin Bank
Baroda Western Uttar Pradesh sponsored Regional Rural Bank (RRB) of Bank of Baroda, came into existence on 31-03-2006 through amalgamation of two RRBs. These two RRBs are namely Bareilly Kshetriya Gramin Bank and Shahjahanpur Kshetriya Gramin Bank. Thus emerged a new corporate Baroda Western Uttar Pradesh Gramin Bank with their head office in Bareilly. The new bank will have 116 branches in 3 district of Uttar Pradesh- Bareilly, Pilibhit, and Shahjahanpur. It will have a three-tier structure with head office, two regional offices and branches. At the time of establishment of Baroda Eastern Gramin Bank total business was Rs 98327.53 lacs and the business per branch was 727.23 Lacs. The profitability position of the Baroda Eastern Gramin Bank was Rs 387.21 lacs. The deposit accounts were Rs 52329.54 lacs. The advanced accounts of Baroda Eastern Gramin Bank were Rs 27540.12 lacs. The non-performing assets of the Baroda Eastern Gramin Bank were Rs 2738.23 lacs in the establishment period.
After a short while from this restructuring, Govt. of India vide notification dated 31st March 2008, let the two banks amalgamate to form a new entity called Baroda Uttar Pradesh Gramin Bank with its Head Office in Raebareli.
Baroda Uttar Pradesh Gramin Bank
At the time of establishment of Baroda Uttar Pradesh Gramin Bank total business of the bank was Rs 807711.42 lacs and the business per branch
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was Rs 1218.26 Lacs. The profitability position of the bank was Rs 4218.50 lacs. The deposit accounts of the bank was Rs 593839.56 lacs. The advanced accounts of bank was Rs 203911.89 lacs. The non-performing assets of the of the bank were Rs 9816.60 lacs. At the time of establishment bank has 663 branches.
Shreyas Gramin Bank
Shreyas Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Canara bank i.e. Aligarh Gramin Bank, Etah Gramin Bank & Jamuna Gramin Bank vide Government of India Notification F.No.1/4/2006-RRB(i) dated 01/06/2006 with its Head Office in Aligarh. Shreyas Gramin Bank is operating in 7 Districts of Uttar Pradesh Viz Aligarh, Hathras, Firozabad, Agra, Etah, Mathura and M.Kansiram Nagar. The numbers of branches were 183 in the establishment period. At the time of establishment of Shreyas Gramin Bank total business was Rs 174706.73 lacs and the business per branch was Rs 954.58 Lacs. The profitability position of the Shreyas Gramin Bank was Rs 1460.75 lacs. The deposit accounts were Rs 109037.29 lacs. The advanced accounts of Shreyas Gramin Bank were Rs 65669.44 lacs. The non-performing assets of the Shreyas Gramin Bank were Rs 4303.17 lacs in the establishment period.
Uttar Pradesh Gramin Bank
Uttar Pradesh Gramin Bank sponsored by Punjab National Bank one of the leading commercial Bank of India, came existence by amalgamation of three RRBs Viz Vidur Gramin Bank, Muzaffarnagar Kshetriya Gramin Bank and Hindon Gramin Bank on 21-12-2005 with its head office in Meerut. Due to this merger and stronger bank has emerged which will cater to the various needs of the customers more efficiently. Punjab National Bank has already initiated necessary measures for smooth merger of the RRBs to ensure convenience and satisfaction to the customers. At number of branches was 88 in establishment period. Total business of the Uttar Pradesh Gramin Bank was Rs 57459 lacs in 2005 and the business per branches was Rs 63 lacs in 2005. The profitability position of the Uttar Pradesh Gramin Bank was Rs 658 lacs in 2005. The
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deposit accounts were Rs 39570 lacs in 2005 the advanced accounts of Uttar Pradesh Gramin Bank was Rs 17889 lacs in 2005. The non-performing assets of the Uttar Pradesh Gramin Bank were Rs 262.53 lacs in the establishment period.
On 30.11.2007 Uttar Pradesh Gramin Bank has been Sarva U.P Gramin Bank under sub section (1st) of section 23A of the Regional Rural Banks act, 1976(21 of 1976) vide Govt. of India notification.
Sarva U.P Gramin Bank
Sarva U.P Gramin Bank, by Punjab National Bank one of the leading commercial Bank of India, came into existence by amalgamation of 4 RRBs Viz (Uttar Pradesh Gramin Bank Meerut, Kisan Gramin Bank, Budaun, Rani Laxmi Bai Gramin Bank Jhansi AND Devi Patan Gramin Bank Gonda) working in the area separate in whole Uttar Pradesh “East to West” under subsection (1) of section 23 A of the Regional Rural Bank Act, 1976 (21 of 1976) vide Govt. of India notification dated 30.11.2007. The Bank has share Capital of Rs 6.00 Crores, subscribed by Central Govt, Punjab National Bank and Govt. of Uttar Pradesh in the ratio of 50:35:15. The Bank has its Head Office in Meerut. The Bank’s operational area spreads in 14 districts Viz. Lucknow, Bulandshahar, Ghaziabad, Meerut, Gautam Budh Nagar, Bijnor, Gonda, Balrampur, Budaun, Bagpat, Sharanpur, Jhansi, Lalitpur and Muzaffaranagar. The Bank has 297 Branches. Bank is going to open its Branches in Meerut, Bagpat and Sharanpur district very soon.
At the time of establishment of Sarva U.P Gramin Bank total business of the bank was Rs 239113.40 lacs and the business per branch was Rs 909.18 Lacs. The profitability position of the bank was Rs 879.93 lacs. The deposit accounts of the bank were Rs 159427.86 lacs. The advanced accounts of bank were Rs 79685.58 lacs and the non-performing assets of the bank were Rs 1603.10 lacs. At the time of establishment bank has 263 branches.
Purvanchal Gramin Bank
Purvanchal, the north eastern region of Uttar Pradesh and the divine land
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of Lord Buddha, Kabir and Gorakhnath, witness an important event on 12th September 2005. Exercising the power conferred by sub-section (1) of section 23 A of the Regional Rural Bank Act 1976, the Government of India, by its notification in the Official Gazette, for the first time provided for the amalgamation of two well established and good profit making RRB’s i.e. Gorakhpur Kshetriya Gramin Bank and Basti Gramin Bank, into one Purvanchal Gramin Bank. Purvanchal Gramin Bank having its Head Office at Gorakhpur operate through the network of its 340 branches, in 7 districts (Gorakhpur, Mahrajganj, Deoria, Kushi Nagar, Basti, Siddharthnagar and Sant Kabir Nagar) of Purvanchal. 1729 dedicated employees (as on 30.06.2001.) are working hard for the noble cause of rural uplistment to enable rural messes to become self dependent and capable of contributing towards national growth in consonance with National and State Level priorities.
At the time of establishment of Purvanchal Gramin Bank total business was Rs 233098 lacs and the business per branch was 764 Lacs. The profitability position of the Purvanchal Gramin Bank was Rs 541 lacs. The deposit accounts were Rs 168426 lacs. The advanced accounts of Purvanchal Gramin Bank were Rs 64672 lacs. The non-performing assets of the Purvanchal Gramin Bank were Rs 7445 lacs in the establishment period.
Kashi Gomti Samyut Gramin Bank
Kashi Gomti Samyut Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Union Bank i.e. Kashi Gramin Bank, Gomti Gramin Bank and Samyut KGB by Government of India notification No.SO-1264(E) on 12th September 2005. The head office is situated in Varanasi.
At the time of establishment of Kashi Gomti Samyut Gramin Bank total business of the bank was Rs 285319.43 lacs and the business per branch was 849.16 Lacs. The profitability position of the Kashi Gomti Samyut Gramin Bank was Rs 2763.01 lacs. The deposit accounts were Rs 221301.65 lacs. The advanced accounts of Kashi Gomti Samyut Gramin Bank were Rs 64017.78 lacs. The non-performing assets of the Kashi
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Gomti Samyut Gramin Bank were Rs 9080.97 lacs in the establishment period.
(B) IMPORTANCE OF AMALGAMATED REGIONAL RURAL BANKS
Business combinations which take forms of merger, acquisitions, amalgamated and takeovers are important features of corporate structural changes. They have played an important role in the financial and economic growth of the bank. A merger of two banks, with fluctuating, but negatively correlative, cash flows, can bring stability of cash flows of the combined banks. The stability of cash flows reduces the risk of insolvency and enhances the capacity of the new entity to service a larger section of economy. The increased borrowing allows a higher interest tax shield which adds to the shareholders wealth.
Mergers and Acquisitions (M&A) can have banks structure in a way that gives them superior organizational capabilities, resulting in a sustainable competitive advantage.
Banking experts believe that a merger ‘right’ bank can help a bank increase its net worth and hence its capital adequacy this is particularly relevant in the context of the proposed revised rules of the Basel Committee on Banking Supervision aimed at keeping bank capital standard with the increased sophistication in the financial services industry.
It is generally accepted that merger promotes synergies. The basic idea is that the combined bank will create more value than the individual banks operating independently. The resulting combined entity gains from operating and financial synergies. Operational synergies generally refer to gain in economics of scale. Economics of scale refers to the lowers operating cost (per unit) arising from spreading the fixed costs over a wider scale of production. In a combined entity, the skills are used to produce results on a wider scale. Additionally financial synergy refers to the effect of a merger on the financial activities of the resulting company.
The cash flows arising from the merger are expected to present
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opportunities in respect of the cost of financing and investment. Similarly mergers and takeovers also play a crucial role in efficient allocation of resources. When a bank is not performing as expected, others will notice that the assets of the bank are not being put to their most efficient use. This bank will become a potential target for a takeover by other bank which believe the under its management the asset can be fully utilized to produce better results. To that extent merger and takeovers play a crucial economic role of moving resources from zones of under utilization to zones of better utilization. Poorly run companies are more prone to bring taken over by the powerful companies and managers have an incentive to ensure that their company is governed properly and resources are used produced maximum value. Takeovers in the banking sector will ensure that the boards and management of institutions will improve corporate governance to avoid being target in future.
During the last few years the Indian Banking system has witnessed some very high profile mergers, such as the merger of ICICI Limited with its banking arm ICICI Bank Ltd. The merger of Global Trust Bank with Oriental Bank of Commerce and more recently the merger of IDBI with its banking arm IDBI Bank Ltd. The Union Finance Minister, P.Chidambaram gave an inkling of the government’s stance on mergers in the banking sector when he started that “the government would encourage consolidation among banks in order to make them globally competitive”. The government will not force consolidation, but if two banks went to consolidate be would encourage them. We will encourage them if it helps bank’s grow in size, scale and muscle so that they can compete globally. To facilitate such mergers, a small amendment to the Income Tax Act would be made during the budget session of parliament next year. Similarly banks would be encouraged to go to the market to raise resources.”
