Chapter II

REVIEW OF LITERATURE

18

CHAPTER II

REVIEW OF LITERATURE

In Modern times banking is the kingpin of all business activity. It is an

important instrument of mobilizing the community’s resources through

institutional framework. As a matter of fact, economic and industrial

development of a country depends, is the main, upon how efficiently funds

are managed by the banks.

The Indian financial system comprising the commercial banks, the

financial institutions and the capital markets, has undergone a very rapid

transformation since the reforms were implemented in 1991. Many studies,

have attempted to analyze the role of banks and the development of economy

in general and on the aspects of financial sector reforms implemented in India

since 1991. Some of these studies have been reviewed here which shows what

happen to Indian banking sector in the past and where it stands at present.

To study the organization framework for the implementation of social

objectives of banks, a study group headed by Gadgil D.R. (1968)1 was

appointed. It recommended that commercial banks should give more

importance for lending to priority sector including agriculture, small scale

industry and small business units.

19

A study conducted by NIBM (1969)2 stressed the need for banks to

adopt such techniques which will attract and induce more depositors and to

provide service to them.

For the development of banking operations into the unbanked areas

and also for implementing branch expansion programmes a committee headed

by Nariman F.K.F (1969)3 was appointed. This committee’s

recommendations resulted in the implementation of Lead bank scheme.

According to the study conducted by NCAER (1969)4, majority of the

depositors are interested in depositing their savings on non-banking

institutions rather than other banks because of their higher rate of interest on

their deposits.

Sharma B. P (1971)5 highlighted the rule of commercial banks in the

developing economy as well as the need for the diversification of banking

services so that it would be more useful for the public.

The establishment of state-sponsored rural commercial banks to meet

the credit needs of rural people was recommended by the working group on

rural banks (1972)6.

The banking commission (1972)7 headed by Saraiya R.G,

recommended for the modernization of operating methods of commercial

banks.

20

Ooman M.A (1976)8 made a study on Rise and Growth of banking in

Kerala. This study was focused on the whole history of Kerala banking

starting from pre-independence to post-nationalization.

Basu (1976)9 analyzed the determinants of inter district disparity in

outstanding credit of commercial banks and level of per-capita deposit

strength of co-operative credit movement and the degree of urbanization on

such disparity.

Improvement of operation efficiency and profitability was

recommended by the Luther Committee (1976)10. The committee

recommended for the uniform transfer price formula for the service charge

structure.

Gopal Karkal (1977)11 made his study on the problems and difficulties

of rural and urban bank customers and suggested for the adoption of new

innovative technology by the banks to meet the growing needs of various

customers.

The major changes developed in the banking sector after the

nationalization was studied by Ghosh (1979)12 and focused that many

improvements had happened in the case of Deposit mobilization, lending

pattern and operational efficiency of banks.

21

According to the study of Agerval H.N (1979)13, improved service can

be provided to the customers only by changing the organizational setups of

banks and also with the adoption of new management techniques.

Economic Research Division by Birla institute of scientific research

(1981)14 evaluated the comparative performance of public sector banks and

major private sector banks after nationalization and focused that performance

of public sector bank was not as expected.

V. C Kulshrestra (1986)15 has conducted a study on “The role of lead

bank scheme in branch expansion” in western region of Uttar Pradesh and

found that lead banks in western Uttar Pradesh and other parts of the country,

has laid emphasis on branch expansion at mass scale with major thrust in

unbanked areas.

Santhosh Pai (1986)16 conducted a study on the Lead bank scheme and

branch expansion and found that branch expansion of banks were very slow

and far from satisfactory.

A study was conducted by NIBM (1986)17 on the banking activities

and found that only educated people are approaching the banks and

recommended that banks should come forward to help the lower income

people of rural areas.

22

Naidu (1986)18 assessed the impact of bank finance on income and

employment of weaker sections in India. The study proved that bank finance

is having a high degree of impact on income and employment.

Mishra (1987)19 studied about the credit facilities provided by the

banking institutions in rural development and found that rural financing by

the banks are not satisfactory.

