Short notes on Multi-Dimensional Developments

The multi-dimensional developments which have taken place after nationalization may be seen from the following table and achievements are highlighted thereafter in this chapter.

Statistical Tables Relating to Banks in India”. The classifications of the branches into rural, semi-urban, urban and metropolitan are based on the population of the area in which the banks are situated.

Classification Population

1. Rural Up to 9999

2. Semi-urban 10,000 – 99,999

3. Urban 1, 00,000 – 9, 99,999

4. Metropolitan 10, 00,000 and above

From the Table we could identify the following:

1. Number of Commercial Banks

The number of commercial banks has reduced considerably since independence. The number of commercial banks in 1947, was 648, and in 1998 it is reduced to 300. It includes 1 non-scheduled commercial bank and 196 Regional Rural Banks.

The Regional Rural Banks are, however, scheduled banks. The reason for such huge reduction in the number of banks point out to the fact that a large number of banks earlier were small-sized, region based and family-owned non-scheduled banks.

As the operations of these banks were not strictly regu­lated by RBI, they posted problems of solvency and liquidity to depositors. Hence, it was decided that the small banks either closed down or merged with larger banks.

This was due to the policy guidelines of Reserve Bank of India for the continuous amalgamation and merg­ers with large banks.

At the same time it must also be noted that the number of commercial banks between 1969 and 1998 have gone up from 89 to 300. As on March 1999, the number of banks has gone up to 303. Due to merger, the number of commercial banks was reduced to 297 as on March, 2002.

2. Expansion of Branches in India

It is evident from the Table that the number of branches in India has expanded rapidly. There were 2987 branches in 1947 and 8262 branches/offices in June 1969 and the number further increased to 66252 as on March 1998. The total number of bank offices went up to 68,195 as on March 2002.

During 1947-1969, there were no significant bank offices in rural areas. There were only 1833 branch offices in 1969 in rural India. After nationalization the government accorded priority to rural areas and due to its sect oral approach the number of branches rose to 32895 in 1998.

To put it differently in June 1969 only 22 per cent of total bank offices had been located in rural areas. This percentage went up to 50 per cent in the post nationalisation period. It is a notable achievement in the history of banking in India.

4. Deposit Mobilization

In India commercial banks promote the habit of thrift and savings among public and mobilize deposits. The deposits of scheduled commercial banks were Rs. 1080 crore in 1947, Rs. 4646 crore in 1969 but it increased to Rs. 605410 crore in 1998 and it has risen further to Rs. 701871 crore as on March 1999.

Aggregate deposit of all scheduled commercial banks crossed one million crore rupees mark in 2001. The total deposit amounted to Rs. 11, 31,188 crore as at end March, 2002. The increase in deposits is attributed to the Five Year Plans, policy of the Government, rapid branch expansion and industrialization of our country, etc.

5. Changes in the Composition of Deposits

The Composition of deposits has changed considerably. In 1947, the volume of current deposits and fixed deposits was Rs. 602 crore and Rs. 249 crore respectively. But in 1998 the position was topsy turvy, i.e., the volume of demand and fixed deposits respectively was Rs. 102513 crore and Rs. 502897 crore.

Thus, there has been a major change in the composition of deposits of commercial banks. This is due to the increased confidence among commercial banks specifically on public sector undertakings and also the saving habits of the Indian masses.

In March 2002, the total time deposits (fixed deposits) was nearly 6 times of demand deposits at Rs. 9,62,085 crore. It should be remembered that higher the portion of time depos­its, higher the interest cost for the banks.

6. Population per Office

There has been a vast development in population per bank branch. In 1947, the number of population per office was 82,000 and 64,000 in June 1969. It was, however, considerably reduced to 15,000 per office in December 1998. This is mainly due to the balanced expansion of branches all over India. The population per office continued to remain at 15,000 over during the subsequent year’s up to 2002.

7. Expansion of Credit Facilities

The credit facilities provided by the commercial banks have also been increased signifi­cantly over the years. The volume of credit extended in 1947 was Rs. 475 crore and it was only Rs. 3599 crore in June 1969. However, it went up to Rs. 3, 24,079 crore in March 1998. This is mainly due to nationalization and rapid industrialization. Credits extended by banks nearly doubled in the next 4 years to Rs. 6,09,053 crore as on March 2002.

8. Advance to Priority Sector

After nationalization, there has been a noticeable change in the Government Credit Policy. Preference is given to priority sectors which include agriculture, small industries, weaker sections of the society, etc.

In 1947, no preference was given to such sectors and in 1969 it was only Rs. 504 crore, and it has been expanded to over Rs. 1,00,000 crore of total outstanding advances as on March 1999.

It is a remarkable achievement in the progress of Indian Banking and upliftment of neglected sectors/sections of the Indian society. The total credit to priority sector group crossed Rs. 2, 00,000 crore mark in March 2002.

Banking Operations

Reserve Bank of India, twice, appointed a Committee under the Chairmanship of Shri M. Narasimham to suggest measures to revamp the Indian Financial Sector. The First Financial Sector Reforms were introduced in the year 1992-93 followed by the Second Committee’s Recommendations in 1998.

Both the Committees, under the Chairmanship of same person, recommended introduction of various prudential measures, strict accounting standards, full disclosure norms, capital adequacy for banks in India. These measures are similar to those followed by International Banks.

Usually, Bank for International Settlements headquartered at Basle, Switzerland prescribes important regulations, rules and procedures to be followed by International Banks in their banking operations.

The BIS (Bank for International Settle­ments) appointed a Committee in 1988 to suggest capital adequacy and Risk Management measures for international banks. This Committee is also known as ‘Basle Committee’.

The Narasimham Committee I and II have recommended measures similar to the Basle Committee’s recommendations with regard to prudential norms, capital adequacy, etc. for the Indian banks.

The Reserve Bank of India has issued instructions based on the Narasimham Committee’s recommendations for commercial banks in India. Some of these important mea­sures are given in this Chapter.