To above statement of the Honorable Finance Minister has to be understood in the context of the Basel II Accord which was purposed in June 1999 and further by the Basel Committee in May 2003. There would be an increased in capital requirements by 12 % for banks in developing countries on implementation of the Basel II Accord. Merger among banks
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will be one of the ways to increase market power and thereby increase the revenue generation of banks which would in turn enable them to access the capital market to raise funds and meet the increased capital requirements. While considering any proposal for merger of banks it will be necessary to evaluate the impact of the merger on the safety and soundness of the banking system. There is a definite need to develop and to identify the authority that will be responsible for conducting the merger review process.
The importance of consolidation can be understood as follows:
Accelerated Growth:
Growth is essential for sustaining the viability, dynamism and value enhancing capability of a bank. Growing operations provide challenges and excitement to the executives as well as opportunities for their job enrichment and rapid career development. This help to increase managerial efficiency. Other things remaining the same, growth leads to higher profits and increase in the shareholders value. It can achieve growth in two ways:
Expanding its existing markets
Entering in new market
A bank may expand and diversify its market internally and externally. If bank cannot grow externally by combining its operations with other banks through mergers and acquisitions.
Enhanced profitability:
The combination of two or more banks may result in more than the average profitability due to cost reduction and efficient utilization of resource. This may happen because of the following reasons:
a) Economics of Scale:
When two or more banks combine, certain economics are realized due to the larger volume of operations of the combined entity. This economics
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arise because of more intensive utilization of production capacities, distribution networks, engineering services, research and development facilities and data processing systems and so on.
b) Operating Economics:
In addition to economics of scale, a combination of two or more banks may result into cost reduction due to operating economics. A combined bank may avoid or reduce functions and facilities. It can consolidate its management functions such as manufacturing, R&D and reduce operating costs. For example, a combined bank may eliminate duplicate channels of distribution and create a centralized training center or in traduce an integrated planning and control system.
c) Strategic Benefits:
If a bank has decided to enter or expand in a particular industry, acquisition of firm engaged in that industry rather than dependence on internal expansion may offer strategic advantages such as less risk and less cost.
d) Complementary Recourses:
If two banks have complementary resources it may make sense for them to merge. For example, a small with an innovation product may need the engineering capability and marketing reach of a big bank. With the merger of the two banks, it may be possible to successfully manufacture and market the innovation product. Thus, the two banks, thanks to their complementary resources, the worth more together than they are separately.
e) Tax Shields:
When a bank with accumulated losses and unabsorbed tax shelters merger with the profit making bank, tax shields are utilized better. The bank with accumulated losses and unabsorbed tax shelters may not be able to derive tax advantages for a long time. However, when it merges with a profit making bank, its accumulated losses and unabsorbed tax shelters can be set off against the profits of the profit making bank and tax benefits can
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be quickly realized.
Utilization of surplus funds:
A bank in a mature industry may generate a lot of cash but may not have opportunities for profitable investment. Most management has a tendency to make further investments, even though they may not be profitable. In such a situation a merger with another bank involving cash compensation often represents a more efficient utilization of surplus fund.
Managerial Effectiveness:
One of the potential gains of merger is an increase in managerial effectiveness. This may occur if the existing management team, which performing poorly, is replaced by a more effective management team. Another allied benefit of a merger may be in the form of greater congruence between the interests of mergers and shareholders. A common argument for creating a favorable environment for the mergers is that it imposes a certain discipline on the management.
Diversification of Risk:
A commonly stated motive for mergers is to achieve risk reduction through diversification. The extent, to which risk is reduced, of course, depends on the correlation between the earnings of the merging entities. While negative correlation brings greater reduction in risk. The positive correlation brings lesser reduction in risk.
Advanced technology:
New generation private sector banks and foreign banks are technologically more advanced in terms of management information systems, delivery mechanism, etc. These system and process require substantial investment which may be possible after consolidation. Cutting-edge technology may lead to acceleration of service delivery and broadening of customer relationships.
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Basel norms:
Basel II requires banks to meet tougher and higher capital adequacy norms such as capital allocation towards operational risk, in addition to credit and market risks. Many Indian banks, especially public sector banks, cooperative banks and regional rural banks are unprepared for this implementation due to capital inadequacy. According to the report, every category of bank has to arrange additional capital from its own internal sources. To maintain the 51 per cent minimum government share, PSBs cannot collect additional capital directly from the public and with this view it promotes bank mergers. Consolidation may be a route for smaller banks to infuse funds to strengthen their capital base.
Cost cutting:
Many branches and ATMs of various banks are congregated in the same areas leading to pointless outlay on premises, manpower and maintenance facilities. Consolidation may lead to redeployment and rationalization of such infrastructure, human resources and other administrative facilities thereby undercutting the cost factor. Consolidation will lead to cost efficiency which will enhance profitability.
Enhancement in risk absorption ability:
The risk management capabilities of the banks may improve. Larger size improves the risk bearing capacity of a bank strengthens its balance sheet. Bigger organizations have inherent advantages and they are too big to fail.
Enlarged customer base:
The combined customer base may increase the volume of business. The enhanced rural branch network may lead to increase in microfinance activities and lending to the agriculture sector. M&A may be a far-sighted conclusion to increase the market share. The time required to expand inorganically may be less than that of an organic route.
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Geographical spread:
Banks can diversify the risk of concentrated lending through mergers. They can also have a greater market access thereby widening the deposit base. The RBI has imposed strict licensing norms for opening of new branches and hence via consolidation, the acquirer will have access to ready physical infrastructure. Pan-India presence of the combined entity may enhance convenience for the customers.
Improvement in operational efficiency:
The operational efficiency of banks may improve owing to bigger size. There may be increase in financial capability, greater resource/deposit mobilization, output and better pricing of products.
Product diversification:
Merger creates the opportunity to cross-sell products and leverage alternative delivery channels. Old generation banks can merger with the new generation private sector banks and foreign banks to diversify their credit profile. They can sell technology-based innovation products.
Tax shields:
In case of bailout mergers, the accumulated losses and unabsorbed depreciation of the amalgamating bank can be carried forward and set off against the future profits of the amalgamated bank.
(C) DEVELOPMENT OF AMALGAMATED REGIONAL RURAL BANKS
Over the past five years, the consolidation of Regional Rural Banks has resulted in a 200– plus increase in net profits, a 100 percent increase in business, a gradual reduction in the number of loss-making banks and addition of 1,000 outlets.
As a result of consolidation the numbers of Regional Rural Banks were reduced but their branch network has seen growth. After amalgamation Regional Rural Banks have become quite large covering most parts of the state and the deposit account of the Regional Rural Banks increased over
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the years mainly due to the dedicated efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. Consolidation increased the advance account of the Regional Rural Banks over the years due to launching of the massive credit programmes to cover more area and large section of the target groups. Non –performing assets of the Regional Rural Banks declined over the years. All this has been because of consolidation among RRBs and its presented in the table given below.
Table 7.1: Table showing performance of Regional Rural Banks over the years
Particulars As on
2004-05
As on
2005-06
As on
2006-07
As on
2007-08
As on
2008-09
As on
2009-10
As on
2010-11
As on
2011-12
As on
2012-13
No of RRBs 196 133 96 90 86 82 82 82 64
Net Profit (in Crores) 748 617 624 1027 1335 1884 2420 2449 3280
No of RRBs (Profit/ loss making)
166/30 111/22 81/15 82/8 80/6 79/3 80/2 80/2 64/0
No of branches 14484 14489 14563 14790 15524 15475 16001 16909 17856
Deposits(Rs in Crores)
62143 71329 83144 99093 120189 145035 166232 186336 211457
Loans and advances 32870 38520 47326 57568 66609 79157 71724 82538 102161
Investment(Rs in Crores)
36762 41182 45666 48560 65910 68270 86510 95974 110683
Other Income 380 433 540 667 810 890 965 1022 1087
Wage Bill 1779 1848 2051 2054 2291 2676 3065 3523 4268
CD ratio (in %) 54.3 55.7 58.3 59.5 56.4 57.6 59.9 62.4 66.1
Share of CASA in Deposits (in %)
58.13 59.14 61.21 59.63 58.35 57.91 58.61 60.21 62.81
Share of priority Sector Advances in total advances (in %)
80.3 81 82.2 82.9 83.4 82.2 80.2 83.6 79.5
Share of Agri Advances to total (in %)
54.1 54.2 56.6 56.3 55.1 54.8 54.9 55.8 59.7
Gross NPA (in %) 7.2 7.3 6.55 6.1 4.2 3.91 3.75 5.03 5.65
Net NPA (in %) 4.84 3.96 3.46 3.4 1.8 1.92 2.05 2.98 3.40
(Source: RBI’ reports on trend and progress of banking in India, March, 2013)
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The Central Government initiated the process of amalgamating RRBs in September, 2005. Then, there were 196 RRBs. At the end of March 2006, the number came down to 133 and consolidated to 64 by the end of March 2013. Though the number of RRBs has come down by more than half, their branch network has seen modest growth of about 6 per cent. At the end of the last fiscal, the number of branches reached 17856 as against 14,489in 2005-06. Looking at the figures provided by the Reserve Bank of India, there were as many as 133 RRBs that posted a profit of Rs 617 crores in 2005-06 with 22 making loss that year. However with consolidation in the subsequent years, the net profit jumped to Rs 3280 crores in 2012-13 with the number of RRBs being reduced to 64. Of them, No one has incurred a loss.The report on Trend and Progress of Banking in India 2012-13, says all RRBs taken together reported a net profit of Rs 3280 crores a growth of 28.69 per cent in 2012-13. As a result, there was a marginal rise in the return on assets (RAO) of RRBs from 1 per cent in 2008-09 to 1.1 per cent in 2009-10. The RAO of RRBs in 2012-13 thus worked out to be relatively higher than that of scheduled commercial banks. To get a better picture, Business Line spoke to a panel of experts from sectors. Dr. N.K. Thingalaya, a Regional Rural Banker who headed an RBI working group on RRBs on 1995, told Business Line that expansion of service area after amalgamation has helped increase net profits. Earlier, RRBs were confined to one or two districts. The amalgamations of different RRBs of the same sponsor bank in State have the combined entity increase business and profits, he said. Besides, RRBs were permitted to open branches at taluk headquarters also. Mr. Muralidharan said increase in competency of the staff, management quality, support from sponsor bank and National Bank for Agricultural and Rural Development through refinance at reasonable rates, comparatively large share of low cost deposit (current account, savings account, or CASA), lower operational costs, expertise acquired in asset management overtime, effective investment management, etc., were instrumental in the growth in net profit. RRBs of are not allowed to do para-banking actives such as life and non-life insurance business, helping them increases their non-interest income. Additionally, increased computerization of RRBs, including introduction of core banking solution
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in some RRBs, has resulted in reduce operational expenses.
