1.

INTRODUCTON
1.1 objectives:
The objectives are as follow
• To study the credit control policy of RBI
• To study the lending patterns of banks in present scenario.
• To study the investment patterns of customers in present scenario.
• To know the influence of RBI’s CRR policy on various banks in Eluru.

1.2 Limitations:

• Study limited for calendar year 2008.

• The information is most confidential unable to get in depth.

1.3 Methodology:

I selected QUANTITATIVE RESEARCH METHOD for this study. Quantitative

research is the systematic scientific investigation of quantitative properties and phenomena and
their relationships. The objective of quantitative research is to develop and employ mathematical
models, theories and/or hypotheses pertaining to natural phenomena. The process of
measurement is central to quantitative research because it provides the fundamental connection
between empirical observation and mathematical expression of quantitative relationships.

As to collect the data for the further process I employed tool like questionnaire, database
analysis, through email, telephonic, and personal.

1
1.4 Correlation:

The techniques described on this page are used to investigate relationships between two variables
(x and y). Is a change in one of these variables associated with a change in the other? For
example, if we increase the temperature do we increase the growth rate of a culture or the rate of
a chemical reaction? Does an increase in DDT content of bird tissues correlate with thinning of
the egg shell? Is an increase in slug density in a field plot associated with a decrease in seedling
development?

We can use the technique of correlation to test the statistical significance of the association. In
other cases we use regression analysis to describe the relationship precisely by means of an
equation that has predictive value. We deal separately with these two types of analysis -
correlation and regression - because they have different roles.

Correlation graphical method:

If the values of x,y are given ,the values have to plot on the cortisone space and the to find the
linear relation or non linear.

The graph will be like this for linear

relation.

Calculate .

Calculate

Calculate

Calculate r (correlation coefficient):

2
Important notes:

1. If the calculated r value is positive (as in this case) then the slope will rise from left to right on
the graph. As weight increases, so does the length. If the calculated value of r is negative the
slope will fall from left to right. This would indicate that length decreases as weight increases.

2. The r value will always lie between -1 and +1. If you have an r value outside of this range
you have made an error in the calculations.

3. Remember that a correlation does not necessarily demonstrate a causal relationship. A

significant correlation only shows that two factors vary in a related way (positively or
negatively). This is obvious in our example because there is no logical reason to think that
weight influences the length of the animal (both factors are influenced by age or growth stage).
But it can be easy to fall into the "causality trap" when looking at other types of correlation.

Correlation coefficient mean

The part above the line in this equation is a measure of the degree to which x and y vary together
(using the deviations d of each from the mean). The part below the line is a measure of the
degree to which x and y varies separately.

2. INDUSTRY PROFILE:

2.1 .BANKING INDUSTRY

3
The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases.

Phase1

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which started
As private shareholders banks. In 1865 Allahabad Bank was established and first time
exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as the Central Banking Authority. During those
day’s public has lesser confidence in the banks. As an aftermath deposit mobilization was slow.
Abreast of it the savings bank facility provided by the Postal department was comparatively
safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In 1955,
it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially

4
in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI
and to handle banking transactions of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were
nationalized.
Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in
the Country:
1949 : Enactment of Banking Regulation Act.
1955 : Nationalisation of State Bank of India.
1959 : Nationalisation of SBI subsidiaries.
1961 : Insurance cover extended to deposits.
1969 : Nationalisation of 14 major banks.
1971 : Creation of credit guarantee corporation.
1975 : Creation of regional rural banks.
1980 : Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.Banking in the
sunshine of Government ownership gave the public implicit faith and immense confidence about
the sustainability of these institutions.

Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms

5
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking is introduced. The entire
system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This is
all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not
yet fully convertible, and banks and their customers have limited foreign exchange exposure.

6
7
 2.2 RESERVE BANK OF INDIA

The Reserve Bank of India (RBI, Hindi: भारतीय िरजवर बैक) is the central bank of India, and was
established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act,
1934. The Central Office of the Reserve Bank was initially established in Calcutta but was
permanently moved to Mumbai in 1937. Though originally privately owned, RBI has been fully
owned by the Government of India since nationalization in 1949.DuvvuriSubbarao who
succeeded Yaga Venugopal Reddy on September 2, 2008 is the current Governor of RBI.

The Reserve Bank of India was set up on the recommendations of the Hilton Young
Commission. The commission submitted its report in the year 1926, though the bank was not set
up for nine years.

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as
to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to its
advantage. It has 22 regional offices, most of them in state capitals.

Monetary authority

• Formulates implements and monitors the Monetary Policy, announced twice a year.
• Announces the Credit Policy, announced twice a year - in April it announces new policy
initiatives, the October pronouncement is a review of the April policy.
• Objective: Maintaining price stability and ensuring adequate flow of credit to productive sectors.
• Maintain optimum Liquidity in the economy.

System of Note issue

• RBI Maintains Minimum Reserve System for Note issue.

This means that RBI can issue any amount of currency notes provided it keeps the minimum
statutory limit of Rs.10000000 billion crores worth Gold and Securities.

Regulator and supervisor of the financial system

• Prescribes broad parameters of banking operations within which the country's banking and
financial system functions.
• Objective: maintain public confidence in the system, protect depositors' interest and provide cost-
effective banking services to the public. The Banking Ombudsman Scheme has been formulated
by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers.

Manager of exchange control

• Manages the Foreign Exchange Management Act, 1999.

• Objective: to facilitate external trade and payment and promote orderly development and
maintenance of foreign exchange market in India.

8
 Issuer of currency

• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: the main objective is to give the public adequate supply of currency of good quality
and to provide loans to commercial banks to maintain or improve the GDP.