Ramachandra Kittur (1988)20 suggested in his study that when

commercial banks entered into field of agriculture lending they should act as a

catalyst. Their role should be one of social and another of commercial

responsibility. If the banker guards himself against external force so far as

‘equality and monitoring of advances’ is concerned, it is socially and

commercially viable to finance agriculture and allied activities.

The Khushro Committee (1989)21 observed that the Reserve Bank of

India has actively involved in institution building of rural credit and was

successful in its endeavor to promote a sound and balanced growth of

commercial credit movement. The committee further opined that the Central

Bank has a wide area of direct responsibility in policy formulation in regard

to credit deployment for commercial banking system.

Narasimham (1989)22 emphasizes the importance of an administrative

type of regulation which would affect the innovative character of Indian

Banking. The banking system is safe with RBI which decides the manner and

23

extent of regulation. However it is reminded that the ownership of the bank

does not give the proprietor the right to interfere in the management. More

authority should be given to the managers of the bank subject to regulation by

RBI.

Syed Sharafat Hussain (1990)23 points out that the instruments of

savings Mobilization should be fabricated so as to resolve the various types of

synchronization facing an individual.

Paduval (1991)24 discusses the Indian experience of liberalization

during last two decades and likely scenario in the next decade. He observed

that the past two decades showed that growth of financial system was

characterized by active state intervention as with a view to building up of

institutional infrastructure. However a marketing approach has to be adopted

to face the challenges of management arising due to high degree of

diversification. To face this, banking system should be made financially

strong.

Shankar (1991)25 opined that the conditions of entire nationalized

banking industry is shaky. After 20 years of nationalization the banking

system is like a vehicle which has been running hard to fulfill the government

policies and programmes. The RBI should spill out clear, broad objectivities

and general guidelines to banks but detailed policy, strategies planning and

operational freedom should be left to the bank.

24

Ramola and Negi (1991)26 examined the growth of and development of

commercial banks in the rural development process. The observation was that

“Banking industry in India has made a significant progress in extending credit

facilities in the rural sectors”. The rate of priority sector advances to net bank

credit has risen, but cases are some times recommended by the sprawling

agency for unproductive activities with the result that beneficiaries close

down the business even before completion of gestation period.

Rajendra Naidu (1992)27 studies the deposit mobilization efforts by

commercial banks and obstacles faced by them. He concluded that since

nationalization, the policy focus has been centralized mainly on lending to

neglected sector rather than deposit mobilization. Competition, interest rate

structure, lack of good customer service, staffing problem, advertisement and

publicity are the hurdles the banks had to cover in its effort of deposit

mobilization. RBI should take steps to reduce unhealthy competitions.

Pandya, Patel (1992)28 observe on banking for Rural development.

Rural branches should be managed with officers and clerks who are

experienced and exposed to rural development. They should not work in

isolation, but work very closely with semi urban/urban branches to ensure

proper and timely assistance to the needy rural people.

Sree. Rama Murthy and Hareesh (1993)29 attempted to explain the

reason for inter-regional disparities by examining regional variation in per

25

capita income levels. The results imply that the region with high income and

intense spread of branches have high per capita branch deposits. While

regions with low income level and less spread of branches have low per

branch deposits.

Jayakumar has conducted study(1993)30 with the objective of making a

comparative examination of the performance of public sector banks and

private sector banks in Kerala.It reveals that the private sector banks are doing

well in Kerala.

S. Doreswamy (1993)31 emphasis on the operation and rapport that

must be fostered among the banks, to prepare themselves to face the new

challenges. This study suggested some ideas about how best and in which

areas inter-bank co-operation could be fostered for the benefit of entire

banking industry.

J. V. Shetty (1993)32 made a study on the impact of liberalization and

de-regulation in the context of financial sector reforms and suggested that it is

imperative that banks should have self regulatory system of specifying and

accordingly achieve the objective of improvement in productivity.

Sanjay Kumar Arora and Rajat Khater (1994)33 had made an empirical

study on the increasing NPAs and Depleting profits. It also analyzed the

impact of increase in NPAs to reduce the profitability of banks and opinioned

26

to adopt more comprehensive credit appraisal system, strengthen the post-

credit monitoring methods and to review the performance of NPAs regularly.

