The document summarizes reforms in the Indian banking sector in the 1990s following economic liberalization. It discusses the Narasimhan Committee report of 1991 which reviewed issues facing nationalized banks like directed lending, high statutory liquidity ratios imposed by the RBI, and lack of profitability. The document also summarizes various priority sector lending programs and social banking schemes aimed at poverty alleviation as well as the Lead Bank and Service Area Approach programs for rural credit expansion. Overall, it provides an overview of major post-1991 reforms and issues in the Indian banking system based on the Narasimhan Committee recommendations.
Nair committee report on priority sector advancesPankaj Baid
The committee recommended expanding the definition of priority sectors to include additional activities like off-grid renewable energy and increasing certain lending limits, suggested streamlining bank reporting systems to improve data quality and consistency, and proposed increasing priority sector lending targets for foreign banks to be in line with domestic banks.
Impact of priority sector lending on indian economyshifali garg
The document discusses India's priority sector lending scheme. It was first introduced by the Reserve Bank of India in 1974 to ensure that a certain portion of commercial bank lending goes to important sectors like agriculture, small businesses, and other priority sectors. Currently, 40% of bank lending must go to the priority sector, including 18% to agriculture. The priority sector lending program aims to promote development and reduce poverty through increased employment and incomes in these key sectors of the economy. It has generally had a positive impact, though banks still face some challenges in lending to weaker sections like higher non-performing assets. The future prospects for priority sector lending in India remain strong.
The document discusses India's priority sector lending scheme, which requires banks to allocate a portion of their lending to important sectors like agriculture, small businesses, and renewable energy. It was first introduced in 1974 to ensure timely credit to priority sectors. Recent reforms broadened the sectors to include medium enterprises and social infrastructure. The expected advantages of the scheme include increased rural industries and living standards, poverty eradication, and infrastructure and GDP growth. Studies found the scheme increased incomes, employment, and achieved goals like poverty reduction and self-employment opportunities. In conclusion, the overall impact is positive as banks now provide credit to boost the rural economy and energy sector.
The document discusses the history and evolution of priority sector lending targets in India. It outlines that commercial banks were initially advised to raise priority sector lending to 33% by 1979, and then to 40% by 1985. Over time, sub-targets were also specified for agriculture and weaker sections. The document then defines the current categories of priority sector and sets targets for domestic and foreign banks, including total priority sector advances, agricultural advances, SSI advances, micro enterprises, export credit, and advances to weaker sections.
The document summarizes priority sector lending in India. It defines priority sectors as areas of the economy that are prioritized for funding by the government and central bank. Banks are directed to provide loans to these sectors at reduced interest rates to promote their development. The priority sectors include agriculture, small businesses, education and housing. The document outlines the sectors and challenges they face, as well as the role of priority sector lending in addressing issues like unemployment and poverty. It discusses targets for priority sector lending and how the Reserve Bank of India monitors compliance.
Priority Sector Lending (PSL) is a critical piece of compliance required in the Indian Banking and Finance industry. This presentation (along with the part 1, posted earlier gives a quick overview of the priority sector lending concepts. The regulation for PSL is quite clear and increasingly Banks are mandated by the regulator - RBI to ensure compliance to PSL.
Brought to you by www.sineedge.com
Impact of Liberalization on Rural Banking in IndiaNimit Jain
This presentation analyses the impact of financial liberalization policies adopted by India post 1991 on the Rural Banking Sector. This presentation was originally submitted as a project in Economics in BFIA, Shaheed Sukhdev College of Business Studies, University of Delhi.
Subject :Urban Housing
Branch : Civil Post Graduation In TOWN AND COUNTRY PLANNING
PDF Report:https://drive.google.com/file/d/0B-pK17VRHS--aUQ3MFdYRUVzbDJQcy02R1E1NE5BeVJhR3VR/view?usp=sharing
Nair committee report on priority sector advancesPankaj Baid
The committee recommended expanding the definition of priority sectors to include additional activities like off-grid renewable energy and increasing certain lending limits, suggested streamlining bank reporting systems to improve data quality and consistency, and proposed increasing priority sector lending targets for foreign banks to be in line with domestic banks.
Impact of priority sector lending on indian economyshifali garg
The document discusses India's priority sector lending scheme. It was first introduced by the Reserve Bank of India in 1974 to ensure that a certain portion of commercial bank lending goes to important sectors like agriculture, small businesses, and other priority sectors. Currently, 40% of bank lending must go to the priority sector, including 18% to agriculture. The priority sector lending program aims to promote development and reduce poverty through increased employment and incomes in these key sectors of the economy. It has generally had a positive impact, though banks still face some challenges in lending to weaker sections like higher non-performing assets. The future prospects for priority sector lending in India remain strong.
The document discusses India's priority sector lending scheme, which requires banks to allocate a portion of their lending to important sectors like agriculture, small businesses, and renewable energy. It was first introduced in 1974 to ensure timely credit to priority sectors. Recent reforms broadened the sectors to include medium enterprises and social infrastructure. The expected advantages of the scheme include increased rural industries and living standards, poverty eradication, and infrastructure and GDP growth. Studies found the scheme increased incomes, employment, and achieved goals like poverty reduction and self-employment opportunities. In conclusion, the overall impact is positive as banks now provide credit to boost the rural economy and energy sector.
The document discusses the history and evolution of priority sector lending targets in India. It outlines that commercial banks were initially advised to raise priority sector lending to 33% by 1979, and then to 40% by 1985. Over time, sub-targets were also specified for agriculture and weaker sections. The document then defines the current categories of priority sector and sets targets for domestic and foreign banks, including total priority sector advances, agricultural advances, SSI advances, micro enterprises, export credit, and advances to weaker sections.
The document summarizes priority sector lending in India. It defines priority sectors as areas of the economy that are prioritized for funding by the government and central bank. Banks are directed to provide loans to these sectors at reduced interest rates to promote their development. The priority sectors include agriculture, small businesses, education and housing. The document outlines the sectors and challenges they face, as well as the role of priority sector lending in addressing issues like unemployment and poverty. It discusses targets for priority sector lending and how the Reserve Bank of India monitors compliance.
Priority Sector Lending (PSL) is a critical piece of compliance required in the Indian Banking and Finance industry. This presentation (along with the part 1, posted earlier gives a quick overview of the priority sector lending concepts. The regulation for PSL is quite clear and increasingly Banks are mandated by the regulator - RBI to ensure compliance to PSL.
Brought to you by www.sineedge.com
Impact of Liberalization on Rural Banking in IndiaNimit Jain
This presentation analyses the impact of financial liberalization policies adopted by India post 1991 on the Rural Banking Sector. This presentation was originally submitted as a project in Economics in BFIA, Shaheed Sukhdev College of Business Studies, University of Delhi.
Subject :Urban Housing
Branch : Civil Post Graduation In TOWN AND COUNTRY PLANNING
PDF Report:https://drive.google.com/file/d/0B-pK17VRHS--aUQ3MFdYRUVzbDJQcy02R1E1NE5BeVJhR3VR/view?usp=sharing
Rbi in need to act efficiently, effectively and pragmaticallyAICAS
RBI has been among the best regulators in the world, managing the financial markets and various other important aspects of the Indian economy with a visionary, practical, positive and dynamic approach during more than last 5 decades.
Priority sector lending refers to preferential lending by banks to sectors like agriculture, micro, small and medium enterprises, housing and education. The Reserve Bank of India mandates that 40% of banks' lending goes to priority sectors. Priority sector targets include 18% of lending to agriculture and related activities, 7.5% to micro enterprises, and 10% to weaker sections. Priority sector lending aims to promote inclusive economic development by increasing access to credit for productive and employment-generating sectors that may otherwise struggle to obtain bank financing.