For RRBs, the ratios of low-cost deposits to the total deposit continue to remain above their big brothers. However, the share of CASA has also witnessed gradual decline in the recent years. RRBs that managed to mobilize 61.21 per cent of CASA of total deposits in 2006-07 could not continue that further. In 2009-10, the share of CASA was at 57.91 per cent. They can take solace in the fact that their CASA share is more than that of their sponsoring public sector banks. The RRBs that managed to mobilize around Rs 38,233 crores in their savings account in 2005-06 took it to the level of Rs 75,906 crores in 2012-13. Experts felt that being the bankers for the villagers has helped RRBs garner more CASA than the commercial bank. The Report on Trend and Progress of Banking in India 2012-13 has observed that the share of agricultural credit from RRBs was on a decline in the recent year. While agriculture credit to total credit was 54.8 per cent in 2009-10, it increased to just 59.7 per cent in 2012-13. Considering the increase in the value of business over the years, this appears to be a bit low. Although, RRBs managed to take this share to 56.6 per cent in 2006-07, that did not continue for long. Dr. Thingalaya said RRBs are extending loans to non- agricultural sector in rural areas also. They are broad-basing their credit pattern. He said, the component of wage will in the expenditure of RRBs continues to increase with every year. While wage bills stood at Rs 1,848 crores in 2005-06, it reached Rs to 4268 crores in 2012-13. The report does not mention abut man power recruited or retired during the period. Mr.Muralidharan said the reduction in number of RRBs has not resulted in any sudden reduction in staff strength since there was no termination of services of employees after amalgamation. Unlike commercial banks no voluntary retirement schemes were introduced in RRBs. Earlier, the wages of RRB staff were not on par with that of officers and employees of commercial banks/public sector bank. The wage revision effected in commercial/public sector banks is now extended to RRBs staff also. There has been substantial increase in dearness allowance components, which has also contributed towards the increased wage bill. RRBs are expected to mobilize resources from rural areas and play a significant role in developing agriculture and rural economy by deploying mobilized
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resources in rural sectors from the needy not conversed by other formal credit institutions. The businesses performances of RRBs in terms of deposit mobilization and credit extension is presented in the above table.
RRBs are showing considerable improvement in their credit and deposits performance. The deposit mobilized by the bank has been increased from Rs 71,329 crores in the years 2005-06 to Rs 211457 crores in 2012-13. Loans outstanding of the RRBs also highlighted the significant improvement as it has been increased from Rs 38,520 crores in the year 2005-06 to Rs 102161 crores in 2012-13.
RRBs seem to have better non-performing assets (NPA) management with net NPA coming down every year after the amalgamation. In 2005-06, the net NPA stood at 3.96 per cent. It declined to 1.9 per cent in 2008-09. It has been now increased to the level of 3.40 % in the recent years. For better NPA management, Mr. Muralidharan said, RRBs are concentrating on rural credit, and the major portion of this is agricultural credit. The average size of a loan account is low and in certain RRBs, it is as low as Rs 50,000. Credit risk is thus will spread over several accounts, unlike commercial bank where the size of the loan account is much bigger and risk is more. Added to this, RRBs keep good rapports and liaison with rural borrowers and the follow-up of advances is effective. Problems of the borrowers are addressed promptly and remedial steps are taken timely. The rural borrowers are more amicable, and they accept RRBs as ‘friend, philosopher and guide’.
(D) PATTERN OF AMALGAMATED REGIONAL RURAL BANKS
The financial viability of Regional Rural Bank has gained attention of the policy makers from time to time. In fact, as early as 1981, the committee to Review Arrangement for Institutional Credit for Agricultural and Rural Development (CRAFICARD) addressed the issue of financial viability of the RRBs. The CRAFICARD recommended that ‘the loss incurred by RRBs should be made good annually by the shareholders in the same proportion of their shareholding’.
Though this recommendation was not accepted, under a scheme of
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recapitalization, financial support was provided by the shareholder in the proportion of their shareholdings.
Subsequently, a number of committee have come out with different suggestions to address the financial non-viability of RRBs. For instance, the Working Group on RRBs (Kelhar Committee) in 1984 recommended that small and uneconomic RRBs should be merged in the interest of economic viability. The committee on Restructuring of RRBs, 1994 (Bhandari Committee) identified 49 RRBs for comprehensive restructuring. It recommended greater devolution of decision-making power to the Board of RRBs in the matters of business development and staff matters. The option of liquidation again was mooted by the Committee on Revamping of RRBs, 1996 (Basu Committee). The expert group on RRBs in 1997 (Thingalaya Committee) held that very weak RRBs should be viewed separately and possibility of their liquidation be recognized. They might be merged with neighboring RRBs. The Expert Committee on Rural Credit, 2001 (Vyas Committee 1) was of the view that the sponsor bank should ensure necessary autonomy for RRBs in their credit and other portfolio management system.
More recentelly, a committee under the chairmanship of A.V Sadesia revisited the issue of restructuring the RRBs (Sardesia Committee, 2005). The Sardesia Committee held that ‘ to improve the operational viability of RRBs and take advantage of the economics of scale, the route of merger/amalgamation of RRBs may be consider taken into account the views of the various stakeholders’.
The Government of India in consultation with RBI and NABARD started the reform process through a comprehensive package for RRBs including cleansing their balance sheets and recapitalizing them. To enhance financial viability, a new set of prudential accounting norms of income recognition, asset classification, provisioning and capital adequacy was implemented. Extent leading restriction was removed and variety available for investment of their surplus funds was expended. Banks were also required to make full provisioning for bulk of their non-performing asset.
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Finally with a view to consolidating and strengthening Regional Rural Banks, the Govt. of India initiated in September 2005, the process of amalgamation of Regional Rural Banks in phased manner as per the recommendation of the Vyas Committee.
(e) PROBLEMS OF AMALGAMATED REGIONAL RURAL BANKS
Alignment of technology:
The technology infrastructure, system platform (Finnacle, Flexcube, etc), network architecture, database vendors and IT-enabled Synergies (Customer service, payroll, back office operations, risk management, etc.) should be compatible in banks desiring to merge. Most of the public sector bank are at different stages of technology implementation. It would pose a stiff challenge to such merging entities to integrate their technology ang working platforms.
Assimilation of systems and processes:
The cost of integrating diverse system and processes should be paid due attention. Banc assurance is one of the areas were merging entities may face problems.
Customer dissatisfaction:
The change in the nature and quality of the financial product may dissatisfaction the customers, even if the products are better. In some cases customers may be deterred by the acquiring company for various reasons which may affect brand loyalty of the combined entity.
Integration of peoples:
The acquirer bank may have to absorb the entire workforce of the target bank which may push up the wage cost. It also requires the integration of the heterogeneous work culture. The views of employees towards various aspects of the new organization, management styles, training, leadership, etc. are to be considered in a critical manner.
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Marginalization of small customers:
Larger entities may neglect small customers and concentrate on affluent customers of High Networth Individuals (HNIs).
Regularity hurdles:
Some of the legal barriers need to be removed to make PSBs, which still control about 68 per cent of the Indian banking sector, active participant in the consolidation process. It will help realize the true benefits of consolidation. These hurdles include bringing down government ownership from the statutory 51% and amending certain clauses in acts governing these banks to facilitate their merger.
Rise of monopolistic structures:
Mergers are an impediment to perfect competition. They may give rise to monopolistic structures and lower competition. Monopolistic entities may change higher fees for services rendered in case there is no effective competition. The motive should be to increase the size but not in isolation. Size should be measured in terms of efficiency with which interests of various stakeholders are adequately met. In order to leverage the benefits of bigger size, geographic expansion, huge loan portfolios, improved technology, product diversification and reduced transaction costs, Indian banks are gradually but surely moving from a cluster of ‘large number of small banks’ to ‘small number of large banks’. Consolidation will positively amplify the business prospects of the industry in the domestic as well as international market place.
(F) FUTURE PROSPECTS OF AMALGAMATED REGIONAL RURAL BANKS
Merger and acquisition are primarily aimed at expanding of a company’s business and expanding profits for it. Acquisitions bring in more customers and business, which in turn brings in more money for the company thus helping in its overall expansion & growth. This factor of Merger and acquisition also holds good for merger and acquisition in banking industry. The banks in India look at merger and acquisition due
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to the size factor, the niche factor or for expanding their market reach. Many people are also of the opinion that acquisition help in the inorganic (and quicker) growth of the business of the bank. Some feel that in today’s competitive environment, size and focus are the factor that matter for surviving the onslaught of competition. On this scenario merger and acquisition have emerged as key growth diverse in the Indian Banking Sector. Moreover, the banks also opt for merger and acquisition to benefit themselves by sharing technical expertise or expanding into new geographic starts. Acquisitions also have helped the business by offering multiply services to the customers thus expanding the customers base considerably.
Experts in field believe that there are significant numbers of acquisition happening in the industry today, especially in business were valued as addition is a norm. Many meaningful, are open to merger and acquisition now, unlike earlier times, when merger and acquisition were restricted only to bigger banks. Merger and acquisition have thus gained greater degree of visibility now.
Merger and Acquisition are inevitable in the changed economic scenario to face the competition, to take advantage of technological changes, enter into new market into the wider geographical reach etc.
Thus, we can conclude that if merger and acquisition are planned in a purposeful manner and keeping in view all the implications, consequences and synergies, the banks through amalgamation shall be benefited and thus the financial sector the economy would be strengthen.
G) DEVELOPMENT OF SELECTED AMALGAMATED REGIONAL RURAL BANKS IN UTTAR PRADESH
Lucknow Kshetriya Gramin Bank
Lucknow Kshetriya Gramin Bank (LKGB) the largest and strongest sponsored Regional Rural Bank (RRBs) of Allahabad Bank, came into existence on 1st March’2006 through amalgamation of three RRBs, namely, Bhagirath Gramin Bank (Sitapur district), Shravasti Gramin Bank (Bahraich and Shravasti districts) and Sarayu Gramin Bank
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(Lakhimpur-Kheri district) operating in eastern and central Uttar Pradesh. Lucknow Kshetriya Gramin Bank with head office in Sitapur.