A.K. Sarkar (1994)34 attempted to exhibit the application and

implications of the reform measures that have been already implemented. It

evaluated the reforms implemented in NPAs, Capital adequacy norms, change

in SLR and CRR and entry of new PRSBs.

Kulkarni (1994)35 suggests measures for tackling the emerging

competitive environment. We should become highly responsive and user

friendly organization. Benefit cost analysis is necessary in every bank to

measure profitability.

Anand (1994)36 intended to highlight that priority sector lending by

commercial banks is being wrongly maligned in the light of Narasimham

Committee report (1991). He viewed that we are made to believe that priority

sector lending has been undesirably a static and a dying concept. Accordingly

priority sector lending in a developing economy is indeed a dynamic

phenomenon. What is required is to be alive to this dynamic phenomenon and

keep on reviewing the priorities vis-à-vis the present day development

banking scenario.

Gupta (1994)37 analyzed the challenges faced by the bank. Efforts are

being made by the government and Reserve Bank of India to bring about

fundamental changes in the working of financial system. Public sector banks

27

should get ready to face competition from private sector, domestic and foreign

bank in the area of customer services. Cost of funds, technological innovation,

internal control and motivation of staff and risk and asset management. The

Reserve Bank of India should strengthen the supervisory machinery and at the

same time ensure that enough freedom is given to banks to operate within the

prescribed rules and regulation.

Gurumurthy (1994)38 highlighted the recent trends in commercial

banking and observed that the policies of banking reformation have touched

upon the area of lending pattern, interest rate, Non-performing Assets, Capital

adequacy etc. He also stressed the need for directing these reforms towards

encouraging bank employees, defining their responsibilities and authority.

Employees enthusiasm, involvement and initiative should be improved.

Godse V. T (1994)39 reviews the growth of banking since 1969 and

foresees the performance in 2000. According to him banking industry has a

track record of success for past two decades and it has risen up to the cause of

nation building. What is needed now is a systematic pro-active approach

towards the management of change. Integration of various sub systems like

organization, people, technology, business can pave way to attain the desired

result.

Kaveri (1994)40 highlighted the issues in credit management in banks

and of increasing overdues and ways to tackle the problem. Overdues should

28

be reduced by effective recovery measures and each bank should consider that

current year as ‘Recover Year’. Targets should be fixed for each branch and a

‘task force’ to plan and monitor the recovery should be set up. Recovery

officers should be appointed in each branch and awareness among staff

should be created.

Raja Gopalan Nair, (1994)41 in his doctoral thesis, has made an attempt

to evaluate the service offered by the banks in rural areas and to examine the

diring needs of rural customers in Kerala. The study recommends that rural

branches should pay attention to popularize the ancillary banking services in

the rural areas of the state.

Ammannayya (1995)42 tried to highlight the importance of Human

Resource Management in banks. He was of the view that the banks should

recognize their Human Resource Management strategies and see that they

adopt a pro-active Human Resource Management system in the place of the

present traditional methods. Banks should also adopt strategic planning and

the performance budgetary system should be integrated with the strategic

planning process.

Patel (1995)43 has made valuable suggestion to substitute weak banks

and to make financial institution more competitive. This can be effected by

developing a group of competent and professional managers, freedom,

effective supervision and sufficient training.

29

Upaulthus Selvaraj (1995)44 in his analysis of the status of banks

before and after nationalization observes that prior to nationalization bank

liquidation was rampant through out the country due to speculative

tendencies, frauds and scandal by directors of concerned private sector. The

nationalization process played a key role in improving the rate of savings and

encouraged the economic growth. The growth of banking sector was achieved

by high mobilization resources, deployment of credit to wide spectrum of

activities and building up of an efficient infrastructure.

Ghoshroy (1995)45 commended on the challenges before the

commercial banks a the pressure on profitability, recovery and reduction of

Non-performing assets, intense competition; phenomenon of globalization,

management of information technology; Human Resource Management ,

rising expectation of customer and capital restructuring.