The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system
of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the
economic structure of the country so that it can achieve the objective of price stability as well as
economic development, because both objectives are diverse in themselves.

Developmental role

• Performs a wide range of promotional functions to support national objectives.

• To incubate or establish financial institutions of national importance, for e.g: NABARD,
IDBI,ICICI

ICICI has ceased to be an institution of national importance with its conversion into a Bank and
it now finds a place among private sector banks. Hence this may be deleted from the illustrative
list

Related functions

• Banker to the Government: performs merchant banking function for the central and the state
governments; also acts as their banker.
• Banker to banks: maintains banking accounts of all scheduled banks.
• Owner and operator of the depository (SGL) and exchange (NDS) for government bonds.

There is now an international consensus about the need to focus the tasks of a central bank upon
central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate
described above.

2.3 MONETARY POLOCY

Monetary policy rests on the relationship between the rates of interest in an economy,
that is the price at which money can be borrowed, and the total supply of money. Monetary
policy uses a variety of tools to control one or both of these, to influence outcomes like
economic growth, inflation, exchange rates with other currencies and unemployment. Where
currency is under a monopoly of issuance, or where there is a regulated system of issuing
currency through banks which are tied to a central bank, the monetary authority has the ability to
alter the money supply and thus influence the interest rate (in order to achieve policy goals). The
9
beginning of monetary policy as such comes from the late 19th century, where it was used to
maintain the gold standard.
A policy is referred to as contractionary if it reduces the size of the money supply or raises the
interest rate. An expansionary policy increases the size of the money supply, or decreases the
interest rate. Furthermore, monetary policies are described as follows: accommodative, if the
interest rate set by the central monetary authority is intended to create economic growth; neutral,
if it is intended neither to create growth nor combat inflation; or tight if intended to reduce
inflation.
There are several monetary policy tools available to achieve these ends: increasing interest rates
by fiat; reducing the monetary base; and increasing reserve requirements. All have the effect
of contracting the money supply; and, if reversed, expand the money supply. Since the 1970s,
monetary policy has generally been formed separately from fiscal policy. Even prior to the
1970s, the Bretton Woods system still ensured that most nations would form the two policies
separately.
Within almost all modern nations, special institutions (such as the Bank of England, the
European Central Bank, the Federal Reserve System in the United States, the Bank of Japan
or Nippon Ginkō, the Bank of Canada or the Reserve Bank of Australia) exist which have the
task of executing the monetary policy and often independently of the executive. In general, these
institutions are called central banks and often have other responsibilities such as supervising the
smooth operation of the financial system.
The primary tool of monetary policy is open market operations. This entails managing the
quantity of money in circulation through the buying and selling of various credit instruments,
foreign currencies or commodities. All of these purchases or sales result in more or less base
currency entering or leaving market circulation.
Usually, the short term goal of open market operations is to achieve a specific short term interest
rate target. In other instances, monetary policy might instead entail the targeting of a specific
exchange rate relative to some foreign currency or else relative to gold. For example, in the case
of the USA the Federal Reserve targets the federal funds rate, the rate at which member banks
lend to one another overnight; however, the monetary policy of China is to target the exchange
rate between the Chinese renminbi and a basket of foreign currencies.

10
The other primary means of conducting monetary policy include: (i) Discount window lending
(lender of last resort); (ii) Fractional deposit lending (changes in the reserve requirement); (iii)
Moral suasion (cajoling certain market players to achieve specified outcomes); (iv) "Open mouth
operations" (talking monetary policy with the market).

Monetary Policy: Target Market Variable: Long Term Objective:

Interest rate on overnight
Inflation Targeting A given rate of change in the CPI
debt
Interest rate on overnight
Price Level Targeting A specific CPI number
debt
The growth in money
Monetary Aggregates A given rate of change in the CPI
supply
The spot price of the
Fixed Exchange Rate The spot price of the currency
currency
Low inflation as measured by the gold
Gold Standard The spot price of gold
price
Mixed Policy Usually interest rates Usually unemployment + CPI change

2.4 CRR POLOCY

The monetary authority exerts regulatory control over banks. Monetary policy can be
implemented by changing the proportion of total assets that banks must hold in reserve with the
central bank. Banks only maintain a small portion of their assets as cash available for immediate
withdrawal; the rest is invested in illiquid assets like mortgages and loans. By changing the
proportion of total assets to be held as liquid cash, the Federal Reserve changes the availability
of loanable funds. This acts as a change in the money supply.

11
2.5 Andhra Pradesh co operative bank:

The Andhra Pradesh State Cooperative Bank Limited (APCOB) is a Scheduled State
Cooperative Bank for the State of Andhra Pradesh. The Bank is committed to agricultural and
rural development through the co operatives. The cooperative credit system in Andhra Pradesh
with the APCOB at its apex level is a federal system consisting of a family of 22 affiliated
District cooperative Central Banks (DCCBs), which in turn, have 26 Branches and 2746 Primary
Agricultural Cooperative Societies (PACS) through which, developmental agricultural credit is
provided, to serve a sizeable chunk if the total membership of the PACS of around 1.5 crores.

The APCOB and affiliate credit structure in Andhra Pradesh showcase a unique Experiment of
Single Window Credit Delivery System, as a first of its kind in the Country under which, both
investment and production credit for agriculture is provided at the grass root level through a
single agency. The PACS at village Level has been modeled as a one stop shop for the Farmer
for availing of varied short, medium and long term loans both under Production and investment
credit, input requirements, produce storage facilities, Essential commodities, banking and other
rural based services.

APCOB has also a network of 26 branches in the twin cities Hyderabad and Secunderabad and
one Head Office. Branch each at Tirupathi and Vijayawada meeting the Exclusive needs of the
urban clientele.