FINANCIAL INCLUSION A RETROSPECTIVE APPRAISALDr Lendy Spires
This chapter provides an overview of India's financial inclusion policies and programs implemented by the government and Reserve Bank of India over time. It analyzes the current state of financial inclusion in India from both demand and supply sides. While efforts have been made to enhance access through rural bank branches, self-help groups, and priority sector lending, a large unmet demand remains, especially among poorer populations. The chapter compares India's financial inclusion metrics to other countries and outlines the existing financial inclusion architecture and its limitations in fully addressing rural credit needs.
This document discusses housing finance in India. It provides information on key players in housing finance such as the National Housing Bank (NHB), Housing and Urban Development Corporation (HUDCO), commercial banks, cooperative banks, and housing finance companies. It describes the roles of NHB and HUDCO in promoting affordable housing. It also discusses the types of housing loans provided and the various institutions that provide long-term financing for housing in India.
PNB Housing Finance Limited provides an overview of the housing finance industry in India and an analysis of PNB HFL. Key points:
- Housing finance is a critical sector for the Indian economy, but there remains a large housing shortage. The government aims to address this with initiatives like "Housing for All by 2022."
- PNB HFL offers various housing and non-housing loan products. Its resources are primarily from bonds/NCDs, banks, and deposits. Assets are largely housing loans.
- Between 2013-2014, PNB HFL's borrowing amount grew while its cost of borrowings declined slightly. Its interest-bearing assets and returns also increased over this period.
Financial liberalization, Reforms carried out in India and their impact on fi...Simrankaur1022
Research paper - Introduction to financial liberalization, financial repression, benefits of financial liberalization, financial liberalization in India, MAJOR FINANCIAL SECTOR REFORMS CARRIED OUT IN INDIA SINCE 1991, OVERALL IMPACT OF THE REFORMS ON FINANCIAL SECTOR OF
INDIA SINCE 1991.
In February and March 2017, professionals from a global set of companies and organisations joined the 50th GLP, applying their business experience and problem-solving skills to propose a new business model to expand access to inclusive housing loans in rural India.
In partnership with Swarna Pragati Housing Microfinance (SPHM), a pioneer in the use of social collateral in housing loans, GLP participants produced a business plan to support SPHM’s vision of reaching one million loans over the next 10 years.
Through field-research, stakeholder interviews and site visits, participants gained deeper insights into India; the challenges faced by low-income households to access housing solutions and the formal financial sector; and the opportunities for SPHM to tap into India’s significant rural housing market estimated to reach US$80 billion by 2022.
In Asia, housing remains one of the most pressing issues, where more than 500 million still live in slums. Demographic shifts, combined with poor or non-existent land ownership policies and insufficient resources has resulted in a surge of slum creation and further deterioration of living conditions. Given the scale, the need for adequate and affordable housing presents significant business opportunities for the private sector, especially for developers, investors and financial institutions.
Despite the challenges in cities, poverty remains primarily a rural problem, where the housing shortage is still grossly overlooked. Amongst India’s total housing shortage of 113 million housing units, approx. 65 million homes are required in rural areas, mostly amongst Economically Weaker Sections (EWS) and Low Income Groups (LIG). The main issues preventing low-income rural households from accessing conventional housing in India include a lack of official land titles; a lack of credit history and income documentation; unsuitable length and size of traditional mortgages; and the high costs of collection, administration and delivery of direct loans.
Swarna Pragati Housing Microfinance (SPHM) is a microfinance institution established in Maharashtra, now headquartered in Chennai. It was set up in 2011 by Ramesh Kumar, former Chief General Manager at the State Bank of India (SBI) and Charmain of NABARD’s National Committee on Rural Habitat. SPHM is a pioneer in the provision of incremental housing finance to rural lowincome families to support their aspirations of building a new home, or repairing their existing house. SPHM targets rural customers who cannot access conventional financial products and services for home improvements.
This document provides an overview of the history of bank nationalization in India. It discusses how banks failed in the years following independence due to weak capitalization and lending primarily to secure borrowers. The objectives of nationalizing banks in 1969 were to promote social welfare, control private monopolies, expand banking access, reduce regional imbalances, and prioritize lending to key sectors. Fourteen large commercial banks were initially nationalized. This led to expanded branch networks, increased deposits and lending, and greater orientation toward priority sectors. However, nationalization also resulted in some inefficiencies over time due to political interference.
To provide Housing for all by 2022 in India, the government of India needs to develop the housing finance sector, Housing and Housing finance go hand in hand. In this section, we study the growth of housing finance sector in India since independence.
The document provides an overview of the housing finance sector in India. It discusses key trends such as higher mortgage penetration in urban areas and increasing urbanization. While mortgage rates are rising in cities, home ownership remains low. Several government initiatives such as the Pradhan Mantri Awas Yojna are expected to boost housing demand. New regulations around real estate may also improve the market. Financial data on selected housing finance companies shows most are profitable with high loan portfolios.
The document discusses priority sector lending in India. It defines priority sectors as agriculture, small scale industries, and other identified sectors of economic importance. It provides details on categories of lending covered under priority sectors such as short term crop loans, medium and long term agriculture loans, small scale industry loans, and loans to weaker sections. It also outlines priority sector lending targets for domestic and foreign banks in India and monitoring of priority sector lending by the Reserve Bank of India.
The document discusses housing finance in India. It provides an introduction to housing loans facilitated by the Reserve Bank of India. It then summarizes the objectives of studying Indian housing finance. It describes direct and indirect housing finance and loan limits under priority sectors. It discusses the growth of housing finance marketing and provides an overview of HDFC, SBI Home Finance, and LIC Housing Finance, including their services and financial performance. The conclusion compares the three companies.
Housing finance is important to meet growing housing demand, reduce poverty, and promote equitable growth. Key institutions that provide housing finance include the National Housing Bank, HDFC, LIC Housing Finance, HUDCO, and CIDCO. These institutions aim to increase affordable housing availability through loans for home purchases, construction, repairs and more. CIDCO additionally focuses on developing infrastructure to support new urban populations in India.
1) Agriculture is an important sector for the Indian economy, contributing approximately 17.2% to national GDP and employing 58% of the population. However, agricultural growth has often fallen short of targets.
2) The paper analyzes issues in agricultural financing in India, finding that credit delivery to the agriculture sector remains inadequate. Commercial banks remain hesitant to lend to small and marginal farmers.
3) An efficient agro-infrastructure can optimize resource use, increase farm incomes, widen markets, and create employment. Agriculture is financed through commercial banks, regional rural banks, and cooperatives.
The document discusses rural banking in India, including its objectives of poverty alleviation and financial intermediation. It outlines the limited banking presence pre-independence, nationalization of banks post-independence, and the rural branch expansion program of the 1970s. The establishment of NABARD to provide credit facilities to farmers is also mentioned. Challenges in rural markets include a lack of adequate financial markets and infrastructure, though opportunities exist in agribusiness and untapped markets. Marketing strategies proposed include developmental marketing, customized products and delivery models, and partnerships with cooperatives and NGOs.
Assigment on rural banking and infrastructureMahesh Kadam
The document discusses the importance of rural infrastructure and banking for rural development in India. It notes that rural infrastructure plays a key role in increasing agricultural yields and market access for farmers, as well as enabling non-farm employment opportunities. Specific types of rural infrastructure discussed include roads, storage facilities, irrigation, and electricity. The document also examines the role of regional rural banks in mobilizing savings and providing credit to rural communities. An example is provided of a rural banking initiative in Assam that built bridges to connect remote villages to city markets, improving farmers' access to sell their produce. The conclusion emphasizes the need for continued investment in rural infrastructure and banking to reduce rural poverty and encourage agricultural and economic growth.