Lucknow Kshetriya Gramin Bank was is having a network of 2239 branches, a capital base of Rs. 283.09 crores and a total business was Rs 1,660.23 crores, comprising deposits Rs 1,083.49 crores and advancers of Rs 576.74 crores. The accumulated profit amounts to Rs 283.09 crores based on cumulative position of the three amalgamated RRBs on December 31, 2005. The number of branches increased from 239 in establishment period to 251 in the development period. Total business of the Lucknow Kshetriya Gramin Bank increased from Rs 192119.77 lacs in 2006 to Rs 333643.18 lacs in 2013 and the business per branch increased from Rs 803.85 lacs in 2006 to Rs 1329.26 lacs in 2013 due to dynamic drive for increase in branch expansion, mobilization of deposits and high development of credit pursued by the bank. The profitability position of the Lucknow Kshetriya Gramin Bank increased from Rs. 374.03 lacs in 2006 to Rs 3602.85 lacs in 2013. The bank has built up a good image and distinction in deposit mobilization. The deposit accounts increased from Rs 133656.33 lacs in 2006 to Rs 218578.92 lacs in 2013. The growth in the deposit accounts was mainly due to the dedicated efforts made by the bank staff during the member by way of competitions. The advanced accounts of Lucknow Kshetriya Gramin Bank increased from Rs 58463.44.33 lacs in 2006 to Rs 115064.29 lacs in 2013 due to massive credit deployment programme. The advanced accounts increased over the years on the account of the of the greater increase in the advances of the bank compared to a smaller increase in the advances of the bank compared to smaller increased in the number of branches. The non-performing assets of the Lucknow Kshetriya Gramin Bank decrease from Rs 3309 lacs in the establishment period to Rs 1377.44 lacs in the corresponding period.
Baroda Eastern Uttar Pradesh Gramin Bank
The RRBs were established in India under RRB Act 1976 [23(1)]. Bank of Baroda has sponsored 19 RRBs in the country of which 7 RRBs were in the Eastern Uttar Pradesh. During the period from 1976 to 2006 banking industry had under gone various changes and RRBs were no
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exception. Considering the need for structural changes in view of dynamically changing economic scenario, Govt. of India vide its notification dt. 23.02.2006 amalgamated 7 RRBs of Eastern Uttar Pradesh namely Allahabad Kshetriya Gramin Bank, Sultanpur Kshetriya Gramin Bank, Faizabad Kshetriya Gramin Bank, Pratapgarh Kshetriya Gramin Bank, Kanpur Kshetriya Gramin Bank, Raebareli Kshetriya Gramin Bank, Fatehpur Kshetriya Gramin Bank, Thus emerged a new corporate called Baroda Eastern Uttar Pradesh Gramin Bank with their head office in Raebareli.
Baroda Eastern Gramin Bank has built up its good image and the number of branches increased over the year it increased from 534 in the establishment period to 544 in the development period and the business per branch also increased from 487.23 lacs to 102.79 lacs. The profitability of the bank was increased over the years due to economics of the scale it increased from Rs156.48 lacs in 2006 to 1459.89 lacs in 2008. Due to several new saving scheme deposit account of the bank increased over the years due to several credit deployment programmes it increased from Rs 98739.12 lacs in 2006 to Rs 134005.86 lacs in 2009. The non-performing assets of the bank is fluctuated over the years initially it decreased than it increased.
Baroda Western Uttar Pradesh Gramin Bank
Baroda Western Uttar Pradesh sponsored Regional Rural Bank (RRB) of Bank of Baroda, came into existence on 31-03-2006 through amalgamation of two RRBs. These two RRBs are namely Bareilly Kshetriya Gramin Bank and Shahjahanpur Kshetriya Gramin Bank. Thus emerged a new corporate Baroda Western Uttar Pradesh Gramin Bank with their head office in Bareilly. The new bank will have 116 branches in 3 district of Uttar Pradesh- Bareilly, Pilibhit, and Shahjahanpur. It will have a three-tier structure with head office, two regional offices and branches and number of branches remained constant over the years. Amalgamation would result in economics of scale in operation and through this profitability of the bank is fluctuated initially first it increased from Rs 387.21 lacs to Rs 449.36 lacs and then it decreased to Rs 279.55 lacs. Several resource mobilization campaigns launched by the
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bank staff and the incentives offered by the bank for the campaigners due to this deposit account of the bank increased over the years it increased from Rs 52329.54 lacs in 2006 to Rs 72068.40 lacs in 2009. Advances of the bank increased over the years it increased from Rs 27540.12 lacs in 2006 to Rs 43500.87 lacs in 2009. The non-performing assets of the bank is fluctuated over the years first it decline from Rs 2738.23 lacs to Rs 1564.41 lacs and then increased to 3126.24 lacs.
After a short while from this restructuring, Govt. of India vide notification dated 31st March 2008, let the two banks amalgamate to form a new entity called Baroda Uttar Pradesh Gramin Bank with its Head Office in Raebareli.
Baroda Uttar Pradesh Gramin Bank
Baroda Uttar Pradesh Gramin Bank sponsored Regional Rural Bank (RRB) of Bank of Baroda, came into existence on 31-03-2006 through amalgamation of two RRBs. These two RRBs are namely Baroda Eastern Gramin Bank and Baroda Western Gramin Bank. Thus emerged a new corporate Baroda Western Uttar Pradesh Gramin Bank with their head office in Rai Bareilly. The number of branches increased from 663 in the establishment period to 665 in the development period. Total business of the Baroda Uttar Pradesh Gramin Bank increased from Rs 8077711.42 lacs in the Rs 948671.00 lacs in and the business per branch increased from Rs 1218.26 lacs in to Rs 1426.57 lacs due to dynamic drive for increase in branch expansion, mobilization of deposits and and higher deployment of credit pursued by the bank. The profitability position of the Baroda Uttar Pradesh Gramin Bank was increased from Rs 4218.50 lacs to Rs 6142.96 lacs. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 59389.56 lacs in to Rs 714284.26 lacs in. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Baroda Uttar Pradesh Gramin Bank increased from Rs 203911.89 lacs in to 222378.96 lacs due to massive credit deployment programme. The non-performing assets of the Baroda Uttar Pradesh
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Gramin Bank increased from Rs 9816.60 lacs in the establishment period to Rs 10615.70 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
Shreyas Gramin Bank
Shreyas Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Canara bank i.e. Aligarh Gramin Bank, Etah Gramin Bank & Jamuna Gramin Bank vide Government of India Notification F.No.1/4/2006-RRB(i) dated 01/06/2006 with its Head Office in Aligarh. Shreyas Gramin Bank is operating in 7 Districts of Uttar Pradesh Viz Aligarh, Hathras, Firozabad, Agra, Etah, Mathura and M.Kansiram Nagar. The numbers of branches increased from 183 in the establishment period to 2000 in then development period. The numbers of branches remained constant from 2006-2007. Total Shreyas Gramin Bank increased from Rs 174706.73 lacs in 2006 to Rs 391618.00 lacs in 2013 and business per branch increased from Rs 954.68 lacs in 2006 to Rs 1987.91 lacs in 2013 due to dynamic drive increase in branch expansion, mobilization of deposits and and higher deployment of credit pursued by the bank. The profitability position of the Shreyas Gramin Bank was increased from Rs 1460.75 lacs in 2006 to Rs 4900.36 lacs in 2013. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 109037.29 lacs in 2006 to Rs. 245541.09 lacs in 2013. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Shreyas Gramin Bank increased from Rs 65669.44 lacs in 2006 to 146076.91 lacs in 2013 due to massive credit deployment programme. The non-performing assets of the Shreyas Gramin Bank increased from Rs 4303.17 lacs in the establishment period to Rs 2992.84 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
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Uttar Pradesh Gramin Bank
Uttar Pradesh Gramin Bank sponsored by Punjab National Bank one of the leading commercial Bank of India, came existence by amalgamation of three RRBs Viz Vidur Gramin Bank, Muzaffarnagar Kshetriya Gramin Bank and Hindon Gramin Bank on 21-12-2005 with its head office in Meerut. Due to this merger and stronger bank has emerged to cater to the various needs of the customers more efficiently. Punjab National Bank has already initiated necessary measures for smooth merger of the RRBs to ensure convenience and satisfaction to the customers.
The numbers of branches increased from 88 in the establishment period to 88 in then development period. Total business of the Uttar Pradesh Gramin Bank increased from Rs 57459 lacs in 2005 to Rs 93765.27 lacs in 2007 and business per branch increased from Rs 653 lacs in 2005 to Rs 1065.51 lacs in 2007 due to dynamic drive increase in branch expansion, mobilization of deposits and and higher deployment of credit pursued by the bank. The profitability position of the Uttar Pradesh Gramin Bank was increased from Rs 658 lacs in 2005 to Rs 358.71 lacs in 2007. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 39570 lacs in 2005 to Rs. 59015.21 lacs in 2007. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Uttar Pradesh Gramin Bank increased from Rs 17889 lacs in 2005 to 34750.06 lacs in 2007 due to massive credit deployment programme. The non-performing assets of the Uttar Pradesh Gramin Bank increased from Rs 262.53 lacs in the establishment period to Rs 274.99 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
The Uttar Pradesh Gramin Bank vide Govt. of India notification dated 30.11.2007 merged (along with three more Regional Rural Banks) to form a new GB namely, Sarva U.P Gramin Bank.
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Sarva U.P Gramin Bank
Sarva U.P Gramin Bank, by Punjab National Bank one of the leading commercial Bank of India, came into existence by amalgamation of 4 RRBs Viz (Uttar Pradesh Gramin Bank Meerut, Kisan Gramin Bank, Budaun, Rani Laxmi Bai Gramin Bank Jhansi AND Devi Patan Gramin Bank Gonda) working in the area separate in whole Uttar Pradesh “East to West” under subsection (1) of section 23 A of the Regional Rural Bank Act, 1976 (21 of 1976) vide Govt. of India notification dated 30.11.2007. The Bank has share Capital of Rs 6.00 Crores, subscribed by Central Govt, Punjab National Bank and Govt. of Uttar Pradesh in the ratio of 50:35:15. The Bank has its Head Office in Meerut. The Bank’s operational area spreads in 14 districts Viz. Lucknow, Bulandshahar, Ghaziabad, Meerut, Gautam Budh Nagar, Bijnor, Gonda, Balrampur, Budaun, Bagpat, Sharanpur, Jhansi, Lalitpur and Muzaffaranagar. The Bank has 297 Branches. Bank is going to open its Branches in Meerut,Bagpat and Sharanpur district very soon.