In tune with it's main focus, the APCOB, through the DCCBs and PACS, provides re-finance
support for agricultural production credit for seasonal agricultural operations (crop loans),
investment credit for investments in agriculture for Minor Irrigation, farm Mechanization, Land
Development, Horticulture, Dairy, Poultry, Fisheries and other diversified investments and allied
activities. In times of natural calamities, the Bank provides credit stabilization arrangements by
way of conversion, replacement, postponement and reschedulement of agricultural loans. Credit
to the weavers Sector through Primary Handloom and Silk weavers Credit Societies, as also
financing to the Apex Weavers Society is another important portfolio through which rural
development is fostered. Loans to Employees Credit Societies is also Extended to provide timely
financial support to employees of various organizations mainly through the DCCBs. This apart,
the bank finances Industrial Cooperatives and agro-processing industries in the cooperative fold
like Sugar Factories, Spinning Mills, Milk Unions and Dairy development

12
2.6 ANDHRA Bank

"Andhra Bank" was founded by the eminent freedom fighter and a multifaceted genius
Dr.Bhogaraju Pattabhi Sitaramayya. The Bank was registered on 20 November 1923 and
commenced business on 28 November 1923 with a paid up capital of Rs 1.00 lakh and an
authorized capital of Rs 10.00 lakhs. The Bank crossed many milestones and the Bank's Total
Business as on 30.06.2008 stood at Rs.83,256 Crores with a Clientele base over 1.74 Crores. The
Bank is rendering services through 2139 Business Delivery Channels consisting of 1371
branches, 66 Extension Counters, 38 Satellite Offices and 664 ATMs spread over 21 States and 2
Union Territories as at the end of June, 2008. All Branches are 100% computerized, 1186 units’
viz., 1101 Branches, 68 Extension Counters, 15 Service Centers networked under Cluster
Banking solution and providing "Any Branch Banking (ABB)". Real Time Gross Settlement
(RTGS) Facility and National Electronic Fund Transfer (NEFT) facility has been introduced in
723 Branches.

To provide value-added services to Customers, the Bank has set up its own 664 ATMs as
on 30.06.2008. Of which 03 Mobile ATMs and two with Biometric access. Besides, ATM is
sharing arrangements with several Banks including SBI group, IDBI Bank, UTI Bank, HDFC
Bank, Indian Bank and others under National Financial Network Switch covering 24856
ATMs.As a part of "Financial Inclusion", Bank adopted two districts, namely, Srikakulam in
Andhra Pradesh and Ganjam in Orissa and achieved 100% coverage. Bank has introduced Smart
Card Scheme Pilot project in Warangal District and the same will be extended to other Lead
Districts in due course. Bank has opened 2.11 lakh accounts under "No-frill accounts" category
till 30.06.2008. In this financial inclusion the bank has started RRB with name CHAITANYA
GODAVARI GRAMEENA BANK

13
 Andhra Bank

Type Public

unded 20.11.1923

Headquarters Hyderabad

Key people R S REDDY (CMD)

Industry Finance

Products Private Banking

Revenue Rs. 3,133 crore (as of 2005)

Employees 13,224

Website http://www.andhrabank.in

2.7 Bank of India

14
 Bank of India (BoI), established on 7 September 1906 is a bank with headquarters in
Mumbai. Government-owned since nationalization in 1969, It is one of India's leading banks,
with about 2,884 branches including 27 branches outside India. BoI is a founder member of
SWIFT (Society for World-wide Inter Bank Financial Telecommunications) in India which
facilitates provision of cost-effective financial processing and The earlier holders of the Bank of
India name had failed and were no longer in existence by the time a diverse group of Hindus,
Muslims, Parsis, and Jews helped establish the present Bank of India in 1906. It was the first
bank in India promoted by Indian interests to serve all the communities of India. At the time,
banks in India were either owned by Europeans and served mainly the interests of the European
merchant houses or by different communities and served the banking needs of their own
community.

The promoters incorporated the Bank of India on 7 September, 1906 under Act VI of
1882 with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs. 100. The
promoters placed 55,000 shares privately, and issued 45,000 to the public by way of IPO on 3
October, 1906; the bank commenced operations on 1 November, 1906.

Bank of India

Type Public (BSE:BOI)

Founded 1906

Headquarters Mumbai, India

Key people T.S.Narayanasami (CMD)

15
 3. Empirical analysis

3.1 Data analysis & Interpretation

1. Who is the apex bank in India?

The Reserve Bank of India (RBI) is the central bank of India, and was established on
April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The
Central Office of the Reserve Bank was initially established in Calcutta but was permanently
moved to Mumbai in 1937. Though originally privately owned, RBI has been fully owned by
the Government of India since nationalization in 1949.Duvvuri Subbarao who succeeded
Yaga Venugopal Reddy on September 2, 2008 is the current Governor of RBI.

2.What is the monitory policy?

Monetary policy is the process by which the government, central bank, or monetary
authority of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost
of money or rate of interest, in order to attain a set of objectives oriented towards the growth and
stability of the economy. Monetary policy is referred to as either being an expansionary policy,
or a concretionary policy, where an expansionary policy increases the total supply of money in
the economy, and a concretionary policy decreases the total money supply. Expansionary policy
is traditionally used to combat unemployment in a recession by lowering interest rates, while

16
concretionary policy involves raising interest rates in order to combat inflation. Monetary
policy should be contrasted with fiscal policy, which refers to government borrowing, spending
and taxation.

3) What are the components of monitory policy?