Priority Sector Lending in India | भारत में प्राथमिकता क्षेत्र ऋण | Priority ...Abinash Mandilwar
Priority Sector Lending is very important topics for banking knowledge. This video is based on latest RBI guidelines. It is useful for JAIIB/CAIIB Exam, Bank Po Exam and Bank promotion. Don't forget to like share and comment the video. If you want video on any banking topics, suggest me in the comment box. For details you may refer my book on JAIIB. https://www.flipkart.com/search?q=abi...
In India, commercial banks are the oldest, largest and fastest growing financial intermediaries. They have been playing a very important role in the process of development. In 1949 RBI was nationalized followed by nationalization of Impearl Bank of India (New State Bank Of India) in 1995.
Financial sector is treated as to be the back bone of the economy. The quality in the working of financial sector truly impacts the profitability of the banks which as a whole impacts the economy and GDP of a country. Thus, it is important to explore the impact of reforms on the profitability of Indian banks. The paper focuses on the impact of reforms on profitability of Indian banks. This research will evolve the performance of financial institutions only after 1998 and in the wake of Narsimham Committee II.
The study is micro economic in nature and seeks to analyze the productivity of banking systems. Here an attempt has been made to examine the impact of reforms. The impact of reforms on the profitability of Indian banks has been examined on the basis of following parameters: Interest income to total assets, Operating Profit to Total Asset, Return on Asset and Return on Advances. More importantly such analysis is useful in enabling policymaker to identify the success or failure of policy initiative or alternatively highlight different strategies undertaken by banking firms which contribute to their success. Here an attempt has been made to examine the impact of banking reforms on profitability of Indian banking industry.
GROWTH PHASE IN INDIAN BANKING SECTOR
In over five decades since dependence, banking system in India has passed through five distinct phase, viz.
(1) Evolutionary Phase (prior to 1950)
(2) Foundation phase (1950-1968)
(3) Expansion phase (1968-1984)
(4) Consolidation phase (1984-1990)
(5) Reformatory phase (since 1990)
Macroeconomics Role Of Institutional Credit For Economic GrowthSpartanski
The document discusses the importance of institutional credit for agricultural growth and economic development in India. It notes that historically, agriculture has relied on informal credit sources that charge very high interest rates. The document outlines the establishment of institutional credit for agriculture in India via programs like priority sector lending and the Kisan credit card scheme. It finds that increased access to institutional credit is linked to higher agricultural productivity, food production and reduced farmer debt. However, it also flags issues like declining credit to agriculture from commercial banks and a need for expanded access to affordable credit via microfinance and technological solutions.
Banking played a vital role in India's development by financing large industries and promoting investment. Nationalization of banks in 1969 defined India's banking system by expanding reach and increasing savings mobilization and access. Studies show that rural branch expansion from 1970-1990 significantly reduced poverty and increased non-farm output. However, reforms in the 1990s led banks to prioritize large borrowers over small farmers and businesses, reducing credit to rural areas and priority sectors like agriculture.
This document is a student's project submission on priority sector lending in India. It includes sections on the introduction, history and background of priority sector lending in India, pre-reform and post-reform periods, key thrust areas and need for priority sector lending. It also discusses changing criteria of priority sectors, interest rate structures, and analysis of non-performing assets in priority sector lending between public and private sector banks. The document provides an overview of priority sector lending guidelines and regulations in India.
Rbi in need to act efficiently, effectively and pragmaticallyAICAS
RBI has been among the best regulators in the world, managing the financial markets and various other important aspects of the Indian economy with a visionary, practical, positive and dynamic approach during more than last 5 decades.
Priority sector lending refers to preferential lending by banks to sectors like agriculture, micro, small and medium enterprises, housing and education. The Reserve Bank of India mandates that 40% of banks' lending goes to priority sectors. Priority sector targets include 18% of lending to agriculture and related activities, 7.5% to micro enterprises, and 10% to weaker sections. Priority sector lending aims to promote inclusive economic development by increasing access to credit for productive and employment-generating sectors that may otherwise struggle to obtain bank financing.
FINANCIAL INCLUSION A RETROSPECTIVE APPRAISALDr Lendy Spires
This chapter provides an overview of India's financial inclusion policies and programs implemented by the government and Reserve Bank of India over time. It analyzes the current state of financial inclusion in India from both demand and supply sides. While efforts have been made to enhance access through rural bank branches, self-help groups, and priority sector lending, a large unmet demand remains, especially among poorer populations. The chapter compares India's financial inclusion metrics to other countries and outlines the existing financial inclusion architecture and its limitations in fully addressing rural credit needs.
This document discusses housing finance in India. It provides information on key players in housing finance such as the National Housing Bank (NHB), Housing and Urban Development Corporation (HUDCO), commercial banks, cooperative banks, and housing finance companies. It describes the roles of NHB and HUDCO in promoting affordable housing. It also discusses the types of housing loans provided and the various institutions that provide long-term financing for housing in India.
PNB Housing Finance Limited provides an overview of the housing finance industry in India and an analysis of PNB HFL. Key points:
- Housing finance is a critical sector for the Indian economy, but there remains a large housing shortage. The government aims to address this with initiatives like "Housing for All by 2022."
- PNB HFL offers various housing and non-housing loan products. Its resources are primarily from bonds/NCDs, banks, and deposits. Assets are largely housing loans.
- Between 2013-2014, PNB HFL's borrowing amount grew while its cost of borrowings declined slightly. Its interest-bearing assets and returns also increased over this period.
Financial liberalization, Reforms carried out in India and their impact on fi...Simrankaur1022
Research paper - Introduction to financial liberalization, financial repression, benefits of financial liberalization, financial liberalization in India, MAJOR FINANCIAL SECTOR REFORMS CARRIED OUT IN INDIA SINCE 1991, OVERALL IMPACT OF THE REFORMS ON FINANCIAL SECTOR OF
INDIA SINCE 1991.
In February and March 2017, professionals from a global set of companies and organisations joined the 50th GLP, applying their business experience and problem-solving skills to propose a new business model to expand access to inclusive housing loans in rural India.
In partnership with Swarna Pragati Housing Microfinance (SPHM), a pioneer in the use of social collateral in housing loans, GLP participants produced a business plan to support SPHM’s vision of reaching one million loans over the next 10 years.
Through field-research, stakeholder interviews and site visits, participants gained deeper insights into India; the challenges faced by low-income households to access housing solutions and the formal financial sector; and the opportunities for SPHM to tap into India’s significant rural housing market estimated to reach US$80 billion by 2022.
In Asia, housing remains one of the most pressing issues, where more than 500 million still live in slums. Demographic shifts, combined with poor or non-existent land ownership policies and insufficient resources has resulted in a surge of slum creation and further deterioration of living conditions. Given the scale, the need for adequate and affordable housing presents significant business opportunities for the private sector, especially for developers, investors and financial institutions.
Despite the challenges in cities, poverty remains primarily a rural problem, where the housing shortage is still grossly overlooked. Amongst India’s total housing shortage of 113 million housing units, approx. 65 million homes are required in rural areas, mostly amongst Economically Weaker Sections (EWS) and Low Income Groups (LIG). The main issues preventing low-income rural households from accessing conventional housing in India include a lack of official land titles; a lack of credit history and income documentation; unsuitable length and size of traditional mortgages; and the high costs of collection, administration and delivery of direct loans.
Swarna Pragati Housing Microfinance (SPHM) is a microfinance institution established in Maharashtra, now headquartered in Chennai. It was set up in 2011 by Ramesh Kumar, former Chief General Manager at the State Bank of India (SBI) and Charmain of NABARD’s National Committee on Rural Habitat. SPHM is a pioneer in the provision of incremental housing finance to rural lowincome families to support their aspirations of building a new home, or repairing their existing house. SPHM targets rural customers who cannot access conventional financial products and services for home improvements.