The numbers of branches increased from 88 in the establishment period to 88 in then development period. Total business of the Sarva U.P Gramin Bank increased from Rs 239113.40 lacs in 30.11.2007 to Rs 384487.84 lacs in 2013 and business per branch increased from Rs 909.18 lacs in 30.11.2007 to Rs 1312.25 lacs in 2013 due to dynamic drive increase in branch expansion, mobilization of deposits and and higher deployment of credit pursued by the bank. The profitability position of the Sarva U.P Gramin Bank was increased from Rs 879.93 lacs in 30.11.2007 to Rs 3897.32 lacs in 2013. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 159427.86 lacs in 30.11.2007 to Rs 253221.95 lacs in 2013. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Sarva U.P Gramin Bank increased from Rs 79685.54 lacs in 30.11.2007 to Rs 131265.89 lacs in 2013 due to massive credit deployment programme. The non-performing assets of the Sarva U.P Gramin Bank increased from Rs 1603.10 lacs in the establishment period
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to Rs 3581.54 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
Purvanchal Gramin Bank
Purvanchal, the north eastern region of Uttar Pradesh and the divine land of Lord Buddha, Kabir and Gorakhnath, witness an important event on 12th September 2005. Exercising the power conferred by sub-section (1) of section 23 A of the Regional Rural Bank Act 1976, the Government of India, by its notification in the Official Gazette, for the first time provided for the amalgamation of two well established and good profit making RRB’s i.e. Gorakhpur Kshetriya Gramin Bank and Basti Gramin Bank, into one Purvanchal Gramin Bank. Purvanchal Gramin Bank having its Head Office at Gorakhpur operates through the network of its 340 branches, in 7 districts (Gorakhpur, Mahrajganj, Deoria, Kushi Nagar, Basti, Siddharthnagar and Sant Kabir Nagar) of Purvanchal. 1729 dedicated employees (as on 30.06.2001.) are working hard for the noble cause of rural uplistment to enable rural messes to become self dependent and capable of contributing towards national growth in consonance with National and State Level priorities.
The numbers of branches increased from 305 in the establishment period to 335 in then development period. The number of branches remained constant from 2006 to 2009. Total business of the Purvanchal Gramin Bank increased from Rs 233098 lacs in 2006 to Rs 423538 lacs in 2013 and business per branch increased from Rs 746 lacs in 2006 to Rs 1264 lacs in 2013 due to dynamic drive increase in branch expansion, mobilization of deposits and and higher deployment of credit pursued by the bank. The profitability position of the Purvanchal Gramin Bank was increased from Rs 541 lacs in 2006 to Rs 5083 lacs in 2013. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 168426 lacs in 2006 to Rs 298850 lacs in 2013. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Purvanchal Gramin Bank increased from Rs 64672 lacs in 2006 to Rs 124688 lacs in 2013 due to
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massive credit deployment programme. The non-performing assets of the Purvanchal Gramin Bank increased from Rs 7445 lacs in the establishment period to Rs 6488 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
Kashi Gomti Samyut Gramin Bank
Kashi Gomti Samyut Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Union Bank i.e. Kashi Gramin Bank, Gomti Gramin Bank and Samyut KGB by Government of India notification No.SO-1264(E) on 12th September 2005. The head office is situated in Varanasi.
The numbers of branches increased from 336 in the establishment period to 353 in then development period. The number of branches remained constant from 2005 to 2007. Total business of the Kashi Gomti Samyut Gramin Bank increased from Rs 285319.43 lacs in 2005 to Rs 523450.82 lacs in 2013 and business per branch increased from Rs 849.16 lacs in 2005 to Rs 1478.67 lacs in 2013 due to dynamic drive increase in branch expansion, mobilization of deposits and higher deployment of credit pursued by the bank. The profitability position of the Kashi Gomti Samyut Gramin Bank was increased from Rs 2763.01 lacs in 2005 to Rs 44009.53 lacs in 2013. The bank has built up a good image and distinction in the deposit mobilization. The deposit accounts had increased from Rs 221301.65 lacs in 2005 to Rs 407003.76 lacs in 2013. The growth in deposite account was mainly due to the dedicate efforts made by the bank staff during the launching of deposit campaigns and the motivation provided to the staff members by way of competitions. The advanced accounts of Kashi Gomti Samyut Gramin Bank increased from Rs 64017.78 lacs in 2005 to Rs 116447.06 lacs in 2013 due to massive credit deployment programme. The non-performing assets of the Kashi Gomti Samyut Gramin Bank increased from Rs 9080.97 lacs in the establishment period to Rs 6009.28 lacs in the corresponding period. The bank has been making all out efforts to minimize the incidents of NPA, since these assets do not earn any income.
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FINDINGS
Merger and acquisition (M&A) can help banks restructure in a way that gives them superior organizational capabilities, resulting in a sustainable competitive advantage. It has been found during the study that there has been large number of Merger and Acquisitions during the last few years. The area of study is confined to Merger and Acquisitions of eight Regional Rural Banks in Uttar Pradesh and Uttar Pradesh namely Lucknow Kshetriya Gramin Bank, Baroda Eastern Gramin Bank, Baroda Western Gramin Bank, Shreyas Gramin Bank, Uttar Pradesh Gramin Banks, Purvanchal Gramin Bank, Kashi Gomti Samyut Gramin Banks, Uttaranchal Gramin Bank. The objective of the study was to evaluate the effect of Merger and Acquisitions of Regional Rural Banks.
Agriculture continues to be the mainstay of the Indian economy and an effective antidote to poverty and unemployment. However, in the last decade, signs of stagnation and even some degree of deceleration in a few crops have been noticed and this trend calls for immediate attention. With the breakthrough in farm technology, now a day’s agriculture has become increasingly capital intensive in order to augment the productivity of both land and human resources. The adoption of new technology requires a sizable additional amount of capital for the purchase of variable inputs viz. seeds, fertilizers, plants protection chemicals and tractors etc.
The planners of our country have strategically decided to use the organized part of Indian banking system as an instrument for accelerating rural development. Providing affordable credit to the rural population has long been a prime component of the development strategy. Efforts to build up the institutional credit system for agriculture commenced with the adoption of the Cooperative Societies Act in 1904 to institutionalize credit channels. The performance of Cooperatives however was for from satisfactory. The main limitations where lower credit share of all holders, lake of provision for non cultivators, dormancy, inability to shoulder the responsibility, deficiency in lending policies and increasing overdues, all of which affected the ability of the cooperatives to extend further credit facilities, besides putting in serious doubt the credit-worthiness of the
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Cooperative themselves.
In view of the limitations of the cooperatives and considering the large and growing gap in meeting the credit needs of developing agriculture and allied activities, the Government encouraged commercial banks to provide more and more credit to agriculture and other allied sectors. The nationalization of 14 commercial banks in 1969 was regarded as a watershed in this direction. Commercial banks too had their weakness. Even with much increased network of rural branch offices, the commercial banks could not reach out to the interior and rural hinterlands. Commercial banks were participating in rural banking only as allied to this field, since they were programmed for meeting the financial requirements of trade and commerce.
The Banking Commission in 1972 mooted the proposal for setting up some sort of ‘rural banks’. It recommended such banks for a compact group of villages, mostly autonomous in character and also to be managed by the local leadership to ensure local response and participation.
The Government of India also felt that it was necessary to establish “New Institutions on the basis of attitudinal and operational ethos entirely different from those obtaining in the public sector banks”. In pursuance of this view, the Government of India appointed a work group on Rural banks on 1st July 1975, under the chairmanship of Shri Narasimham (them Additional secretary in the Department of banking and later Governor of RBI) to examine in depth the setting up of new Rural Banks as subsidiaries of public sector banks to cater to the financial requirement of rural people. The Committee recommended for the establishment of Regional Rural Banks (RRBs) which should be state sponsored, regionally based, rural oriented and combine the local feel of cooperatives as well as the degree of business organization of the commercial banks. The Regional Rural Banks, which form the third constituent of the multi agency credit system for agricultural and rural development, were to focus exclusively on the small and marginal farmers, agricultural labourers and rural artisans.
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With their limited size, scope and area of operations, competition from the rural branches of the commercial banks and the rising cost of the operations due to upgraded wage structure at par with the commercial banks, their profitability and viability was adversely affected. This triggered the move towards their consolidation. The consolidation of the RRBs was first suggested by the Working Group to suggest amendments to the RRBs Act, 1976 (Chalapathy Rao Committee) in 2001. It had suggested that while retaining the regional character of these institutions, the number of sponsor banks may be reduced. Subsequently, the Advisory Committee on Flow of Credit to Agriculture and related Activities (Vyas Committee) had suggested in 2004 that in the first stage, all RRBs of a sponsor bank in a State should be amalgamated into a single unit in that State and in the second stage; there would be a State-Level consolidation of RRBs. Subsequently, the Internal Working group on RRBs, constituted by the RBI (Sardesai Committee) in June 2005, also suggested two options for strengthening RRBs, namely, merger between RRBs of same sponsor bank in the same State or merger of RRBs sponsored by different banks in the same state.
The main triggers for these recommendations were the small size of the RRBs which had made their operations unviable leading to significant amount of accumulated losses – which was not considered desirable. In order to improve the operational viability of RRBs and to take advantage of the economics of the scale by reducing transaction cost, Government of India initiated, in September 2005, a process of amalgamation of RRBs sponsor bank wise. The first set of amalgamations took place on September 12, 2005 when 28 RRBs were amalgamated to form 9 new RRBs. The amalgamations were carried out under Section 23-A of the RRBs Act, 1976, which provides that the Central Government, after consultation with the National Bank, the concerned State Government and the Sponsor Bank may amalgamate two or more RRBs. The process of amalgamation is still continuing. Over the past five years, their transformation has resulted in a 200 per cent- plus increase in net profits, a 100 per cent increase in business, a gradual reduction in the number of loss-making banks and addition of 1,000 outlets. All this has been because of consolidation among RRBs.
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The central Government initiated the process of amalgamating RRBs in September, 2005. Then, there were 196 RRBs. At the end of March 2006, the number came down to 64, and it consolidated by the end of March 2013.
Though the number of RRBs comes down by more than half, their branch network has seen modest growth of about 6 per cent. At the end of the last fiscal, the number of branches reached 17856 as against 14,489 in 2005-06.
Amalgamation and reduction of number resulted in rationalization to a great extent. This helped merge the weak RRBs with the stronger ones. For the stronger RRBs amalgamation gave the benefit of extending business operations to newer areas without much cost. It helped increase customer base, reduce credit concentration risks by spreading the risk to more sectors and more agricultural crops.