• short term interest rates;
• Long term interest rates;
• Velocity of money through the economy;
• Exchange rates; Credit quality;
• Bonds and equities (corporate ownership and debt);
• Government versus private sector spending/savings;
• International capital flows of money on large scales;
Are the components of monitory policy.

4) What is the present CRR?

The reserve requirement (or required reserve ratio) is a bank regulation that sets the
minimum reserves each bank must hold to customer deposits and notes. These reserves are
designed to satisfy withdrawal demands, and would normally be in the form of fiat currency
stored in a bank vault (vault cash), or with a bank. The reserve ratio is sometimes used as a
tool in monetary policy, influencing the country's economy, borrowing, and interest rates.
present it is 5%.

5) what are the changes in cash reserve ratio?

Table1:
DATE CRR
26-04-2008 7.75
10/5/2008 8
24-05-2008 8.25
5/7/2008 8.5
19-05-2008 8.75
30-08-2008 9
10-10-2008 7.517
15-10-2008 6.5
1/11/2008 6
8/11/2008 5.5
 Change in CRR

10
9
8
7
CRR Rates

6
5 CRR
4
3
2
1
0
08

08

08

08

08
8

08

8
08

8
00

00

00
20

20

20

20

20
20
20
/2

/2

/2
4-

5-

5-

8-

0-
0/
7/
/5

11

11
-0

-0

-0

-0

-1
/1
5/
10

1/

8/
26

19

30

11
24

15

Dates

Interpretation: to set the countries economy apex bank timely adjust the rates of different
tools.
From the graph we can observe the increase in the CCR up to august is targeted on raising
inflation, after that the world went in to recession to cope up with this to pump more money
the bank reduced CRR

6. Is it nationwide or local?
As per the monitory policy of Indian apex bank the reserved rate is same for each and
every bank which is called as bank as per law. there is no any exemption for banks or some areas
or some branches. Even a branch locate in remote area also should follow the rate directly or
indirectly.

7. What is the inflation?

18
 In economics, inflation is a rise in the general level of prices of goods and services in an
economy over a period of time. The term "inflation" once referred to increases in the money
supply (monetary inflation); however, economic debates about the relationship between money
supply and price levels have led to its primary use today in describing price inflation. Inflation
can also be described as a decline in the real value of money a loss of purchasing power in the
medium of exchange which is also the monetary unit of account. When the general price level
rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is
the inflation rate, which is the percentage change in a price index over time.

8. What is the bank rate?

The rate at banks is willing to accept the demand deposits, fixed deposits and recurring
deposits is known as bank rate. Generally it is between for Saving Bank Rate 3.5% Deposit Rate
7.50%-10.75.

9. What is the growth rate?

The rate at which that the government of India, planning commission, and other
organized business institutions are agreed for the future t growth of the sector, industry or
country economy. Present it is 8.5% in India

10. What is the sensex?

The Sensex is an "index". Basically it is an indicator. It gives you a general idea about the
price of stocks are increasing or decreasing based on he volume and value traded by the
investors. the index consist of ideal stocks from various sectors. If the stocks have gone up , most
of the stock prices will increased and vice versa. The Nifty is an indicator of all the major
companies of the NSE.

11. What is the source of funds?

Capital:
As per banking regulation act the minimum capital is 100 crores.

Reserves and surplus:

19
 This head consists of statutory reserve, capital reserve, share premium, revenue and other
reserves; finally balance in profit & loss account.

Deposits:
In this list demand deposits, savings deposits, term deposits.

Borrowings:
Other liabilities and provisions:
Bills payable,
Inter office adjustments,
Interest accrued others.

12. What are the avenues for application funds?

The bank will distribute the funds under the following heads
Cash and balances with Reserve Bank:
Cash in hand,
Balance with RBI according cash reserve ratio and statutory ratio.
Balance with banks and money at call and short notice. (secondary reserves)
Investments:
Government securities
Approved securities
Shares
Debentures and bonds
Subsidories or joint ventures.
Other investments:

Advances:
the main part in funds deployment and the primary activity of bank.

20
Net bank credit: total outstand credit in the books
Gross credit: net credit + rediscounted IDBI, SIDBI.
There are three formats of advances.
Format1:
Bills purchased and discounted.
Cash credits, over drafts, and loans payable on demand
Term loans.
Format 2:
Secured loan:
Secured by tangible assets.
Covered by bank/guaranteed by governments.
UN secured loans.
Format3:
Sartorial advance.
Priority sector advances.
Public sector advances.
Advances to banking sector.
Fixed assets:
Other assets:
Inter office adjustments.
Interest accrued.
Tax paid in advance and tax deducted.
Stationary and stamps.
Assets acquired in claims.

13. What is the impact of sensex on banking?

21
 The relation ship between bank and the sensex is indirect relation. The sensex falls down the
deposits are increased and vice versa .this effects on source of funds in the balance sheet. Here
basic concept is return on investment. the investors will compare the returns from stock market
and the bank rates.

Table: 2

DATE CRR nifty

26-04-2008 7.75 5.1
10/5/2008 8 4.99
24-05-2008 8.25 4.9
5/7/2008 8.5 4.3
19-05-2008 8.75 4.1
30-08-2008 9 4.4
11/10/2008 7.5 3.32
15-10-2008 6.5 3.1
1/11/2008 6 2.95
8/11/2008 5.5 3.05

CRR Vs Nifty

10
9
8
7
CRR&Nifty

6 CRR
5
4 nifty
3
2
1
0
08

08

08

08

08
8

8
08

08

8
00

00

00
20

20

20

20

20
20
20
/2

/2

/2
4-

5-

5-

8-

0-
0/
7/
/5

11

11
-0

-0

-0

-0

-1
/1
5/
10

1/

8/
26

19

30

11
24

15

Dates

22
Interpretation:

Though the sensex fluctuations are depended on so many factors and based on
assumptions of the investors that’s why there is no strong relation between CRR changes and the
sensex. even though if we studied the in partial equilibrium conditions the relation between CRR
changes and sensex fluctuation is in direct. In the course if action we observed that the increase
in CRR is leads to fall the sensex ,because most of funds transferred to deposits due to high bank
rates afterwards decrease the reserve ratio some how boost the sensex.