This document provides an overview of the history of bank nationalization in India. It discusses how banks failed in the years following independence due to weak capitalization and lending primarily to secure borrowers. The objectives of nationalizing banks in 1969 were to promote social welfare, control private monopolies, expand banking access, reduce regional imbalances, and prioritize lending to key sectors. Fourteen large commercial banks were initially nationalized. This led to expanded branch networks, increased deposits and lending, and greater orientation toward priority sectors. However, nationalization also resulted in some inefficiencies over time due to political interference.
To provide Housing for all by 2022 in India, the government of India needs to develop the housing finance sector, Housing and Housing finance go hand in hand. In this section, we study the growth of housing finance sector in India since independence.
The document provides an overview of the housing finance sector in India. It discusses key trends such as higher mortgage penetration in urban areas and increasing urbanization. While mortgage rates are rising in cities, home ownership remains low. Several government initiatives such as the Pradhan Mantri Awas Yojna are expected to boost housing demand. New regulations around real estate may also improve the market. Financial data on selected housing finance companies shows most are profitable with high loan portfolios.
The document discusses priority sector lending in India. It defines priority sectors as agriculture, small scale industries, and other identified sectors of economic importance. It provides details on categories of lending covered under priority sectors such as short term crop loans, medium and long term agriculture loans, small scale industry loans, and loans to weaker sections. It also outlines priority sector lending targets for domestic and foreign banks in India and monitoring of priority sector lending by the Reserve Bank of India.
The document discusses housing finance in India. It provides an introduction to housing loans facilitated by the Reserve Bank of India. It then summarizes the objectives of studying Indian housing finance. It describes direct and indirect housing finance and loan limits under priority sectors. It discusses the growth of housing finance marketing and provides an overview of HDFC, SBI Home Finance, and LIC Housing Finance, including their services and financial performance. The conclusion compares the three companies.
Housing finance is important to meet growing housing demand, reduce poverty, and promote equitable growth. Key institutions that provide housing finance include the National Housing Bank, HDFC, LIC Housing Finance, HUDCO, and CIDCO. These institutions aim to increase affordable housing availability through loans for home purchases, construction, repairs and more. CIDCO additionally focuses on developing infrastructure to support new urban populations in India.
1) Agriculture is an important sector for the Indian economy, contributing approximately 17.2% to national GDP and employing 58% of the population. However, agricultural growth has often fallen short of targets.
2) The paper analyzes issues in agricultural financing in India, finding that credit delivery to the agriculture sector remains inadequate. Commercial banks remain hesitant to lend to small and marginal farmers.
3) An efficient agro-infrastructure can optimize resource use, increase farm incomes, widen markets, and create employment. Agriculture is financed through commercial banks, regional rural banks, and cooperatives.
The document discusses rural banking in India, including its objectives of poverty alleviation and financial intermediation. It outlines the limited banking presence pre-independence, nationalization of banks post-independence, and the rural branch expansion program of the 1970s. The establishment of NABARD to provide credit facilities to farmers is also mentioned. Challenges in rural markets include a lack of adequate financial markets and infrastructure, though opportunities exist in agribusiness and untapped markets. Marketing strategies proposed include developmental marketing, customized products and delivery models, and partnerships with cooperatives and NGOs.
Assigment on rural banking and infrastructureMahesh Kadam
The document discusses the importance of rural infrastructure and banking for rural development in India. It notes that rural infrastructure plays a key role in increasing agricultural yields and market access for farmers, as well as enabling non-farm employment opportunities. Specific types of rural infrastructure discussed include roads, storage facilities, irrigation, and electricity. The document also examines the role of regional rural banks in mobilizing savings and providing credit to rural communities. An example is provided of a rural banking initiative in Assam that built bridges to connect remote villages to city markets, improving farmers' access to sell their produce. The conclusion emphasizes the need for continued investment in rural infrastructure and banking to reduce rural poverty and encourage agricultural and economic growth.
Priority Sector Lending in India | भारत में प्राथमिकता क्षेत्र ऋण | Priority ...Abinash Mandilwar
Priority Sector Lending is very important topics for banking knowledge. This video is based on latest RBI guidelines. It is useful for JAIIB/CAIIB Exam, Bank Po Exam and Bank promotion. Don't forget to like share and comment the video. If you want video on any banking topics, suggest me in the comment box. For details you may refer my book on JAIIB. https://www.flipkart.com/search?q=abi...
In India, commercial banks are the oldest, largest and fastest growing financial intermediaries. They have been playing a very important role in the process of development. In 1949 RBI was nationalized followed by nationalization of Impearl Bank of India (New State Bank Of India) in 1995.
Financial sector is treated as to be the back bone of the economy. The quality in the working of financial sector truly impacts the profitability of the banks which as a whole impacts the economy and GDP of a country. Thus, it is important to explore the impact of reforms on the profitability of Indian banks. The paper focuses on the impact of reforms on profitability of Indian banks. This research will evolve the performance of financial institutions only after 1998 and in the wake of Narsimham Committee II.
The study is micro economic in nature and seeks to analyze the productivity of banking systems. Here an attempt has been made to examine the impact of reforms. The impact of reforms on the profitability of Indian banks has been examined on the basis of following parameters: Interest income to total assets, Operating Profit to Total Asset, Return on Asset and Return on Advances. More importantly such analysis is useful in enabling policymaker to identify the success or failure of policy initiative or alternatively highlight different strategies undertaken by banking firms which contribute to their success. Here an attempt has been made to examine the impact of banking reforms on profitability of Indian banking industry.
GROWTH PHASE IN INDIAN BANKING SECTOR
In over five decades since dependence, banking system in India has passed through five distinct phase, viz.
(1) Evolutionary Phase (prior to 1950)
(2) Foundation phase (1950-1968)
(3) Expansion phase (1968-1984)
(4) Consolidation phase (1984-1990)
(5) Reformatory phase (since 1990)
Macroeconomics Role Of Institutional Credit For Economic GrowthSpartanski
The document discusses the importance of institutional credit for agricultural growth and economic development in India. It notes that historically, agriculture has relied on informal credit sources that charge very high interest rates. The document outlines the establishment of institutional credit for agriculture in India via programs like priority sector lending and the Kisan credit card scheme. It finds that increased access to institutional credit is linked to higher agricultural productivity, food production and reduced farmer debt. However, it also flags issues like declining credit to agriculture from commercial banks and a need for expanded access to affordable credit via microfinance and technological solutions.
Banking played a vital role in India's development by financing large industries and promoting investment. Nationalization of banks in 1969 defined India's banking system by expanding reach and increasing savings mobilization and access. Studies show that rural branch expansion from 1970-1990 significantly reduced poverty and increased non-farm output. However, reforms in the 1990s led banks to prioritize large borrowers over small farmers and businesses, reducing credit to rural areas and priority sectors like agriculture.
This document is a student's project submission on priority sector lending in India. It includes sections on the introduction, history and background of priority sector lending in India, pre-reform and post-reform periods, key thrust areas and need for priority sector lending. It also discusses changing criteria of priority sectors, interest rate structures, and analysis of non-performing assets in priority sector lending between public and private sector banks. The document provides an overview of priority sector lending guidelines and regulations in India.
This document provides an overview of the history and development of credit policy for agriculture in India. It discusses how rural indebtedness has long been a problem and the various steps taken over time to address this, including establishing co-operative credit societies in 1904, priority sector lending requirements for banks in 1972, establishing regional rural banks in 1975, and developing new programs like interest subvention, debt waiver schemes, self-help groups, and financial inclusion initiatives. It also analyzes trends in the sources and growth of agricultural credit over time from different institutional agencies.