The amalgamation of different RRBs of the same sponsor bank in a State helped the combined entity increase business and profits. Besides, RRBs were permitted to open branches at taluk headquarters also. Increase in competency of the staff, management quality, and support from sponsor banks and National Banks for Agriculture and Rural Development through refinance at reasonable rates, comparatively large share of low cost deposit (current accounts, savings accounts, or CASA), lower operational costs, expertise acquired in asset management over time, effective investment management, etc., were instrumental growth in net profit. There were as many as 133 RRBs that posted a profit of Rs 617 crores in 2005-06 with 22 making loss that years. However with consolidation in the subsequent years, the net profit jumped to Rs 3280 crores in 2012-13 with the number of RRBs being reduced to 82. Of them, only three incurred a loss. However with consolidation in the subsequent years, the net profit jumped to Rs 3280 crores in 2009-10 with the number of RRBs being reduced to 64. The deposit account at the time of consolidation i.e. at the end of financial year 2005-06 was Rs 71329 crores, which increased to Rs 211457 crores at the end of financial year 2012-13. At the end of financial year 2005-06, the bank showed the level
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of advance accounts at Rs 102161 crores. The advances of the banks increased manifold after the consolidation. The banks registered advances at Rs 102161 crores at the end of financial year 2012-13. Moreover, the level of Non Performing Assets i.e. NPA has also reduced pursuant to Merger and Acquisitions of Regional Rural Banks. It has been observed during the study that after merger and amalgamation, the quantum of NPA’s has not increased. It has either been stagnany or has come down. The prime reason for the improvement in NPA’s has been central and effective monitoring of loans after merger and amalgamation. The local branches could not do so because of their financial / administrative limitations. After the amalgamations, RRBs seem to have better non-performing assets (NPA) management with net NPA coming down every year. In 2005-06, the net NPA stood at 3.96 per cent. It declined to 1.98 per cent in 2008-09. The average size of a loan account is low and in certain RRBs, it is as low as Rs 50,000. Credit risk is thus well spread over several accounts, unlike commercial banks where the size of the loan account is much bigger and risk is more. The structural consolidation of the RRBs has resulted in formation of new RRBs, which are financially stronger and bigger in size in terms of business volume and outreach. The absorption of Regional Rural Banks can be viewed as the prelude to the main act. The Indian financial services industry is in a stage of transition, as it prepares for the inevitable onslaught of competition, once the barriers are dismantled in a few years.Therefore, it is critical that efforts are made to expand the overall market. Developing the rural financial market not only achieves for this purpose, it will also give existing players a competitive edge in distribution which will be hard to beat.Through Merger and Acquisitions Researcher observed that the profitability, deposit account and loan and advances of Regional Rural Banks under study have improved over the years post merger. The Non-Performing Assets of the selected Regional Rural Banks have decreased over the years.
Lucknow Kshetriya Gramin Bank
Lucknow Kshetriya Gramin Bank (LKGB) the largest and strongest sponsored Regional Rural Bank (RRBs) of Allahabad Bank, came into
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existence on 1st March’2006 through amalgamation of three RRBs, namely, Bhagirath GB, Shravasti GB and Sarayu GB operating in eastern and central Uttar Pradesh. Lucknow KGB with head office in Sitapur.
The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 1374.03 lacs, Rs 133656.33 lacs and Rs 58463.44 lacs respectively in 2006 to Rs 3602.85 lacs, Rs 218578.92 lacs and 11064.26 lacs respectively in 2013. Then non-performing assets of the Lucknow Kshetriya Gramin Bank decreased from Rs 3309 lacs in the establishment period to Rs 1377.44 lacs in the corresponding period.
Baroda Eastern Uttar Pradesh Gramin Bank
Bank of Baroda has sponsored in the country of which 7 RRBs were in the Eastern Uttar Pradesh. Govt. of India vide its notification dt. 23.02.2006 amalgamated 7 RRBs of Eastern Uttar Pradesh namely Allahabad KGB, Sultanpur KGB, Faizabad KGB, Pratapgarh KGB, Kanpur KGB, Raebareli KGB, Fatehpur KGB, Thus emerged a new corporate called Baroda Eastern Uttar Pradesh Gramin Bank with their head office in Raebareli. The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 156.48 lacs, Rs 298728.39 lacs and Rs 98739.12 lacs in 2006 to Rs 1459.89 lacs, Rs 416954.73 lacs and Rs 134005.86 in 2008 respectively. Non-performing assets of the bank is fluctuated over the years. Initially it decreased from Rs 21397.19 lacs in the year 2005-06 to Rs 19293.01 lacs during the year 2006-07 and then it increased to Rs 24738.21 lacs during the year 2008-09.
Baroda Western Uttar Pradesh Gramin Bank
Baroda Western Uttar Pradesh sponsored Regional Rural Bank (RRB) of Bank of Baroda, came into existence on 31-03-2006 through amalgamation of two RRBs. These two RRBs are namely Bareilly KGB and Shahjahanpur KGB. Post amalgamation, Profitability of the bank fluctuated. First it increased from Rs 387.21 lacs in year 2005-06 to Rs 449.36 lacs during the year 2006-07 than it decreased to Rs 279.55 lacs
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during the year 2008-09. The deposits and advances accounts of the bank increased over the years. The deposits and advances accounts increased from Rs 52329.54 lacs, Rs 27540.12 lacs respectively in 2006 to Rs 72068.40 lacs and Rs 43500.87 lacs respectively in 2008. Non-performing assets of the bank is fluctuated over the years first it declined from Rs 2738.23 lacs to Rs 1564.41 lacs and increased to Rs 3126.24 lacs.
After a short while from this restructuring, Govt. of India vide notification dated 31st March 2008, let the two banks amalgamate to form a new entity called Baroda Uttar Pradesh Gramin Bank with its Head Office in Raebareli.
Baroda Uttar Pradesh Gramin Bank
Baroda Uttar Pradesh Gramin Bank sponsored Regional Rural Bank (RRB) of Bank of Baroda, came into existence on 31-03-2008 through amalgamation of two RRBs. These two RRBs are namely Baroda Eastern GB and Baroda Western GB. Thus emerged a new corporate called Baroda Uttar Pradesh Gramin Bank with its Head Office in Raebareli. The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 4218.50 lacs, Rs 59389.56 lacs and Rs 203911.89 lacs respectively in the year 2010-11 to Rs 6142.96 lacs, Rs 714284.26 lacs and Rs 222378.96 lacs respectively in the year 2012-13. The non-performing assets of the Baroda Uttar Pradesh Gramin Bank increased from Rs 9816.60 lacs in the establishment period to Rs 10615.70 lacs in the corresponding period.
Shreyas Gramin Bank
Shreyas Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Canara bank i.e. Aligarh GB, Etah GB & Jamuna GB vide Government of India Notification F.No.1/4/2006-RRB(i) dated 01/06/2006 with its Head Office in Aligarh. Shreyas Gramin Bank is operating in 7 Districts of Uttar Pradesh Viz Aligarh, Hathras, Firozabad, Agra, Etah, Mathura and M.Kansiram Nagar. The performance of the bank increased over the years. Profitability, deposits and advances of the
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bank increased from Rs1460.75 lacs, Rs 109037.29 lacs and 65669.44 lacs respectively in 2006 to Rs 4900.36 lacs, Rs 245541.09 lacs and Rs 146076.91 lacs respectively in 2013. The non-performing assets of the Shreyas Gramin Bank increased from Rs 4303.17 lacs in the establishment period to Rs 2992.84 lacs in the corresponding period.
Uttar Pradesh Gramin Bank
Uttar Pradesh Gramin Bank sponsored by Punjab National Bank one of the leading commercial Bank of India, came existence by amalgamation of three RRBs Viz Vidur GB, Muzaffarnagar KGB and Hindon GB on 21-12-2005 with its head office in Meerut. The performance of the bank increased over the years except Profitability. Profitability position of the Uttar Pradesh Gramin Bank decreased from Rs 658 lacs in 2005 to Rs 358.75 lacs in 2009. Deposits and advances of the bank increased from Rs39570 lacs and Rs 17889 lacs respectively in 2005 to Rs 59015.21 lacs and Rs 34750.06 lacs respectively in 2009. The non-performing assets of the Uttar Pradesh Gramin Bank increased from Rs 262.53 lacs in the establishment period to Rs 274.99 lacs in the corresponding.
The Uttar Pradesh Gramin Bank vide Govt. of India notification dated 30.11.2007 merged (along with three more Regional Rural Banks) to form a new GB namely, Sarva U.P Gramin Bank.
Sarva U.P Gramin Bank
Sarva U.P Gramin Bank, by Punjab National Bank one of the leading commercial Bank of India, came into existence by amalgamation of 4 RRBs Viz (Uttar Pradesh GB Meerut, Kisan GB, Budaun, Rani Laxmi Bai GB Jhansi and Devi Patan GB Gonda) working in the area separate in whole Uttar Pradesh “East to West” under sub-section (1) of section 23 A of the Regional Rural Bank Act, 1976 (21 of 1976) vide Govt. of India notification dated 30.11.2007. The Bank has share Capital of Rs 6.00 Crores, subscribed by Central Govt, Punjab National Bank and Govt. of Uttar Pradesh in the ratio of 15:35:15. The Bank has its Head Office in Meerut. The Bank’s operational area spreads in 14 districts Viz. Lucknow, Bulandshahar, Ghaziabad, Meerut, Gautam Budh Nagar,
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Bijnor, Gonda, Balrampur, Budaun, Bagpat, Sharanpur, Jhansi, Lalitpur and Muzaffaranagar. The Bank has 297 Branches. The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 879.93 lacs, Rs 253221.95 lacs and 79685.54 lacs respectively in 30.11.2008 to Rs 3897.32 lacs, Rs 253221.95 lacs and Rs 131265.89 lacs respectively in 2013. The non-performing assets of the Sarva Uttar Pradesh Gramin Bank increased from Rs 1603.10 lacs in the establishment period to Rs 3581.54 lacs in the corresponding period.
Purvanchal Gramin Bank
Purvanchal, the north eastern region of Uttar Pradesh and the divine land of Lord Buddha, Kabir and Gorakhnath, witness an important event on 12th September 2005. Exercising the power conferred by sub-section (1) of section 23 A of the Regional Rural Bank Act 1976, the Government of India, by its notification in the Official Gazette, for the first time provided for the amalgamation of two well established and good profit making RRB’s i.e. Gorakhpur KGB and Basti GB, into one Purvanchal Gramin Bank having its Head Office at Gorakhpur.
The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 541 lacs, Rs 168426 lacs and 64672 lacs respectively in 2006 to Rs 5083 lacs, Rs 298850 lacs and Rs 124688 lacs respectively in 2013. The non-performing assets of the Bank increased from Rs 7445 lacs in the establishment period to Rs 6488 lacs in the corresponding period.