Sarma (1995)46 on an analysis of the working of a few banks found that

the interest earnings have came down when compared to previous years and

interest expenses have also due to fall as interest rates on deposits were

reduced during the first half of the year. Operating expenses could be

contained by most banks within the interest spread available. Another

important concern is lower percentage of other income as proportion to

working fund.

30

Rangarajan (1996)47 stressed that objective of banking sector reforms

has been to make the banking system more resistant to face the competition,

strengthening the safety and soundness of banks, capital adequacy,

consolidated supervision. Inspection system focusing on capital adequacy

asset quality, management, earnings, liquidity and systems (CAMELS) model

should be vitalized.

Nanjundappa (1996)48 opined that the Indian banking system is on the

threshold of another revolution including financial sector reforms that are

aimed at improving the productivity and efficiency of the system as a whole.

He highlights some of the issues like social responsibility, commercial

functioning, asset classification, reduction of Non performing assets, income

recognition and threats of unbridled new private and foreign banks entry.

Chidambaram (1996)49 throws light on the importance of Total Quality

Management (TQM) as applicable to banks. TQM is a set of tools, principle

and procedures that provide guidance in the practical aspects of ensuring

quality services. It is built on principles of customer focus, quality, continuous

improvement and involvement of all personnel. It aims at contended

customers, empowered employees, increased revenue and reduced non-

interest expenses. TQM reduces internal competition, foster team work,

improve decision making and reduce costs and there by makes bank’s lending

more purposeful.

31

Rangarajan (1996)50 viewed that the first phase of banking sector

reforms concentrated on such factors as pre-emption, interest rate structure,

prudential norms and supervisory over sight. The second phase should lay

stress on the improvement of the organizational effectiveness of banks for

which the initiative has to come largely from bank themselves.

Shetty (1996)51 recommended that ‘banks will have to specialize in

their operation to stay afloat in today’s competition. Specialization will have

to be considered for undertaking forex business, agriculture consultancy and

allied activities, Venture capital financing and industrial financing.

The aegis of the committee of economists (1996)52 headed by Shri. B.

B Shetty undertaken a study with the objective of examining the patterns

banking development in the selected East and South-East Asian nations, the

experiences of which could be relevant for the Indian banking and help

individual banks in strategic formulation. The study team visited various

banks in South Korea, Republic of China, Indonesia, Malaysia and Thailand

and held elaborate discussions on the functioning of banking institutions, the

impact of reforms and the responds mechanism adopted by them. It revealed

that all these countries had uninterrupted economic growth rates, advanced in

respect of financial systems and the degree of financial intermediation.

Kanta Ahuja (1996)53 made a study on the progress and developments

had to the Indian banking sector after the reforms. It focused mainly on the

32

operational aspects of banking profitability and performance. It revealed that

the progress made by the Indian banks during the period of reforms where

satisfactory mainly in the areas of operational efficiency, NPAs and

profitability.

P. N. Joshi (1997)54 conducted an analysis on the major achievements

in the banking sector during the reforms period and opinioned that if the

initiatives of the banks and supportive measures by authorities move in

tandem, the customers expectation of better and efficient banking service will

be materialized.

Prashanta Athma, Augustine L Gavini (1997)55 made a study to assess

the deposit holders level of satisfaction services offered at the various

branches of State Bank of Hyderabad and solicit their suggestions to improve

customer service. The study reveals that depositing of cash, collection of

cheques and updating of pass books are the areas of customer satisfaction.

P. B. Kulkarni (1998)56 attempted to present a broad view of Indian

banking, and also studied about the operational implications of various

recommendations of suggested priorities to get our banking sector firmly on

its feet.

Asli Demirgue – Kunt and Huizinga (1998)57 made an investigative

study regarding how bank interest spreads are affected by taxation, the

structure of the financial system and financials regulations such as deposits

33

insurance. The result of the study indicates that bank characteristics macro

indicators, implicit and explicit financial taxation, deposit insurance, overall

financial structure and the legal and institutional environment all significantly

affect bank interest and profitability.