This document provides a historical overview of microfinance initiatives in India since independence. It discusses early committees and surveys that examined rural credit needs and access. Major initiatives are described, including self-help groups, programs through NABARD and SIDBI, and the SHG-Bank linkage model. The document also outlines the current status and infrastructure of microfinance provision in India, noting that while access to formal credit has increased, the majority of marginal farmers and landless laborers still rely on informal sources. Overall it traces the evolution of microfinance policy and models in India over several decades.
This document discusses rural banking in India. It provides statistics on India's rural population and economy. It then discusses the current state of rural banking, including key challenges like financial exclusion and unprofitability. It also covers opportunities in the rural banking market and improving access. The conclusion is that commercial banks need a coordinated effort with the government and RBI to build an inclusive financial system and reach rural customers through partnerships with business correspondents and collaboration. Tailoring products and delivery models to rural needs is also important.
Impact of financial liberalization on rural bankingMehak Malik
This document discusses the impact of financial liberalization on rural banking in India. It outlines the phases of social and development banking from 1969-1991 when nationalized banks expanded rural outreach and priority sector lending. However, post-1991 liberalization saw a contraction of rural banking and credit starvation as priority lending declined. Microfinance emerged as an alternative but had high costs and limited scale. The document argues for revisiting policies of social banking through public sector banks to restore rural credit access.
Rbi in need to act efficiently, effectively and pragmaticallyNeha Sharma
RBI has been among the best regulators in the world, managing the financial markets and various other important aspects of the Indian economy with a visionary, practical, positive and dynamic approach during more than last 5 decades.
The document discusses rural banking in India. It outlines the objectives of rural banking as poverty alleviation and financial intermediation. It describes the limited banking presence pre-independence, nationalization of banks post-independence, and the rural branch expansion program of the 1970s that increased rural access to banking. It also discusses the establishment of NABARD to provide rural credit and changes post-liberalization, along with ongoing challenges and opportunities in rural marketing.
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This document summarizes a presentation on rural financial markets and agricultural credit in Pakistan. It discusses the differences between rural and urban areas, defines rural and agricultural finance, and outlines challenges in rural financing including lack of collateral, natural risks, and political interference. It also provides an overview of Pakistan's economy and agriculture sector, the history of rural financial institutions, and recent government initiatives to expand agricultural credit.
The document outlines priority sector lending targets and guidelines in India from 1968 to 2015. Key points include:
- Targets for priority sector advances have increased over time, currently at 40% of adjusted net bank credit.
- Priority sectors include agriculture (18% target), micro, small and medium enterprises (20% target), weaker sections (10%), and others.
- Agricultural lending includes loans to small/marginal farmers, agriculture infrastructure, and ancillary activities.
- Revised guidelines in 2015 set targets to be achieved in phases for foreign banks with less than 20 branches.
The document discusses financial inclusion in India. It defines financial inclusion and notes that it aims to provide access to appropriate financial services and products to vulnerable groups at affordable costs. It identifies groups that are commonly excluded from financial services like farmers and slum dwellers. It discusses various initiatives taken by the Reserve Bank of India and private companies to promote financial inclusion through expanding branch networks, increasing ATM availability, and issuing loans and credit cards to farmers and small businesses. Overall progress has been made in increasing access, but challenges remain in promoting awareness and usability of these services.
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MSMEs :
Contributes to the economic growth,
Enormous potential for growth
Potential for employment and income generation
for vast masses of the country.
Government pronouncements about “Make in India” are fundamentally based on these convictions.
There is heightened attention by the international community on MSME sector.
This is primarily because of the critical importance of job creation in the recovery cycle following the recent financial crisis, and the MSME’s potentials in that respect.
In Indian economy, MSME sector contribute :
45 % of the manufacturing output.
40 % of the exports.
There are 467.56 lakh enterprises in the MSME sector.
Provide the largest share of the employment after agriculture. Employment opportunities to 10.62 crore people across the country.
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aware of or able to afford these services. Global trends have revealed that in order to achieve
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is of utmost importance. As a whole, financial inclusion in the rural as well as financially
backward pockets of cities is a win-win opportunity for everybody involving – the
banks/NBFC’s intermediaries, and the left-out urban population. Banks will handle core
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levers to advance financial inclusion and economic citizenship by channelling its own
transactions to lubricate the system. India’s journey towards economic ascension relies on
how the 65% unbanked population of India (conservative 2012 estimate by World Bank) is
enabled with financial infrastructure.
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Training my puppy and implementation in this story
Ee bank
1. 1 of 25
21.7.2011
REFORMS IN THE BANKING SECTOR
1990s-economic reforms and overhauling of economic policies
Globalization means linking of the Indian economy with the world economy
Started with reorientation of approaches of public sector banks
I) Narasimhan committee report on progress and problems of
nationalized banks 1991
Achievements since 1969 :
Spectacular branch expansion programme in the rural sector
Noteworthy growth of deposits. By 1991 bank deposits constituted
20% of the financial assets of the household sector
Rural penetration. Rural deposits as a proportion of total bank deposits
recorded a growth from 3% to 15% in the two decades under
consideration.
Priority sector lending by commercial banks increased from 14% to
41% between 1969 to 1991-mainly nationalised banks
30 crores bank accounts by 1991.Borrowal accounts from 4 lakhs to
3.5 crores(87 times). Great achievement for nationalised banks
Reduction in regional disparities and thrust to underbanked and
unbanked areas
Problems faced by nationalized banks :
During the period productivity and efficiency declined leading to drop in
profitability.
Directed investments-sound banking requires liquidity to be maintained.
The banking regulation act 1949 requires of the commercial banks the
maintenance of the liquid assets in the form of cash, gold, government
and government guaranteed securities under section 24 of the act.
2. 2 of 25
This requirement known as Statutory Liquidity Ratio(SLR) was initially
placed at 25% of the total demand and time deposit liabilities of the
banks. By 1991 RBI had raised this to 38.5%. The reasons given were :
a) A higher SLR meant reduced capacity of the banks to create
credit
b) A higher SLR channelized bank funds into long term investments
in government securities.
Both these were said to be anti-inflationary in effect. The Narasimhan
committee had slammed this as a tax on banking and saving. High SLR
reduced profitability as the interest on government securities was lower than
the market and limited the freedom of the banks to invest in agriculture,
industry and trade.
Hinted at the fraud by finance ministry through SLR on the banking system.
By using section 24 managed to get 38.5% of the aggregate bank deposits
for financing its own expenditure and that too at an interest rate lower that
that paid by banks to their depositors. From mid 70s government used it to
pay salaries of government employees through to 1980s.
Under the RBI act 1934every commercial bank under obligation to keep 5%
of demand liabilities and 2% of time liabilities in the form of cash with RBI.
This is known as cash reserve ratio (CRR). In 1962, the RBI act was
amended to empower the RBI to vary the CRR between 3% and 15% of the
total demand and time liabilities. In 1991 it stood at 15% which was the
statutory maximum. Taken together, the SLR and CRR claimed 53.5% of the
aggregate deposits of banks as cash with RBI plus investment in government
securities and securities of public sector financial institutions (approved
securities and directed investments, forced on banks). RBI paid interest at
10.5% which was lower than the market rate. This reduced the freedom of
banks to invest their funds profitably and received very low rates of interest
on investments.
Directed credit-one of the objectives of bank nationalization was to attain
a balanced spread of bank credit geographically and functionally. Sectors
neglected were identified as priority sectors and a % of credit were
directed to these sectors. The banks were supposed to assess the
anticipated income of a loan proposal rather than insist on the security
offered.
3. 3 of 25
Two adverse effects of lack of financial discipline :
1) Bad debts increased as focus was on quantity rather than quality
2) Credit went to undeserving proposals. The technological revolution in
agriculture and small scale industries got stymied.