14 .What is the relation between CRR and bank rates?

The relation between CRR and bank rate is perfect co related .it means if the CRR is
increased, immediately the money with the bank decreases and the lending capacity also reduced
to meet the demand the banks are increase the lending interest rate. in other hand to heap the
more money from the economy(people)banks will offer high rate of interest on deposits. Simply
a negative reaction for the change in CRR.

15. What is the relation between CRR and inflation?

Table: 3

23
DATE CRR inflation
26-04-2008 7.75 7.61
10/5/2008 8 7.82
24-05-2008 8.25 8.24
5/7/2008 8.5 11.91
19-07-2008 8.75 11.98
30-08-2008 9 12.1
11/10/2008 7.5 11.35
15-10-2008 6.5 10.68
1/11/2008 6 8.98
8/11/2008 5.5 8.9

24
 CRR vs Inflation

14
12
CRR,Inflation

10
8 CRR
6 inflation(y)
4
2
0
08

08

08

08

08
08
8

8
08
00

00

00
20

20

20

20

20
20
20
/2

/2

/2
4-

5-

5-

8-

0-
0/
7/
/5

11

11
-0

-0

-0

-0

-1
/1
5/
10

1/

8/
26

24

30

11
19

15

Dates

Interpretation:

as per the relation between interest rate and CRR is direct ,it reflects on the inflation rate also
.because inflation related to money supply .CRR is a tool of monitory policy which also deal
with inflation rate .if the lending interest rate is decreased that means CRR is decreased more
money will pumped in the economy and the additional money will added to the economic cycle
with availability of additional money generally the consumption will increase as a result the
inflation increased and vice versa.

16. What is the relation between CRR and source of funds for a bank?

25
 As banking is a business and it’s primary activity is collect the money from people as
deposits at less interest and have to distribute in the form of advances at higher rate of interest .if
the cash reserve ratio is increased the bank need to fore go some money as reserve, and have to
offer some high rate of interest to collect the deposits. this lead more funds. but the margin
interest will be less at the end. other side if CRR reduced the banks will have more money and
lending ,borrowing interest rates are less. There will be more distributions of as advances. in
this scenario banks have to face shortage of funds.

17. What is PLR?

Banks have to lend the money to the people in the economy. At the time of lending they
estimate the credibility of the customer. According this estimate they sanction the advance. apart
from this rate there will be some other interest rates which are based there ranking by institution
and default risk associated with that advance .for this rating purpose the banks will employ some
rating agencies or recruit won staff in the name of credit or field officers.

Table: 4:

Rating Model Spread % Revised w.e.f.

over BPLR 01.01.2009
Prime LC 1 to LC2 Nil 12.50%
AAA LC 1 to LC2 1.00 13.50%
AA LC 3 to LC 4 2.00 14.50%
A LC 5 & LC 6 3.25 15.75%
B & others LC 7 to LC 10 3.50 16.00%

18. What are the preferred loans by the bank?

26
 The banks mainly concentrated deploy the housing loans as per the guidelines of the RBI
while announced the stimulus package .and banks have to deploy the compulsory percentage of
agriculture loans .mean while banks are encouraging the education loans as it are very use full to
society as well as secured. Apart these loans banks are sanctioning personal loans, auto loans.
and at other hand the cooperative banks are mainly focused on agriculture and rural
development.

19. What is the lead bank?

Financial Inclusion is the delivery of banking services at affordable costs to vast sections of
disadvantaged and low income groups. Unrestrained access to public goods and services is the
sine qua non of an open and efficient society. It is argued that as banking services are in the
nature of public good, it is essential that availability of banking and payment services to the
entire population without discrimination is the prime objective of public policy. The term
Financial Inclusion has gained importance since the early 2000s.lead bank is a tool in financial
inclusion.

Lead bank is a bank which is responsible for the activates in the district level and responsible for
the sketch the advance plane and sets the target for bankers .it monitor all government programme
which are need banks help. In west Godavari district Andhra bank is acting as lead bank.

20. What is the present position of banks?

Present the whole economy is under recession it effected on all sectors and all companies.
Recession is a matter of economics related to business cycles. In this scenario banking is the
one of major activity to set the economy by virtue of its intermediation characteristic.

27
 Table 5 :

Sales Net Profit

BANK 8-Sep 7-Sep % Chg 8-Sep 7-Sep % Chg

DCB 172.79 140.58 22.91 1 14.49 -93.1

Andhra Bank 1328.13 1045.5 27.03 161.53 151.21 6.82

Bank of India 3962.77 2975.24 33.19 762.86 425.27 79.38

Bank net business

4500
4000
Business in crores

3500
3000
DCB
2500
Andhra Bank
2000
Bank of India
1500
1000
500
0
8-Sep 7-Sep % Chg
Time

21. In this financial crunch what are the strengths of Indian banking?

The world in the hands of financial crunch and all the sectors recording negative profits
or shut downing .but Indian economy not affected that much and especially the banking sector is
now in defensive position. Be cause traditionally Indians are preferred savings. From bank side

28
they look for secured loans only like mortgage, guarantees acceptance for liability. that’s why the
banking position in safe.