Kashi Gomti Samyut Gramin Bank
Kashi Gomti Samyut Gramin Bank is formed by amalgamation of three UP based RRBs sponsored by Union Bank i.e. Kashi GB, Gomti GB and Samyut KGB by Government of India notification No.SO-1264(E) on 12th September 2005. The head office is situated in Varanasi. The performance of the bank increased over the years. Profitability, deposits and advances of the bank increased from Rs 2763.01 lacs, Rs 221301.65 lacs and 64017.78 lacs respectively in 2005 to Rs 4009.53 lacs, Rs
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407003.76 lacs and Rs 116447.06 lacs respectively in 2013. The non-performing assets of the Bank increased from Rs 9080.97 lacs in the establishment period to Rs 6009.28 lacs in the corresponding period.
CBS (CORE BANKING SOLUTION):
CSB has enabled the Regional Rural Banks to create a central shared database support covering the entire banking application, establishing connectivity among branches. Business process in all the branches of RRBs led to the usage of a common database in a central server located at a data center, which gives a consolidated view of the bank’s operation. Branches function as delivery channels, providing services to the customers of the bank. CBS is an integrated application that supports real-time, multi-banking and multi-channel strategies. The single biggest achievement behind the implementation of CBS is that each customer is truly the customer of bank and not just the customer of the branch, where his/her account is maintained. While this move could enable the RRBs to adopt better customer relationship management, it has already led to the seamless integration of off-site ATMs introduction of debit cards, Internet Banking, and Point-of-sale terminals.
Solar power devices:
Another technological improvement is in the form of solar power devices. The use of solar power devices (being cost effective, minimum maintenance cost and free availability of fuel i.e. sunlight) for RRBs, particularly in respect of branches located in remote areas which are not assured of continuous power supply is worth considering.
Merger & Acquisition have become very popular throughout the world in the recent times. This has become popular due to globalization, liberalization, technological developments & intense competitive business environment. Merger & Acquisition are a big part of corporate finance world. This process is extensively used for restructuring the business organization. But there are lot of problems being faced by banks during merger and acquisition such as organization problem, customer problem, culture problem, staff problem and legal problem. The
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suggested solutions to encounter the problems are also dealt in the study.
Organization problem
Merger & Acquisition failures can be traced to poor support of HR-related issues and activities. An unsuccessful Merger & Acquisition integration process may have huge detrimental effects on a bank, including loss of key personnel, a decline in employee productivity, reduced job satisfaction, communication breakdowns, and resistance to change. When a merger is announced, employees of the bank become worried about issues like job security, role conflicts, interpersonal conflicts, cultural adaptations, etc. Another important challenge to the merged banks is the technology integration. Another problem is the difference between the organizational structures of the banks.
Staff problem
When Merger & Acquisition activity does not meet corporate objectives is results in loss of revenue, Customer dissatisfaction, Employers attrition issues. Many personnel issues such as salaries, benefits, pension of employees are also affected due to Merger & Acquisition. There are ego clashes between the top management and subsequently lack of co-ordination among them many lead to collapse of bank after merger. Merger & Acquisition affects the CEOs of the bank because they are the most creative and talented people within the organization. The resultant loss of control devastates these individuals. Each bank has its own set of values which may conflict with those of acquired bank. The employees may not be able to accommodate themselves in new culture and thus may lead to cultural shock.
Customer problem
A significantly minority of the individuals is negatively affected by this trend as they lake access to use while at the same time losing access to local branches. Many consumers of Indian Banks are poor and illiterate. They lake the modem amenities like telephone, computers etc., to reap the benefits of electronic and telephone banking, ATM, E-banking, etc. Even for filling the necessary forms, etc, and the customer depend upon
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the bank staff. So closure of branches also affects such people as these banks reduce the level of physical service provision and deny access to banking services.
Legal problem
The banking involved in merger and acquisition has to follow the laid down rules and regulations. If the regulatory framework is not followed by the banks involved in merger and acquisition, then the whole process of merger and acquisition will become void. Merger and Takeover are generally seen in Public Policy as activities, which, if left uncontrolled, can lead to negation of Public interests.
Other problem
Apart from organization problem, customer problem, staff problem and legal problem there are some other problems associated with merger and acquisition of regional rural bans. These are as follws:
Shareholder
General Public
Small and Medium enterprises.
Merger and Acquisition are inevitable in the changed economic scenario face the competition, to take advantage of technological change, enter into new markets and to have wider geographical reach etc. The banks have been improved there performance in response to deregulation, increased commercial orientation, greater autonomy and injection of market discipline. Most of the banks have maintained the capital adequacy ratios at the level higher than the ratio stipulated by the reserve Bank of India (9%). The banks have also improved the quality of their assets and reduced non-performing assets drastically.
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SUGGESTIONS
In the wake of globalization wave sweeping across the countries, new opportunities and challenges have emerged for the small banks. Appropriate policies are needed to meet these challenges sustain the growth of small banks. The small and medium sized banks are working under threats from economic environment which is full of problem for them, viz. inadequacies of resources, outdated technology / non systemized management patterned, faltering marketing efforts and weak financial structure. To remove sickness from the banking industry, consolidation/merger/acquisition is one of the best available alternatives which require attention from all corners.
The empirical finding of this study suggest that term of merger in Indian Banking Sector has so far been restricted to restructuring of weak and financially distressed banks.
Consolidation is a worldwide phenomenon and India is also moving in that direction. Unfortunately most of the mergers in Indian banking sectors are government directed bail out mergers. However, it is pertinent to note that the Government should not seen mergers as means of bailing out of weak banks only. The empirical findings, further suggested that only strong banks should not be merged with weak banks rather successful mergers must create strong banks, so that they have the strength to withstand the market shocks, instead of protecting the interests of weak banks. The M&A in the banking industry should be driven by market related parameters such as size and scale, geographical and distribution strategies, skill and capacity. Poor asset quality, inefficient management, disregard to technology up-gradation, lake of functional autonomy and operational flexibility cannot make the combined banking company successful. There must be clear post-merger integration plan to bring together the organization cultures combining entities and also to solve people issues. It is the duty of government and the regulators to protect the interest of shareholders, customers and employee’s etc. by putting in place proper regulatory measures, as M&A may have negative impacts on these stakeholders.
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M&As seek to increase the shareholders wealth through gains of synergy such as economics of scale and size, combining complementary assets, access to new products and new geographical areas, great market share, etc.
The need of the hour is that the strong banks should merge with strong banks to compete with foreign banks and to enter in the global financial market. The Indian financial system requires very large bank to absorb various risks that have been emerged for operating in local and global markets. Therefore, the Government and policy makers should be more cautions in promoting merger as away to reap economics as scale and scope. Over the years, there has been considerable progress in consolidation in India in the Regional rural banks and mergers have happened not only between the weak and the healthy banks but also, of late, between healthy and well functioning banks as well. The RBI has been supportive of the initiatives for consolidation and there have been no cases so far where the approval for merger of banks was denied by the RBI, since the proposals conformed to the requirements and guidelines of the RBI. Due to this merger, a stronger bank is bound to be emerged which will cater to the various needs of the customer more efficiently. Union Bank has already initiated necessary measures for smooth merger of the RRBS to ensure convenience and satisfaction to the customers. The bank in the Regional Rural Banks, especially Regional Rural Banks, which are small in size and financially weak, may be merged with one another so as to avail the benefits of consolidation and also become financially strong to compete with both domestic and foreign banks. The formation of zonal and state Regional Rural Banks by merging the various Regional Rural Banks would be a welcome move. At present, the merger of the Regional Rural Banks is taking place entirely with a view to improve profitability. Several sponsor banks have announced their plans to merge the different Regional Rural Banks sponsored by them in a state, while the more profitable Regional Rural Banks are being merged with the parent bank.
Before the process gathers momentum, and many more Regional Rural Banks are amalgamated so that further branch rationalization is possible
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and dislocation of the Regional Rural Banks staff is made easy, it is important that the authorities intervene to create the proposed state level Regional Rural Banks, liberate the Regional Rural Banks from the overlordship of the sponsor commercial banks, ensure that the majority ownership of the Regional Rural Banks remain under state control, set up independent governance. The purpose of the ownership reform the Regional Rural Banks must be the same as for structure for the Regional Rural Banks restore functional autonomy to these banks. The other aspects to Regional Rural Banks policy: to foster a bank-led equitable rural growth.
Regional Rural Banks should use the following promotional measures to popularize their schemes
(a)Mass Media: In today’s world, mass media-be it television, cinema, radio or print, is a powerful medium for communication. It is necessary to examine the suitability of each for promotion and communication purpose in the rural scenario.
1) Television: As of now, Doordarshan network covers practically the entire country. In addition, there are a number of satellite channels in operation, telecasting programmes in regional languages, which can be received anywhere in the county with the help of dish antennae and cables. While this medium is already very popular in urban areas also. The main advantage of this medium is that, it is both audio as well as visual, unlike print media and radio. Television has proved very advantageous in communicating with low literacy rural people. The role of this medium cannot be underplayed as it offers immense potential for communicating with the rural consumers.
2) Cinema: Like television, cinema is a powerful visual medium as well. While rural areas do have cinema theaters, they are few in number and most of them are temporary structures in the sense that they shift from one place to another at periodic intervals. Advertising in cinemas either through slides or films is less expansive as compared to television. Therefore a good strategy
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could be to use cinema in the region. The reach of the advertisement, both through television and cinema is very encouraging.
3) Radio: It has yielded significant results as one of the oldest medium used for communication with farmers and for diffusion of agriculture technology. In addition, other social messages on immunization, health, education etc. are aired on this medium extensively. The basic advantage of this medium is the fact that most of the rural households own and can afford to own a radio, since it is very cheap. It is likely that the listener ship may increase in future due to the introduction of FM broadcast in all regional languages.
4) Print Media: Its relevance for rural communication needs a careful examination. The literacy levels are low in rural areas as compared to urban areas. Yet, given the size of rural population, the number of literate person is very substantial. Print media consists of a wide variety of literature like newspaper, periodicals and also like pamphlets and booklets produced by bankers.
(b)Hoarding/wall paintings: these are also highly suitable for rural areas since the hoardings or wall painting can include visuals with minimum write-up. It has also been observed the rural consumers have more to see and watch the hoardings than urban consumers.
(c) Shandies/Haats/Hathras/Melas: As discussed earlier, these are places where people from the hinterland villages congregate on the appointed day or period as rule. These are the places with the captive audience for a fairly long period and present an ideal opportunity to organize promotions with the help of an outdoor mobile publicity van with audio/video equipments. These mobile vans spend the daytime in shandies and then move to a nearby village in the evening, so that the nights can also be used effectively for promotion.