Political and administrative interference-loan melas degenerated into
irresponsible lending. IRDP(Integrated rural development programme)
lending were based on lists rather than need based credit assessment.
20% of the agricultural and small scale industrial credit is of this ‘infected’
type.
Courts directed loans to sick industries.BIFR urged for refinance. As a result
of this public sector banks experienced a lowering of their incomes , bsd
debt, mounting arrears and diversion of funds, leading to unproductive uses.
Subsidized credit-IRDP and priority sector lending should be at
concessional rates of lending. Banks were paying much higher rates of
interest to their depositors. To compensate banks were forced to charge
exorbitant interests to borrowings from industry and trade. Narasimhan
committee had felt that the savings of the public had been squandered.
Growth of expenditure-explained by the Narasimhan committee as follows
:
Need and potential viability not assessed while following branch
expansion programme
Supervision, inspection and audit were replaced by outside lines of
command and detrimental to financial health of banks
Indiscriminate growth and promotions inflated costs of operation
Restrictive role of trade unions-skill upgradation, computerization led
to declining labour productivity
Administering costs to loans to agriculture was high and loans given at
subsidized interest rates. The unit costs of banking got raised.
Government had to bail the bannks
Profitability of Indian banks : less competitive strength of Indian banks.
SBI has shown consistent improvement. Other banks have shown
improvement after 1996-97.
II) Priority sector lending
Commercial banks passed the buck to cooperative sector for priority sectors
like agriculture and small scale industries. One of the reasons for
nationalization.
4. 4 of 25
A) The rationale of priority sector lending :
RBI directive to banks in 1980 for priority lending :
40% of total bank credit(40% of this to agriculture)
50% of agriculture lending to weaker sections
12.5% of advances to small scale industries should be to rural artisans
12% of bank credit should go to exporters
% of priority sector advances to total bank credit grew from 22% in 1971 to
34.5% in 2004.
In 1969 the 14 banks which were nationalized had 15% to priority sectors
and in 1997 it was 41%.
B) Problems posed by priority sector lending :
Indiscriminate lending-lack of productive proposals and political
pressures for sanctioning
High costs, low profits-very difficult to monitor utilization as there were
numerous accounts
Hands tied-only 40-45% of total funds available and the priority loans
carried concessional rates and no guarantee of recovery.
Regional imbalance-Bihar, UP, MP and Rajasthan found it hard to reach
40%. They overlent to priority sectors in advanced states. Further
eroded the prospects of profitability.
C) A review of priority sector lending –Narasimhan committee
recommended that which was not agreed by Government
Priority sector should be redefined
PSL(priority sector lending) should be restricted to 10%, review
after 3 years and gradually phased out
Indian Bank’s association(IBA) recommended 10% because of following
reasons : A
Operating expenses for small loans very high
Recovery process very slow
Quality of assets very bad
B) Priority sector to be restricted to the core sector and other loans left to
individual commercial judgement
5. 5 of 25
C) in the process of selecting beneficiaries and granting of subsidies banks
should be involved through a representative
D) deregulation of interest rate on PSL and would divert funds and the
expertise of banks to the sector
E) debt recovery tribunal with powers to attach assets
III Social banking-banking operations aimed at achieving social objectives
A) Financing of poverty alleviation, employment and weaker section
schemes
Employment guarantee most powerful measure for overcoming poverty
Schemes of differential interest rates : 162 districts in 1972
Public sector banks were asked to extend loans to weaker sections at
concessional rate of 4%. 1990 was peak. 43 lakh accounts and outstandings
of Rs 710 crores. By 1995 reduced to 20 lakh accounts and 640 crores.
Integrated rural development programme(IRDP) :
1996-97 there were 19 lakh beneficiaries of which 11 lakhs were dalits and
tribals and the loans sanctioned to all the beneficiaries was worth Rs 1950
crores.
Mehta committee reviewed the IRDP and recommended :
Extension of the scheme for purchase of land and animal husbandry
An enhancement of the loan amount
>25000 must have normal banking terms of mortgage
Have special recovery officers
PMs integrated urban poverty eradication programme(PIUPEP) :
Started in Jan 1996 with a plan to eradicate poverty by 2000. Implemented
in 400 centres and expected to reach all urban poor by 2000. The financial
assistance amounted to Rs 12000 pa per poor household. Came under
criticism because the urban poor is going on increasing because of rural to
urban migration.
Other schemes :
PMs rojgar yogana for educated unemployed youth(PMRY) :
6. 6 of 25
Launched on 2.10.1993 in few urban areas and extended to the rest of
the country in 1994. To provide sustained employment to about 10 lakh
educated unemployed urban youth(18-35 years). Only one member of
family can get benefit. The loan limit is Rs 1 lakh from a bank. 15%
subsidy is available. 5% margin money. Project hypothecated. SSC pass
or fail ITI pass are eligible. 206000 beneficiaries. In 1996-97 banks had
disbursed Rs 1540 crores for the implementation of the scheme.
Scheme for urban micro enterprises(SUME)
The scheme covers unemployed urban-poor living below the poverty line.
It extends to all urban settlements not covered by IRDP. For getting the
benefit :
o Permanent resident >3 yrs in city
o Skill and aptitude
o Not borrower in any other scheme
o Should not be defaulter under similar scheme
Nagar parishads and municipal bodies are the nodal agencies and identify
potential beneficiaries and forward to banks. The banks provide a
composite loan <7500.25% subsidy on cost of the project is available in
addition to the limit. Rs 5000 limit for subsidy for SC/ST and women and
Rs 4000 for others
Initiated in 1990, covered 118000 micro enterprises in 1995-96 and bank
credit Rs 74 crores
C Bank credit to minority communities
13 lakhs borrowal accounts. Loans Rs 1212 crs till 1996-97
Poverty eradication relied on various schemes as economic development by
itself cannot eradicate poverty
D Schemes of liberation and rehabilitation of scavengers(SLRS) 1993
Funding of projects upto Rs 50000 for beneficiaries at 4% rate of interest,
20% of it would be subsidy
B) A critical review of social banking schemes
Misdirected efforts-poverty has a social, cultural and educational
aspect besides the economic one. Financial assistance alone cannot
7. 7 of 25
eradicate poverty. Present emphasis is on human development. In this
regard anti poverty special schemes met with a failure.
Unethical divergence of funds-Government had siphoned off the
savings deposited in the commercial banks
Faulty implementation-babus could not identify persons below the
poverty line and appraise the proposals and finance required banking
experience.
Misappropriation-60% never reaches the poor. 40% which reaches is
so that they may never again approach the bank. Nexus between
borrowers, middlemen and inefficient bank staff.
Weakening of the banking fibre : unsound conceptualization and faulty
implementation
IV Lead bank scheme
1969 Dr D R Gadgil committee-83% of total credit supply was made by the
nationalized banks. Banking facilities are not available in 617 towns out of
2700 towns and 5000 villages were out of jurisdiction of banks.
‘area approach’ for bank expansion-‘district’ mentioned as the smallest
geographical unit for this scheme. 1969 Lead bank scheme-every
nationalized bank should concentrate on ‘district’ and act as ‘Lead bank’ as
per the Narasimhan committee.
336 districts of India were to be distributed amongst the nationalized banks.
SBI + 7 subsidiaries + 14 nationalised banks(22 altogether) and 3 private
banks were to implement this scheme. Applicable to all districts except the
metropolitan cities. Banks were expected to adopt a district for intensive
development.