M. R. Das (1998)58 attempted to estimate the influences of various

factor on ROE of the Indian Public sector banks, for which, the return on

equity has emerged as a significant performance indicator in the post-reform

era. The pooled data for this study divided the 26 public sector banks into two

groups, viz, ‘Larger’ banks and ‘Smaller’ banks on the basis of their assets.

This study found out that the importance of interest income and interest

expenditure in determination of ROE is gradually diminishing and operating

expenses placed an important role in depressing ROE more for the ‘Smaller’

banks than the ‘Larger’ banks. It also showed that balances with RBI, Money

at Call and Short notice are playing a significant role in boosting ROE, and

for ‘Smaller’ banks, the impact of investments turns out to be adverse than

expected.

P. R. Ravi Mohan (1998)59 attempted to underpin the strategic

importance of performance appraisal for Indian banks in achievements and

sustaining core competencies. This study opinioned that proper integration of

performance appraisal system into strategic management considerably

34

enhances the credibility of the very system and will pay rich dividends for the

Indian banking system in the times to come.

K. G. K Subba Rao and V. C Augustine (1998)60 analyzed the portfolio

behaviour of commercial banks in the changing scenario consequent to

financial sector reforms and revealed that the portfolio behaviour of

commercial banks has undergone radical changes with the induction of the

financial sector reforms, with relatively low credit-deposit ratios in the post-

reform period, compared to those in the preceding years.

S. S. Tarapore (1998)61 strongly argues for the need for second

generation banking sector reforms based on the experiences and achievements

had during the first phase of reforms. The first phase of reforms were

critically evaluated and its strength and weaknesses were discussed and

wanted to have the second generation banking reforms with a strong motive

for the better performance of the banking sector.

Ramesh Gelli (1998)62 examined the rigidities that persists in the

banking system, among the various components of the financial sector and

viewed that the success of the financial sector reforms depend upon

financially healthy institutions with adequate skills to respond the changing

policy framework, economic conditions and market competitions.

Nirupam Bajpai and Jeffrey D Sachs (1999)63 studied on the progress

of various states in India after the economic reforms were implemented. It

35

reveals that reforms at the state level have a substantiate unfinished agenda.

While some state have demonstrated their commitment by implementing

reforms in certain sectors of economy, a majority of them have still to initiate

any significant policy changes. However the reform oriented states have

performed much better than other states.

James A Hanson, Sanjay Kathuria (1999)64 made a study on the

Indian’s financial system. This study was mainly focused on the challenges

and issues on the Indian financial system and the reforms that would help to

deal with them. It also considered the issues related to capita market,

challenges posed by financial instability and global financial integration.

D. P. Khankhoje (1999)65 studied about the present strength and

weaknesses of rural banking system in our country and suggested measures to

improve the banking facilities for the rural population and opinioned that

what is really needed in this context is cross fertilization of ideas, technology

skills, banking procedures and practices between rural and urban sectors.

Ganti Subrahmanyam (1999)66 made a critical evaluation on the first

Narasimham Committee recommendations in 1991 and its impacts on the

banking sector. He also made a attempt to evaluate recommendations on

Narasimham committee II in 1998 and its possible impact on the banking

sector of India.

36

N. B. Shete (1999)67 made the study to give the historical

developments and various facts of the bank credit to priority sector. Various

dimensions of the bank credit to the priority sector including the recovery

aspects have been analyzed statistically. The impact of banking sector reforms

on the priority sector lending was also analyzed. It revealed that there has

been reversal of trend of the ratios of the priority sectors to the net bank credit

and the portion thereof going to agricultural sector.

Pradeep Srivastava (1999)68 focused on the questions related to Indian

banking. Are bigger banks better for cost minimization? And have financial

reforms made Indian bank more efficient. The analysis shows that all banks in

India operating below cost scale, including public sector banks. The findings

suggest that any effective distancing of the government from the ownership,

management and operation of Indian banking would lead to considerable

activity in mergers and acquisitions in this sector.