22. What are the reforms and remedies for this situation?\

In this situation government of India, planning commission and along with reserve bank
of India is announced stimulus packages twice in the duration of jan-dec 2008.the main objective
of these packages are pump more money in to economy and encourage the investment in stock
market and resolve the position raised due to disinvestment by fII,s.
First package intended for production sector and second one targeted the housing, infrastructure
as well as on exports.
Most banks are trying to deploy the funds as loans through “Runamela”.

23. What are the rates offered by your bank?

In present situation the banks offering more rates on deposits because the CRR increased
and the lack of funds leads to this situation. But after January 2009 it is reversed and the rates are
reduced. Because present monitory policy targeted to get rid on financial down fall, through
pumping the more money in to economy for investment.

Table 6:
For Bank of India:

29
 Interest Rated for Deposits below Rs. One Crore

(% p.a.)

Duration Existing Rates Revised Rates

w.e.f 01.12.2008 w.e.f 01.01.2009

15 days to 45 days 4.75 4.25

46 days to 90 days 5.25 5.25

91 days to 180 days 7.00 6.50

181 days to less than 1 year 8.00 7.25

1 year to less than 2 years 9.50 8.50

2 years to less than 1000 days 9.00 8.75

1000 days 10.00 9.00

1001 days to less than 3 years 9.00 8.75

3 years to less than 5 years 9.25 8.50

5 years and up to 10 years 9.00 8.50

Interpretation:

During the course of study there is reduction in CRR .as per general phenomena the
reduction in CRR leads to reduction in interest rates.this is reflected in revised rates in the above
graph.

For Andhra bank:

Table7:

30
 Interest Rates for Deposits of below Rs. One Crore

(% p.a.)

Duration Existing Rates Revised Rates

w.e.f. 01.01.2009 w.e.f. 12.01.2009

7 days to 14 days 3.50 3.50

15 days to 30 days 4.25 4.25

31 days to 45 days 4.50 4.50

46 days to 90 days 7.00 6.00

91 days to 180 days 7.25 6.25

181 days to 270 days 7.75 6.75

271 days to less than 1 year 8.25 7.25

One Year & above 8.50 7.50

Andha bank rates

12

10
Interest rates

8
Existing Rates w.e.f 01.12.2008
6
Revised Rates w.e.f 01.01.2009
4

0
1 year
days

years
days

1000
days
15

91

3
to

Duration

Interpretation:
The interest rate is th e matter of top management decision .it will vary bank to bank
according their net worth and vision. But there is common follow of the reduction or increase
with alignment of CRR change

31
 24. What is the impact of changing CRR at branch level?

The change in CRR effects on balance sheet under reserves and surplus head. so it is
entirely related to corporate level. but the branch level banking should follow the decision of
corporate along with lead bank sketch. to align the schemes of various government departments.

25. Is there any impact of inflation on retail banking?

Yes, the economy related inflation will show effect on branch level also.it effects on balance
sheet at source funds as well as distribution of funds.
• In high inflation stage the consumption is high it effects on bank deposits reduction it leads to
lack of funds to industries.
• At deployment side the inflation effects on lending rate and interest on loans (probably low/high)
which are threat to investment for the production process.

26. What are present interest rates?

Current Rates

32
Bank Rate: 6%
Repo Rate: 5.5%
Reverse Repo : 4%
CRR: 5%
SLR : 24%
PLR : 12.75 – 13.25%
Savings: 3.5%
Deposits: 7.50% – 9.60%
Call Money Rate: 2.25 –4.50%
T-Bills: 4.58361%- 5.3554%
BSE : 9568.72
Nifty : 2916.85

3.2 Statical analysis:

To find out the co relation between CRR, inflation, and nifty.

Table 8:

33
DATE CRR(x) inflation(y) x*x y*y x*y

26-04-2008 7.75 7.61 60.0625 57.9121 58.9775

10/5/2008 8 7.82 64 61.1524 62.56

24-05-2008 8.25 8.24 68.0625 67.8976 67.98

5/7/2008 8.5 11.91 72.25 141.8481 101.235

19-07-2008 8.75 11.98 76.5625 143.5204 104.825

30-08-2008 9 12.1 81 146.41 108.9

11/10/2008 7.5 11.35 56.25 128.8225 85.125

15-10-2008 6.5 10.68 42.25 114.0624 69.42

1/11/2008 6 8.98 36 80.6404 53.88

8/11/2008 5.5 8.9 30.25 79.21 48.95

Total 75.75 99.57 586.6875 1021.476 761.8125

Karl parson’s co efficient:

Calculate .

34
Calculate

Calculate

Calculate r (correlation coefficient):

Calculations:

= 586.6875 - ( 5738.0625/10)

=586.6875 -573.8062

=12.88

=1021.476 - (9914.185/10)

=1021.476 - 991.4185

35
= 30.05

= 761.8125 - (75.75*99.57/10)

=761.8125 - 754.2427

=7.56

=7.56/√ 12.88*30.05

=7.56/√387.044

=7.56/19.67

=0.3842

Interpretation:

The obtained value is 0.3842 it means the relation between the var iable si s positive and the magnitude is
0.3842

Co relation for CRR and Nifty

Table 9:

DATE CRR(x) Nifty(y) x*x y*y x*y

36
26-04-2008 7.75 5.1 60.0625 26.01 39.525

10/5/2008 8 4.99 64 24.9001 39.92

24-05-2008 8.25 4.9 68.0625 24.01 40.425

5/7/2008 8.5 4.3 72.25 18.49 36.55

19-07-2008 8.75 4.1 76.5625 16.81 35.875

30-08-2008 9 4.4 81 19.36 39.6

11/10/2008 7.5 3.32 56.25 11.0224 24.9

15-10-2008 6.5 3.1 42.25 9.61 20.15

1/11/2008 6 2.95 36 8.7025 17.7

8/11/2008 5.5 3.05 30.25 9.3025 16.775

Total 75.75 40.21 586.6875 168.2175 311.42

Calculations:

=586.6875 - (5738.0625/10)

= 586.6875 - 573.8062

=12.88

37
=168.2175 - (1616.8441/10)

=168.2175 - 161.6844

=6.533

=311.42 - (75.75*40.25/10)

=311.42 - 304.89

=6.53

=6.53/√12.88*6.533

=6.53/√84.14

=6.53/9.17

=0.71

Interpretation:

The variables are co related positively and the magnitude is 0.71(when studied in
partial equilibrium)

38
3.3 Financial statement analysis:

The change in CRR will effects on bank balance sheet under the resaves head for
an clear idea about the impact we have to analyze the balance sheet of Andhra
bank.

Table 10:

Dec '07 Mar '08 Jun '08 Sep '08 Dec '08

Sales Turnover 1,085.69 1,169.22 1,157.36 1,328.13 1,382.42

Other Income 147.65 183.33 118.67 135.41 216.51

Total Income 1,233.34 1,352.55 1,276.03 1,463.54 1,598.93

Total Expenses 257.26 304.48 382.3 347.39 320.7

Operating Profit 828.43 864.74 775.06 980.74 1,061.72

Profit On Sale Of Assets -- -- -- -- --

Profit On Sale Of
Investments -- -- -- -- --

Gain/Loss On Foreign
Exchange -- -- -- -- --

VRS Adjustment -- -- -- -- --

39
Other Extraordinary
Income/Expenses -- -- -- -- --

Total Extraordinary
Income/Expenses -- -- -- -- --

Tax On Extraordinary
Items -- -- -- -- --

Net Extra Ordinary

Income/Expenses -- -- -- -- --

Gross Profit 976.08 1,048.07 893.73 1,116.15 1,278.23

Interest 715.56 826.32 811.11 894.61 930.55
PBDT 260.52 221.75 82.62 221.53 347.69

Depreciation -- -- -- -- --

Depreciation On
Revaluation Of Assets -- -- -- -- --
PBT 260.52 221.75 82.62 221.53 347.69
Tax 101.5 97.5 5 60 135

Net Profit 159.02 124.25 77.62 161.53 212.69

Prior Years
Income/Expenses -- -- -- -- --

40
Depreciation for
Previous Years Written
Back/ Provided -- -- -- -- --
Dividend -- -- -- -- --

Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --

Earnings Per Share 3.28 2.56 1.6 3.33 4.39

Book Value -- -- -- -- --
Equity 485 485 485 485 485
Reserves 2,671.28 2,764.29 2,764.29 2,764.29 2,764.29

Face Value 10 10 10 10 10
Source : Asian CERC

In the balance sheet o profit &l oss account of a bank consists of reserves head
which accumulation cash reserves, statutory reserves, capital reserves and revenue
and other reserves.

From the above data we can observe that increase in CRR is effected in reserves
column.

Table 11:

41
Month CRR%*100 Reserves CRR % in reserves

Dec-07 750 2,671.28 200.346

Mar-08 775 2764.29 214.23

Jun-08 850 2764.29 234.96

Sep-08 900 2764.29 248.786

Dec-08 550 2764.29 152.03

CRR vs Reserves

3000
CRR,Reserves & CRR% in

2500
2000 CRR%*100
reserves

1500 Reserves
1000 CRR % in reserves

500
0
De 0 8
Fe 8

Ju 8
M 8

Ap 8
Ja 7

Au 08

O 8

08
M 08

Se 08
Ju 8

No 8
0
-0
0

0
-0
0

-0
v-
l-
n-

n-
b-
c-

p-

c-
r-

g-
ar

ay

ct
De

Quarter

Interpretation:

Though the reserves seems to be same for all periods, but the % of cash reserves
are decreasing with reduction of CRR .it means the bank have more loan able
money with RBI.

For bank of India:

42
For the sake of quarterly results the BOI didn’t work on reserves. But the impact
must on the sales turnover because more loan able money leads to more turn over.
The money which is free from cash reserves is treated under other income head.
But while interpreting the sales turnover we must consider other factors also.

Table 12 :