A) Operation of the scheme :
Lead bank to prepare a blue print for all round economic development of the
district as a whole :
Advantages expected :
Well knit banking system
Branch expansion programme would be more effective
Supervision and guidance to branches more effective
Dynamic relationship at district level between government and banks
Integration of credit and other activities
8. 8 of 25
Location of major bottle necks in the development of the district could
be identified
Lead bank tool to implement District plan
B) Progress of the lead bank scheme
Banks in dark for two years
Banking commission felt that the planning should be with the state govts
Banking should be supported by water supply, power, cheap and reliable
transport
Progress made so far :
Identifying potential centres good but formulation of plans has been slow
High power committee suggested separate cells to monitor. 13 state
governments as of July 1977 have agreed to do this.
By mid 90s the lead bank scheme covered 493 districts in the country
C) Problems faced by the lead bank scheme
Understanding the role-banks thought the lead bank would open the
branch
Coordination-the effective functioning of a committee can make the
coordination meaningful. Consultative committees were tried
Expertise-extra financial knowledge is lacking
Training and orientation of branch level staff-it is a creative banking
scheme so the spirit and context had to be understood
Other infrastructure-only financial development will not do
D) A critical appraisal-scheme not well understood
V ) Service area approach Feb 1988 based on study in 1987
A Operation of the strategy-branch assigned to cluster of villages and bring
about economic development. Expected to serve as :
Avoid duplication
Avoid scattered lending
Facilitate rural approachability
Credit planning and monitor endues
Involves the following five stages :
9. 9 of 25
Each rural and semi-urban branch identifies its service area
Surveys for lending potential
Prepares annual credit plan
Coordinates for effective implementation for annual credit plan
Continous system for monitoring
Expected to reap following advantages :
o Each branch concentrates on the development of the area
o Avoids duplication of efforts
o Well planned and organized lending programme
o End use remains loyal to proposal and impact on production is properly
assessed
o Able to motivate the branch manager
B Progress of the service area approach
Scheme launched on 1.4.1989 in all 445 districts. The amount targeted has
doubled in 6 years till 1995
C Problems experienced by service area approach
Assignment of areas-already assigned villages were reassigned
Problems related to the staff-mismatch of staff and functions.
Commuted from urban centres. Narasimhan committee had
recommended cadre of rural bankers
Region wise differences-in undeveloped regions 15-20 villages had to
be attached to one branch
Bank wise differences-led to disparities in development of different
areas
Organizational problems-one man branches were struggling to cope
VI) Narasimhan committee I (committee on financial systems 1991)
A Observations of the committee-in view of global integration of financial
services
Directed investments-reduction in SLR and CRR
Directed credit programmes-fiscal rather than credit instruments are
preferable for promoting distributive justice. Gradual phasing out of
directed credit favoured by the committee. Directed credit
programmes should cover redefined priority sector.(marginal farmer,
10. 10 of 25
tiny sector of industry, small business and transport operators, village
and cottage industries, rural artisans and other weaker sections). The
credit target for this section should cover 10% aggregate bank credit.
Appraisal should be without interference and review after 3 years.
The structure of interest rates-medium term objective is to move
towards market determined interest rates. The bank rate should be
the anchor rates/floor rate.
Capital adequacy-under capitalised
The pattern of banking structure-market driven and profitability main
concerns. The committee recommends :
1. 3-4 large banks including SBI could be international in character
2. 8-10 national banks with nation wide network to be engaged in
universal banking
3. Local banks with operations confined to a specific region
4. Rural banks (including RRBs) to predominantly finance
agriculture
To cover the credit gaps-branch licensing should be discontinued and
instead of rural branches, national banks should set up their rural
subsidiaries with a compact area of operation, and on par with RRBs,
in their relation to NABARD.
B Recommendations of the committee :
1. SLR to 25% over a period of 5 years
2. Preferential refinance of bank credit to agriculture and small industry
to be reintroduced. Credit instrument of enhancing productivity
3. Concessional rates of interest for priority sector loans of small sizes
should be phased out
4. Interest rates should be deregulated with efforts to reduce fiscal
deficit-otherwise the burden of interest payments on the budget would
increase
5. All banks should reach capital adequacy of 8% of the risk weighted
assets in a phased manner
6. Banks with a consistent record of profitability should be allowed to tap
the capital market
7. Interest on NPAs should not be booked as income on accrual basis
The non performing assets (NPAs) would be defined as an advance ,
whereas on the balance sheet date category wise :
11. 11 of 25
Term loans-interest remains past due for more than 180 days
Term Overdraft/cash credit-account remains out of order for more
than 180 days
Bills purchased/discounted-bill overdue and unpaid for more than 180
days
Other a/cs : amount to be received remains past due for more than
180 days
Past due=outstanding beyond 30 days from due date
8. For provisioning against bad and doubtful debts bank advances have
been classified into four groups
Standard assets Satisfactory and regular
Sub standard assets Classified as NPAs for a period upto
2 years
Doubtful assets NPAs remaining npas for more than
2 years including loans
Loss assets Accounts where loss has been
identified but the amount has not
been written off
The basis of provisioning should be as under :
For loss assets Write off or 100% outstandings be
provided for
For doubtful assets Provide for 100% of security short
fall and 20-50% of secured portion
For substandard assets A general provision of 10% of total
outstandings
The provisions made for doubtful assets should be allowed as deduction for
Income tax purposes
9. Supported Tiwari committee to constitute Special Tribunals for Recovry
10. Setting up of assets reconstruction fund. After completing its
task of collecting dues and redeeming bonds, the ARF would wind itself
up
12. 12 of 25
11. Rehabilitation of sick units procedure, computerization of
banking activity
VII ) Important banking sector reforms since 1991-92
A) Need and objective of reforms
Need :
Concomitant of trade and industrial policy liberalization to increase
competitiveness and efficiency
Strength of financial sector can be improved by improving financial health
and efficiency
Market orientation through innovative services and products
Physical / geographical expansion to be matched by qualitative
improvement
Challenges of globalization call for a thorough reform of the financial
sector
Objectives :
Improve accountability and profitability
Improve policies
Infuse competitive vitality
To achieve balanced growth of financial institutions
Ensure effective and appropriate supervision
B ) Important reforms 1991-98(Restructuring of banks not accepted)
1. Cash reserve ratio : interest paid raised to 4% from 3.5% under the II
tier formula
2. Statutory liquidity ratio : 38.5%. SLR is 25% uniform on all net
demand and time liabilities(MDTL)
3. Interest rates : reduced to four categories from six
Banks are allowed to fix their Prime lending rates(PLRs) on term loans
of 3 years and above
4. Domestic deposit rates : Effective 22.4.1992 domestic deposit rates
were subject to only one ceiling rate . Effective Oct 1995 banks were
permitted to fix their own interest rates on domestic deposits with a
maturity of over 2 years. 22.10.97 for 30 days and over were
authorized. Effective signal rate and reference rate.
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5. Private sector banks : Population per branch reduced due to increase
in rural and semi-rural branch expansion. Urban branches have
expanded after the emphasis on private sector banks
6. Profit orientation : The nationalization phase saw a phenomenal
growth in rural branches of banks. From 22% of the banking network,
the proportion of rural branches increased to more than 50% in 1991.
Branch expansion in the reform period came through semi-urban,
urban and metro branches. Banks have cumbersome account opening
procedures.
7. Liberal branch policy : Banks following prudential norms and
containing NPAs within limits specified by RBI have been given
considerable leeway in the opening of new branches. One loss making
branch can be closed if served at rural centres by two commercial
banks excluding RRBs.
VIII) Further reforms : narasimhan committee II (1998) committee on
banking sector reforms
1. Strengthening the banking system : public sector banks have the lions
share
2. Risk control : covered by bringing it into scope of CAR(capital
adequacy ratio)
Market risk –only commodity risk is gold. 5% risk weight suggested.
Government guaranteed advances-different weights suggested for central
and state advances.
International standards-assets will be treated as substandard if it stays in
the category for 18 months by the year 2000 and for 12 months in the year
2001.