D. P. S Verma and Ruchika Vohra (2000)69 seeks to identify the major

features, which determine the service quality in banks and also spells out the

implications of the findings for the banks based on service results. The study

revealed that majority of the customers perceived punctuality in opening of

the bank account as the most important feature, closely followed by accurate

record keeping and prompt services.

37

D. Narayana (2000)70 attempted to analyze the trend in credit

deployment by industry, by bank group, by rural and urban area and by the

states over the recent periods. The study shows that, the post-reform banking

trends are slowly reversing the trends of two decades since nationalization.

The liberalization of banking has aggravated the imperfections in the credit

market and resulted in the decline of lending to agriculture, small enterprise

and such activities.

V. K Ramachandran and Madhura Swaminathan (2001)71 conducted a

study to describe and evaluate rural credit policy in India over the last three

decades and examined its effects on rural workers at the level of single

village. This study found that a significant expansion and consolidation of

banking infrastructure in rural areas and correspondingly, a rise in the deposit

mobilization and advances in rural areas after nationalization.

Narinder Kaur and G. S. Batra (2001)72 made a attempt to study the

banking sector reforms and its policy implications. This study throws light on

financial performance of commercial banks, NPAs, capital adequacy and

overall impact of reforms.

A Gnanadoss (2001)73 focused the services of banking operations to

the priority sector besides reviewing the organizational perspective and the

spheres of the services rendered to the priority sector. The study stressed the

need for a critical role to be played by the banks, especially in respect of

38

Agriculture, small scale industries and other priority sectors which cannot

have access to the capital market directly.

P. Ganesan (2001)74 examined the determinants of profitability of

public sector banks in India by an empirical estimation of profit function

model which showed that interest costs, interest income, other income,

deposits per branch, credit to total assets, proportion of priority sector

advances and interest income lost are the significant determinants of profits

and profitability of Indian public sector banks. The average establishment

costs positively contributes to the profitability but it adversely affect the net

profit of the public sector banks.

M. L. Pagaria and Dr. Ram Jass Yadav (2001)75 attempts to highlight

some of the ways by which rural loss making branches can improve

profitability. These includes action plans to improve deposits mobilization,

business development, management of NPAs, improving share of high return

advance and appropriate HRD. It has been observed that improper product

mix, high NPAs, credit-deposit ratio of over 100 percent, lack of team sprit,

inadequate follow-up are the major factors responsible for making losses in

the rural branches.

Deepti Baslas and Anand Bansal (2001)76 foresees that in the years to

come banking industry is likely to be governed by the potential forces of

information technology, merger and acquisition and universal banking. The

39

study also evaluated the impact of all major reforms implemented in the

banking sector.

K. Sham Bhat, V Nirmala and n. Ranjani (2001)77 made an attempt to

examine critically the financial sector reforms since 1991 and its impact on

major indicators on the banking sector. The study reveals that reforms have

contributed to an improvement in banking sector indicators such as number of

banks, number of branch offices, deposits, investments and priority sector

advances of commercial banks.

Dev Raj (2001)78 has analyzed the need for the banking and financial

sector reforms in India and viewed that to have a cohesive and strong

financial system capable of responding to changes in the economy, it becomes

important to have a dynamic autonomous and profitable financial system.

S. N. Misra and Sriram Misra (2001)79 evaluated the development of

commercial banking under the financial and banking sector reforms. The

study revealed that, in all important areas, there was considerable

improvements after the reforms have been implemented.

M. G. Bhide, A. Prasad and Saibal Ghosh (2001)80 examined the

process of banking sector reforms in India. It notes the impacts to the

financial system consequent upon the reforms and highlights the current

weaknesses in the banking system. The analyzes reveals that depending on the

40

percentage of loans that graduate into non-performance and the provisioning

made, the immediate hit is a loss of interest income between 21-55 billion.

Sayuri Shirai (2001)81 assessed whether the reform has been successful

so far in restructuring public sector banks, and if so, what element of the

programmes have contributed. It reveal that as the result of reforms, the

number of banks increased rapidly and entry deregulation was accompanied

by progressive deregulation of interest rates on deposits and advances.