(d)Other mass media: Many Regional Rural Banks have adopt Several innovative promotional measures that have proved extremely effective
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such as Handbills Posters Stickers Banners Organizing farmers clubs and meetings
One hand deposit merged banks have increased on account of increased administrative and organizational capabilities. On the other hand the ratio of NPA had declined on account of improved monitoring by the merger banks. it is further suggested that the strict vigilance should be practiced to further reduce the NPA of the bank. It needs proper chasing of the sanctioned loans both physically as well as gaining feedback through questionnaire and other means.
Other like merger and amalgamation in any corporative entity, the merger and amalgamation of the regional rural banks also faces some problems/important issues during the process of post merger. The problems being faced by banks during merger and amalgamation can be organization problem, customer problem, culture problem, staff problem, legal problem and problems. The suggestion s to tackle the problems/issues can be identified as follows:
Human Resource:
The human resource function is the most complicated Organization issue in merger. Human resource (HR) management issues like reward strategy, service condition, employee relation, compensation and benefit plans, pension provisions, law suits and trade union action are critical to the viability for the deal and merger plan. All the HR issues such as selection, retention, and promotion opportunities and needed to be effectively communicated to staff, emphasizing the degree of transparency and fairness in order to establish credibility. Training and development initiatives can play an important role during the period between announcement, closure, and at the post amalgamation stage.
Organizations have to create such open spaces, where employees have the opportunity to discuss their personal concerns and to work out how they
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might need to adjust. Change customer management sessions also have employees in understanding how individuals and organizations typically react to change. People become committed to a merger when they believe it is built on a sound strategy and it offers personal benefits in terms of financial incentives and in cornering opportunities. it should meet their emotional needs as well. It is always advisable to attain to the human resource decisions very quickly, say within 100 days of merger announcement in order to avoid uncertainty which would lead to employee moral erosion and the exit of key talent.
Another critical issue in pre and post merger period is culture. Culture is central to the institutional environment in which people have to work. Merging two cultures well is supreme challenge that needs to be actively shaped and carefully managed. Failure in effective tackling the cultural issues may lead to poor productivity, wrangles among the top team, high turnover rates, delays in integration and an overall failure to realize the synergies of the deal. To solve the cultural issues, all the parties involved in merger have to commit for cultural audit as a component of due diligence process. This can help both businesses understand each other’s cultures and gain sense of the cultural traits that they hope to either preserve on or after the merger.
Staff:
Another important issue of concern in merger and acquisition is related to staff of the concerned bank, as the employees are the one who are significantly affected by the merger and acquisition of their banks. The banks should tackle the staff issues very carefully during the process of merger and post merger also. There should be proper communication with the employees about the need for merger and acquisition of banks.
The process of merger and acquisition has to be completed in the shortest time possible so that the workings of the employees are not affected adversely.
If uncomfortable changes (such as layoffs and restructuring) have to be made at the acquired bank, it is important that these are announced and
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implemented as soon as possible- ideally within days of the acquisition. This helps to avoid the uncertainties and anxieties that can demoralize the workforce of the newly-acquired bank, allowing employees to move on and to focus on the future. The management should possess the interpersonal skills and cultural sensitivity necessary to foster good relationship between the management and the staff of the parent bank and its subsidiaries.
Customers:
Though customers are important stakeholders of the bank, they are always out of discussions on the merger issues. The customers are the one for whom all the banking activities are carried out as the sole function of the banks is to provide services to its customers. Thus, when a merger process is to be initiated, Customers should be communicated properly about the merger and customers of acquired bank should be attended more carefully. This is also important in the context of relationship leading of the acquired bank especially in case of small and medium enterprises (SMEs). There should be taken proper steps to retain the existing customers of all the banks involved in merger and acquisition. There should be direct communication with the existing customers of all the banks involved in merger.
Even before the specific acquisition is being considered, banks have the opportunity to develop a standard protocol for managing the customer experience throughout the life cycle of the integration. This process should identify the “moments of truth” in the integration – high-impact events that can determine enduring customer attitudes, trust, and loyalty. For each moment of truth, the acquiring bank should consider detailing the target customer experiences that it seeks to deliver, together with the supporting employee behaviors required.
Ensuring that a bank places sufficient emphasis on the customer experience during an acquisition helps safeguard the customer base that provides the core value of the bank being acquired. The effort of continually strengthen customer relationships – both with new and existing customers – is never completed, essentially being central to a
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bank’s culture. This is especially true with existing customers whose satisfaction is as important as that of newly acquired customers. Investing in understanding and improving the customer experience can help a bank build strong, profitable relationship with all its customers over the long terms. The focus of staff members and officers should always be on the basic philosophy of ‘cooperation’ in order to serve the customer better.
Legal Problem:
The regulatory framework of the banks should be strictly followed as regard the procedures, monitoring NPAs, sanctioning loans and other financial regulatories.
Other Problems:
There should be complete transparency as regards rules of loans and recovery towards shareholders. The general public should be properly informed about banks policies and procedures.
The merger and amalgamation should adopt promotional strategies towards contributing promotions small and medium enterprises.
Integration of Information Technology:
Successful IT integration is essential to generate a wide range of positive outcomes that support the underlying merger rationale. To combat the IT integration, the management of concerned banks is required to chalk out a proper strategy to identify the best IT integration policy. The Information Technology platform should be reliable, scalable, easily available, manageable and secure. A key pre-requisite for successful post merger integration including IT integration is that banks should adopt a comprehensive, integrated approach to IT risk management. There is a greater likelihood of having to deal with merging, integration, replacement and interfacing with old, complex proprietary systems. In such instances it is essential to focus on the ‘actual integration’ of two separate systems. Selecting a particular IT solution may sometimes “devalue” the skill sets of the whole department. Planning for training and “re- skilling” is therefore a critical activity. The merging institutions
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may have organized their IT departments in different ways. For example, decentralized vs. centralized. Resolving this complex challenging task and is required to be tackled appropriately. Apart from the obvious issues of buying package solutions or developing new bespoke applications, migrating data and so forth, the procedures for managing IT projects, e.g., project initiation, must be agreed upon. Agricultural standard, like security and software tools selection must also be decided. The personnel in It department should be adequately trained and motivated to adopt the new IT systems as they are the one who have to run that system.
Making the merger work successfully is not that easy as here we are not only just putting the two organizations together but also integrating people of two organizations with different cultures, attitudes and mindsets. Meticulous pre-merger planning including conducting proper due diligence, effective communication during the integration, committed and competent leadership, speed with which the integration plan is integrated pave for successful of merger and acquisitions. While making the merger deals, it is necessary not only to make analysis of the financial aspects of the acquiring firm but also the cultural and people issues of both the concerns for proper post- acquisition integration.
If the Merger and Acquisition are planned in a purposeful manner and keeping view all the implications, consequences and synergies, the banks through amalgamation shall be benefited and thus the financial sector the economy would be strengthened. While considering any proposal of merger of the banks it will be necessary to evaluate the impact of the merger on the safety and soundness of the banking system. There is a definite need to develop a merger process and to identify the authority that will be responsible for conducting the merger review process.
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BIBILIOGRAPHY
REFERENCES / REPORTS/ AND BULLETIN
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NEWSPAPERS
Business Standard The Hindu Business line The Economic Times The Hindustan Times The Times of India Financial Express The Hindu The Indian Express The New Indian Express The News Today
JOURNALS
The IUP Journals of IT Economic Revolution Hard News India Today Brand Equity
WEB SITES
http://www.google.com
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http://www.Wikipedia.org. http://www.lkgb.in http://www.pgbgorakhpur.com http://www.shreyasbank.com http://www.barodagraminbank.com http://www.upgb.com http://www.uttaranchalbank.in. http://www.IBA.org.in http://www.RBI.org.in http://www.kgsg.co.in http://www.nabard.org. http://www.hindustantimes.com http://www.economicwatch.com http://www.ejbe.org. http://www.livemint.com http://www.finance.indiamart.com http://www.indiatimes.com http://www.ndpublisher.com http://www.finmin.nic.in.
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(QUESTIONNAIRE)
QUESTIONNAIRE FOR BANK OFFICER
Tick the correct answer
(1) How do you classify your customer?
(a) Farmers.
(b) Landless labours.
(c) Artisans.
(d) Others.
(2) How do you process loan application?
(a) Size of holding.
(b) Length of period of farming.
(c) Quantum of loan.
(d) Period of repayment.
(3) While sanctioning loan, what type of security do you prefer?
(a) Ornaments/Jewellery.
(b) Land papers.
(c) Personal Guarantee.
(d) Clean loan.
(4) What is the rate of NPA during last five years?
(a) 1 to 5 person.
(b) 6 to 10 person.
(c) 11 to 15 person.
(d) More than 15 person.
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(5) What steps are taken by the bank to recover NPA?
(a) Regular Correspondence.
(b) Legal action.
(c) Counseling.
(d) All above.
(6) How do you decide NPA?
(a) Not getting EMI for the last three month.
(b) Not getting EMI four to six month.
(c) Not getting EMI seven to nine month.
(d) Not getting EMI more than nine month.
(7) How do you find the operating cost has come down after Mergers and Acquisitions?
(a) Reduced number of employees.
(b) Less promotion cost on the account of Mergers and Acquisitions.
(c) Increased clientele.
(d) Increased use of Information Technology.
(e) Others.
(8) What types of promotion you believe for increased clientele?
(a) Social campaigning.
(b) Word of mouth communication.
(c) Use of hoardings.
(d) Loan fairs.
(e) Others.
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(9) What are the reasons for the increase deposit in past five years?
(a) Increase in disposable income.
(b) Increase rate of Interest on deposit compare to post office or mutual fund etc.
(c) Easy access to banks.
(d) Increased awareness for banks.
(e) Others.
(10) What are the reasons for the increase advances in past five years?
(a) Increased awareness.
(b) Easy availability of loans.
(c) Decreased rate of Interest.
(d) Others.
(11) What type of advances do you sanction?
(a) Short Term advances- 6 month to 1 year.
(b) Medium Term advances- 1 to 3 years.
(c) Long Term advances- 2 to 5 years.
(d) Adhoc advances- below 3 month.
(e) Others.
(12) Which is the regularity body that regulate the advances to farmers?
(a) Ministry of finance.
(b) RBI.
(c) SBI.
(d) Banking Act.
(e) Others.
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(13) Which of these is of utmost concern for the employees during the merger and acquisition process?
(a) Job Security.
(b) Interpersonal conflicts / role conflicts
(c) Disturbance in working environment
(d) Cultures Adaptability
(e) Others
(14) So you feel that IT has helped you in the Improvement of Profitability because of?
(a) increased available of data.
(b) Taking of timely decision.
(c) Knowledge of competitive environment.
(d) Easy handling of various schemes.
(e) All above.
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