Dec '07 Mar '08 Jun '08 Sep '08 Dec '08

Sales Turnover 3,151.11 3,501.61 3,548.32 3,962.77 4,343.17

Other Income 554.10 653.25 566.42 649.50 1,050.57

Total Income 3,705.21 4,154.86 4,114.74 4,612.27 5,393.74

Total Expenses 893.57 944.44 1,023.77 1,084.64 1,082.63

Operating Profit 2,257.54 2,557.17 2,524.55 2,878.13 3,260.54

Profit On Sale Of
Assets -- -- -- -- --

43
Profit On Sale Of
Investments -- -- -- -- --

Gain/Loss On Foreign
Exchange -- -- -- -- --

VRS Adjustment -- -- -- -- --

Other Extraordinary
Income/Expenses -- -- -- -- --

44
Total Extraordinary
Income/Expenses -- -- -- -- --

Tax On Extraordinary
Items -- -- -- -- --

Net Extra Ordinary

Income/Expenses -- -- -- -- --

Gross Profit 2,811.64 3,210.42 3,090.97 3,527.63 4,311.11

Interest 2,071.65 2,284.79 2,367.55 2,599.64 2,821.51

PBDT 739.99 925.63 723.42 927.99 1,489.60

Depreciation -- -- -- -- --

45
Depreciation On
Revaluation Of Assets -- -- -- -- --

PBT 739.99 925.63 723.42 927.99 1,489.60

Tax 228.1 168.59 161.47 165.13 617.43

Net Profit 511.89 757.04 561.95 762.86 872.17

Prior Years
Income/Expenses -- -- -- -- --

Depreciation for
Previous Years Written
Back/ Provided -- -- -- -- --

46
Dividend -- -- -- -- --

Dividend Tax -- -- -- -- --

Dividend (%) -- -- -- -- --

Earnings Per Share 10.49 14.39 10.69 14.51 16.58

Book Value -- -- -- -- --

Equity 488.14 525.91 525.91 525.91 525.91

Reserves -- -- -- -- --

Face Value 10 10 10 10 10

47
Table 13:

Month CRR%*100 sales turnover

Dec-07 750 3,151.11

Mar-08 775 3,501.61

Jun-08 850 3548.32

Sep-08 900 3962.77

Dec-08 550 4343.17

CRR vs sales turnover

5000
4500
4000
Sales turnover

3500
3000 CRR%*100
2500
2000 sales turnover
1500
1000
500
0
D Jan- F M Apr- M Jun- Jul- A S Oct- Nov- D
ec- 08 eb- ar- 08 ay- 08 08 ug- ep- 08 08 ec-
07 08 08 08 08 08 08
Quarter

Interpretation:

For the sake of quarterly results the BOI didn’t work on reserves. But the
impact must on the sales turnover because more loan able money leads to more
turn over. The money which is free from cash reserves is treated under other
income head. But while interpreting the sales turnover we must consider other
factors also.

48
49
Interpretation:

Similarly we can interpret the NABARD results in quasi - govt banks. Co

operative banks are supposed to do business for agriculture and rural development
purpose but the bank has some welfare view so it may be reflect on the figs in
results

4. Findings:

• Reserve bank of India is the apex bank of India performing various function
for the sake of economy property.
• Monitory policy regulates the supply of money according to the situation
with different tool s which are inter dependents and have macro vision.
• Cash reserve ratio is one of the tools of monitory policy which have wide
effect on all macro factors especially on banking.
• Bank rate, sensex, growth rate, banks lending rates of banks are have more
impact on supply of money for individual and industries. these all have show
there impact on banking in the way of volume of money that available for
lending. And effects on the major characteristics of bank that is
intermediation.
• Most of tools of monitory policy tools have positive co related wit CRR .
• In banking system there are different types of banks like commercial,
private, co operative.
• The impact of the change in CRR will be same for all types of banks.
• It reflects on balance sheet at reserves , and the result is availability of loan
able funds.

50
 • The bank are must maintain this ratio because it is statutory and have to
align with lead bank activities.
• from comparative study on commercial and co operative bank it is resulted
that for commercial bank it is high rate is threat for business ,where as co
operative banks some helping form RBI for funds in other way for the sake
of welfare view of bank.
• At the end all the banks maintaining equal reserves for all periods with the
help of other reserves for the sake of liquidity.

TABLE 14:

Cash reserves Other rate Relation

CRR Sensex In direct

CRR Inflation In direct

CRR Bank rate Direct

CRR Growth rate In direct

CRR BPLR Direct

• Even though the banks didn’t disclose the reserves for interim reports we
can trace the CRR effect

4.1 Suggestions:

• The lending patterns must be campaign to the needy people.

51
• The loan must be long term prospective and it intention is investment.

Conclusion:

In the banking system we have so many type of banks and the effect of
Cash Reserve Ratio will be same for all types of banks and we will compare the
bank in the view of loan able funds to the economy and with lending patterns.

52
5. APPENDICES

Questionnaire
A COMPARATIVE STUDY ON IMPACT OFAPEX BANK DECISSION ON CRR POLICY WITH
REFERECE TO LOCAL AND NATION WIDE BANKS IN ELURU
Name: Bank:
Designation:

Who is the apex bank in India?

What is the monitory policy?

What are the components of monitory policy?

What is the present CRR?

Is it nationwide or local?

What is the inflation?

What is the bank rate?

What is the growth rate?

What is the sensex?

What is the source of funds?

53
What are the avenues for application funds?

What is the impact of sensex on banking?

What is the relation between CRR and bank rate?

What is the relation between CRR and inflation?

What is the relation between CRR and source of funds for a bank?

What is PLR?

What are present rates?

What are the preferred loans by the bank? (Housing, Agriculture, Education, Personal)

What is the lead bank?

What is the present situation of banking?

In this financial crunch what are the strengths of Indian banking?

What are the reforms and remedies for this situation?

What are the rates offered by your bank?

What is the impact of changing CRR at branch level?

Is there any impact of inflation on banking?

What is financial performance of your bank during Q1, Q2, and Q3?

54
 Glossary

GOI: Government Of India.

RBI: Reserve Bank of India.

Monitory policy: controls the money flow in the economy by using different tools.

CRR: Cash Reserve Ratio is the statutory reserves by bank at RBI.

SLR: it is also statutory reserve for the sake of safe liquidity of the bank..

REPO: reverse purchase option. it is lending rate of RBI to any commercial bank.

GROWTH RATE: the rate at which the economy growing.

PLR: prime lending rate at bank which sanction the loans without rating a

customer

T.BILLS: It is instrument by GOI traded in stock exchanges

55
 BIBLOGRAPHY

• www.nseindia.com > data base >archives.

• www.moneycontrol.com > financials > results.

• www.wikipedia.com > Banking.

• www.rbi.org > database > monthly reports.

• www.andhrabank.com > investors corner.

• www.bankofindia.com > about us.

• Statical methods by S.P Gupta.

Pg no:387,356.

• Banking operations, M.A(economics),DRBRAO university.

56