Vrinda Kamat (2002)82 analyzed the financial sector reforms taking

place over the last decade and the impact of deregulation on the capital sectors

and performance of Indian corporate. The important findings of the study

revealed that there was an increase in the profitability of banks in the early

period of reforms but it is slowed down in the later period. It also found that

there is no definite correlation between banking sector reforms and bank

borrowings but there is a positive correlation between profitability and

proportion of debt.

K. P. Mani (2002)83 evaluated the performance of commercial banks in

Kerala in the light of reforms implemented and focused on the new challenges

ahead in the banking sector of Kerala. The study revealed that, in the deposit

mobilization the states performance is relatively better while in deployment

side it is weak bringing down the CD ratio to a lower level.

41

Pramod Kumar (2002)84 examined the circumstances which compelled

India to take ‘U’ turn from the celeberated policy of nationalization of banks

in 1964 to providing an atmosphere where financial sector could operate

freely.

E. M. Thomas (2002)85 made an analysis of the trends in the CD ratio

of public sector banks in Kerala and found that CD ratios of public sector

banks in Kerala is much lower than the all India average.

Abdul Shaban and L. M Bhole (2002)86 examined state wise

determinants of different types of deposits of scheduled commercial banks in

India during 1972-95. The study showed that state income, bank offices and

bank advances have been major determinants of bank deposits in almost all

states and at the national level. However, the elasticity of bank deposits with

respect to bank advances and bank offices has been higher in economically

developed states than underdeveloped states and interest rate has been an

insignificant determinant of total bank deposits.

P. D Jeromi (2002)87 studied the progress of commercial banking in

Kerala in terms growth of deposit and credit and analyzed the trend in CDR in

the state and also its inter-state comparison is done. The study revealed that

commercial banks in Kerala gives more thrust to deposit mobilization than

credit expansion. It also shows that there has been drastic decline in the CDR

in Kerala. Among the southern states Kerala has the lowest CDR. The study

42

also indicated that some nationalized banks performance was poor as their

combined CDR was lower than the state average.

Robin Burgess and Rohini Pande (2002)88 evaluated the impact of rural

branch expansion on rural development by combining differences across

states in initial financial development with changes in license regime and

suggest that banking of rural India transformed production and employment

activities and lead to reduction in poverty and increases in output.

Patra M. D (2002)89 suggested that several fundamentals must come

together in order to make the Indian banking system stronger, efficient and

low cost like strengthening of prudential norms and market discipline,

adoption of international bench marks as appropriate to the Indian situation,

management of organizational change and consolidation with in the financial

system and human resources development as the catalyst of the

transformation.

Mohan R (2002)90 stated that significant transformation of the banking

industry in India is clearly evident from the changes that have occurred in the

financial markets, institutions and products. While deregulation has opened

up new vistas for the banks to augment revenues, it has entailed greater

competitions and consequently greater risks. Further, cross border flows and

entry of new products have impacted significantly on the domestic banking

sector, forcing banks to adjust their product mix.

43

Biswa Swarup Misra (2003)91 examined whether allocative efficiency

of the Indian banking sector has improved after the introduction of financial

sector reforms in 1990s. Allocative has been studied for 23 state of India. The

findings of the study corroborates that there has been improvement in

allocative efficiency for all states taken together as far as elasticity of total

output to total credit is concerned. At the state level, majority of the state

witnessed an improvement in the overall allocative efficiency in the post

reform period. The improved allocative efficiency is more marked for the

services sector than for industry across the states.

D Narayana (2003)92 made a modest attempt to examine the issue of

low credit-deposit ratio in Kerala. It viewed that the reason for the low CDR

is owing to the lack of credit deployment in industry, trade and finance. The

facts of the case don’t seem to suggest a negative attitude of banks.

Kamesan V (2003)93 was of the view that Indian banking system has

progressed in every aspect from being a financial intermediary to the vehicle

of economic growth.