3. Capital adequacy ratios : to be raised 9% by the year 2000 and to
10% by 2001
4. Structural issues :
a) ARC and venture fund : Assets transferred to ARC which would issue
to the banks NPA swap bonds for realizable value of assets
transferred. Or, government guarantee banks may issue bonds which
will form part of tier II capital. This may be given SLR eligibility for
investment by banks.
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b) Narrow banking : Weak bank is where cumulative loss + NPAs> net
worth-reduce incremental credit deposit ratios.
c) Ownership issues : Government equity in banks need to be transferred
to public.
Regulatory control of UCBs : present dual control needs to be ended and
brought under RBI.
5. Integration of financial markets :
Interbank call money market : Call money markets need to be restructured
into a pure interbank market where primary dealers only will be allowed with
banks for borrowing and lending.
6. Integration of money and forex markets : these are integrated to a
considerable extent. Once MIBOR(Mumbai interbank offered rate)
becomes an accepted reality , the integration shall further improve.
7. Coordinated development of financial markets : BFRS Board of
financial regulation and supervision suggested for creation.
An evaluation : RBI has given guidelines to implement the following
recommendations :
Risk weight of 5% for government approved securities. These are
not totally risk free
CAR 9% to be achieved by 2000 and 10% by 2002
A general provision of 1% on standard assets to be maintained.
0.25% by March 2000.
Foreign exchange open position limit to carry 100% risk weight
The risk weight for government guaranteed advances to be same
for other advances
The government guaranteed advances which have turned sticky to
be classified as NPAs from April 2000
Cleaning up of balance sheet should be followed by steps to prevent re-
emergence of NPAs
Recommended disclosure in a phased manner of the maturity pattern of
assets and liabilities. Need to institute an independent loan review
mechanism especially for large borrowal accounts and to identify potential
NPAs.
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IX Bank supervision and management of NPAs-watch on systemic risk and
collapse of total banking system.
Follows following objectives :
Risk each bank undertakes
Resources available to manage that risk and adequacy
Risks in credit, market , operational and management
Provisioning was left to bank managements
Narasimhan committee laid down three aspect of norms :
1. Income recognition
2. Asset classification
3. Provisioning
A) Income recognition : NPA fails to generate income
For term loan the interest will be in arrears for two out of four quarters then
it will be a NPA. Arrears means 30 days overdue.
While performing assets are classified as standard assets, NPAs are
substandard assets
B) Asset classification :
Standard assets-performing assets
Sub-standard assets-outstandings more than two quarters
Doubtful assets –NPA > 2 years
Loss assets-loss proved or NPA>3 yrs
C) Provisioning : for NPAs and Investments
Banks have to provision in the following manner :
Standard assets-no provision
Sub standard assets-10% of total outstanding
Doubtful assets (upto 1 yr doubtful) -100% of unsecured plus 20% of
secured position
Doubtful assets (upto 1-3 yr doubtful) -100% of unsecured plus 30% of
secured position
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Doubtful assets (>3 yr doubtful) -100% of unsecured plus 50% of secured
position
Loss assets=100% outstanding
D) Management of NPAs :
Regular monitoring of the performance of each loan asset
Early identification of problem assets for the success of remedial action
Effective followup of recovery
NPAS %/total advances is critical indicator of the quality of bank’s loan
portfolio-hence performance assigned highest weightage in the system
NPAs of public sector banks-had declined from 17.84% in Mar 1997 to
15.89% in Mar 1999
Key indicator-16% are NPAs
E) Competitiveness of banks : Narasimhan committee’s view :
Following have been implemented :
1) Capitalization of public sector banks as per international standard for
their healthier growth
2) Operational freedom
3) International standards of income recognition, asset classification and
provisioning
4) Competition promoted by allowing private sector
5) Profitable nationalized banks were allowed to access capital markets
6) RBI control on interest rates were reduced
7) To invest heavily on system automation, reducing transaction costs
8) New prudential norm
From 1st April 2000
Full disclosure and transparency and effective supervision of
banking operations
Detailed instructions for asset liability management
IT and electronic funds transfer have emerged as twin pillars of modern
banking development
The causes of low levels of competitiveness of banks are as follows :
Inadequate bank automation
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Slightly weak commercially oriented inter-bank platform
Lack of a planned electronic payment systems backbone
Inadequate telephone infrastructure
Inadequate marketing effort
Lack of clarity and certainty on legal issues
Lack of data warehousing network
Removal of these will improve the competitiveness
F) Interest rate deregulation : banks should be allowed to formulate
sound policies
G) CAR-capital adequacy ratio-CAR at the heart of banking supervision.
Debt 50% of core capital. Core capital should not be less than 50% of
total capital. Tier II capital should be limited to 100% of core capital.
H) Risk adjusted assets :
The lower level of capital adequacies will force them to concentrate on
government securities. Will have to resort to capital issues to increase their
core capital(Tier I). Tier II capital mainly comprises of hidden reserves,
revaluation reserves, subordinated debts(mainly loans by government)
general provisions
X) An overview of recent policy measures
April 1997
CRR and SLR on interbank borrowings removed
Bank rate reduced to 11%
9% interest rate for deposits less than 30 days(2% less than 11%)
5% ceiling for banks investment in corporate debt removed
FIs allowed to raise short term funds and lend working capital to
corporate
Banks allowed to borrow US $ 10 Mn from overseas branches
June 1997
Bank rate reduced to 10% from 11%
October 1997
Bank rate reduced to 9% from 10%
CRR to be reduced by 2% in eight phases of 0.25% each, spreading
from Oct 97 to Mar 98. This was estimated to augment liquidity by
Rs 12 Bn for each phase
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Banks to be paid interest on eligible CRR balances at the rate of 4%
against earlier effective rate of around 3.5%
Interest rates on deposits of 30 days and above were deregulated
and delinked from bank rate
Banks allowed to fix separate prime term lending rates(PRLTs) in
respect of term loans of 3 years and above
November 1997
Postponement of phased CRR reduction in view of comfortable
liquidity and developments in foreign exchange markets
December 1997
CRR increased by 0.5% to 10%
A minimum interest of 20% on overdue export bills (for the overdue
period), a 15% surcharge on lending rate for bank credits for
imports
January 1998
Bank rate increased by 2% to 11%
CRR raised by 0.5% to 10.5%
March 1998
Bank rate reduced by 0.5% to 10.5%
CRR reduced by 0.5% to 10%
April 1998
Bank rate reduced by 0.5% to 10% on April 3rd and to 9% on April
29th
Minimum period of maturity reduced from 30 days to 15 days
To encourage banks to mobilize long term foreign exchange
deposits and to discourage short term deposits , interest rates on
FCNR(B) deposits of one year and above increased by 50 basis
points and on such deposits below one year decresed by 25 basis
points.
Bank rate has been reduced from 10% to 9%
Interest rate on pre-shipment export credit has now been reduced
from 12% to 11%
Banks are allowed to advance upto Rs 2 Mn for advances made
against de-materialised securities subject to a minimum margin of
25%
Recent developments :
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o Implementation of asset liability management system(ALM) : Banks
must cover 60% of their assets by April 1999. The banks are expected
to cover 100% of their assets and liabilities by April 2000.
o Disclosure norms –banks should disclose in balance sheets maturity
pattern of advances, deposits, investments and borrowings. RBI
proposes to come out with top 100-150 defaulters of loans in each
bank.
Emerging opportunities for banks
o Depository participants : demat facilities by banks
o Housing loans-banks are allowed to lend 3% of their incremental
deposits to housing sector. Can cause asset liability mismatch for
banks due to the long duration.
o Insurance-banks will have to tie up with international insurance
companies
o Net banking-enhance technology and provide value added services like
banking through internet