Muniappan G. P (2003)94 focused on two areas. Firstly, challenges

faced by the bank management and secondly, management of challenges by

the banks. Every aspect of the functioning of the banking industry, be it

profitability, NPA management, customer service, risk management or HRD

has to undergo the process of transformation to align with the international

44

best practices. He concluded that the future of Indian banking system needs a

long term strategy which would broadly cover areas like structural aspects,

business strategies, prudential control systems, integration of markets

technology issues, credit delivery mechanism and information sharing.

T. K Devarajan (2004)95 made a study to evaluate the impact of service

area approach of banking sector on rural development. The results of the

study shows there is a negative trend in the banking sector with regard to the

fulfillment of the credit needs of the weaker sections of the society. It also

revealed that the scant flow of finance to the primary and productive sector

would be adversely affect the overall development of the Kerala.

Christian Rolend (2004)96 focuses on the changing intensity of three

policies that are commonly associated with the financial repression, namely

interest rate control, statutory pre-emptions and directed credit as well as the

effect of these policies had. The main findings are that the degree of financial

repression has steadily increased between 1960 and 1980 and then declined.

Since the reforms started in 1991, the level of financial repression steadily

declined.

Abhijit V Banerjee, Shawn Cole and Esther Duflo (2004)97

investigated the quality of intermediation in banks. It also analyzed in deep

the lending process used by the nationalized bank, in an attempt to understand

45

under lending. The study revealed that the Indian banking sector has

historically suffered from high intermediation cost.

Niti Bhasin (2004)98 made a detailed evaluation on the change in

pattern of world finance, banks and economic development, need for banking

sector reforms, post-reforms scenario and current issues in Indian banking and

viewed that banking sector reforms in India are grounded in the belief that

competitive efficiency in the real sectors of the economy will not realize its

full potential unless the banking sector was reformed as well.

Charan Singh (2004)99 conducted a study on the various financial

sector reforms implemented in our country and evaluated its impact on the

state of Indian economy and viewed that the multi-sector reforms undertaken

in India, though slow phased initially but synchronized, have begun to yield

results.

Venugopal D (2004)100 viewed that as domestic and international

competition hots up banks may have to shift their focus to ‘cost’, which will

be determined by revenue minus profit. Cost control in total with efficient use

of resources and increase in productivity will determine the winners and

laggards.

Bandyopadhyar (2004)101 analyzed mergers in the banking industry

and concluded that even if there are synergies in technology, geographical

46

presence and profile of asset and birth of mega banks through mergers may

not be great use unless the mind set of public sector banks changes.

Chatterjee. S (2004)102 stressed on the retail banking and studied the

reasons behind the euphemism regarding the retail focus of Indian banks and

found that competition is fierce, particularly from banks like HDFC and ICICI

in business of home, car and consumer loan. He found that Indian banks has

shown little or no interest in innovative tailor made products.

Y.V. Reddy (2005)103 evaluated the banking sector reforms in a

detailed manner including all the aspects of reformation. He suggested that we

in India have initiated supervisory capacity building measures to identify the

gaps and to assess as well as quantify the extent of additional capital which

may be required to be maintained by such banks. The magnitude of this task,

which is scheduled to be completed by 2006 appears daunting since we have

as many as 90 scheduled commercial banks in India.

Manoj. P. K (2005)104 examined the financial system in Kerala, its

peculiar features and its evolution in to present state, especially in the context

of financial reforms and also the scope of the financial system in view of the

latest developments in Kerala economy.

Monika Aggarwal and Rishi Raj Sharma (2005)105 analyzed the present

picture of the Indian banking system by comparing PUSBs, PRSBs and FSBs

and attempted to establish the relationship between various performance

47

indicators such as total employees, total business and return on investments of

commercial banks. This study revealed that the growth rate of various

indicators of public sector banks, PRSBs and FSBs was better in the pre-

liberalization period as compared to the post-liberalization period.

Usha Arora and Richa Varma (2007)106 conducted a study on the

operational and productivity efficiency of public sector banks in India. It

revealed that after liberalization, the performance of public sector banks has

improved a lot and they have become more innovative and have a largest

market share in today’s competitive era.

48

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