Banking sector reforms

1. INTRODUCTION
As the real sector reforms began in 1992, the need was felt to restructure the
Indian banking industry. The reform measures necessitated the deregulation of the
financial sector, particularly the banking sector. The initiation of the financial
sector reforms brought about a paradigm shift in the banking industry. In 1991, the
RBI had proposed to form the committee chaired by M. Narasimham, former RBI
Governor in order to review the Financial System viz. aspects relating to the
Structure, Organisations and Functioning of the financial system. The Narasimham
Committee report, submitted to the then finance minister, Manmohan Singh, on the
banking sector reforms highlighted the weaknesses in the Indian banking system and
suggested reform measures based on the Basle norms. The guidelines that were issued
subsequently laid the foundation for the reformation of Indian banking sector. The
main recommendations of the Committee were: • Reduction of Statutory Liquidity
Ratio (SLR) to 25 per cent over a period of five years • Progressive reduction in
Cash Reserve Ratio (CRR) • Deregulation of interest rates so as to reflect emerging
market conditions • Adoption of uniform accounting practices in regard to income
recognition, asset classification and provisioning against bad and doubtful debts •
Imparting transparency to bank balance sheets and making more disclosures • Setting
up of special tribunals to speed up the process of recovery of loans

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• Setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion
of their bad and doubtful advances at a discount • Restructuring of the banking
system, so as to have 3 or 4 large banks,which could become international in
character, 8 to 10 national banks and local banks confined to specific regions.
Rural banks, including RRBs, confined to rural areas •Abolition of branch licensing
• Liberalizing the policy with regard to allowing foreign banks to open offices in
India • Rationalization of foreign operations of Indian banks •Giving freedom to
individual banks to recruit officers • Inspection by supervisory authorities based
essentially on the internal audit and inspection reports. • A separate authority
for supervision of banks and financial institutions which would be a semiautonomous
body under RBI • Revised procedure for selection of Chief Executives and Directors
of Boards of public sector banks. • Speedy liberalization of capital market

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2. HISTORY OF BANKING
Before we look into the banking sector reforms process, we must have a proper
perspective of what is the history of our banking system in India and also
understand the rationale of why reform is necessary and what reforms are essential.
Like in many other aspects, India had a long tradition of banking. Evidence
regarding the existence of money-lending operations in India is found in the
literature of the Vedic times, i.e.,2000 to 1400 B.C. These literatures supply
evidence of the existence of bankers. From the laws of menu, it appears that money-
lending and allied problems had assumed considerable importance in ancient India.
What were the interest rates? A common base number was 15 per centannum what the
bankereconomist Dr. Thingalaya calls Hindu rate of interest. Incidentally, this is
close to current Prime Lending Rate (PLR) of many banks. However, Chanakya gives a
different approach. The interest works out for 15 per cent annum for general
advances. The traders are charged a rate of 60 per cent per annum. Where the
merchandise has to pass through forests, the traders have to pay 120 per cent while
those engaged inthe export-import business handling sea-borne cargo have to pay 240
per cent per annum. Chanakya‟s interest rate structure is risk-weighted; the rateof
interest increases with the risk involved in the borrowers‟ business. Again, it is
not everyone who could take up banking business. The Dharmashastra laid down the
rates according to the castes of the borrowers, and the eligibility of men
belonging to Vaishya caste alone could take up the moneylending profession. In
other words, in ancient times, your caste givesyou license to banking; not RBI!!

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CHAPTER III 1. India’s Pre-Reforms Period.
Since 1991, India has been engaged in banking sector reforms aimed at increasing
the profitability and efficiency of the then 27 public-sector banks that controlled
about 90 per cent of all deposits, assets and credit. The reforms were initiated in
the middle of a “current account” crisis that occurred in early 1991. The crisis
was caused by poor macroeconomic performance, characterized by a public deficit of
10 per cent of GDP, a current account deficit of 3 per cent of GDP, an inflation
rate of 10 per cent, and growing domestic and foreign debt, and was triggered by a
temporary oil price boom following the Iraqi invasion of Kuwait in 1990. Prior to
the reforms, India‟s financial sector had long been characterized as highly
regulated and financially repressed. The prevalence of reserver equirements,
interest rate controls, and allocation of financial resources to priority sectors
increased the degree of financial repression and adversely affected the country‟s
financial resource mobilization and allocation. After Independence in 1947, the
government took the view that loans extended by colonial banks were biased toward
working capital for trade and large firms (Joshi and Little 1996). Moreover, it was
perceived that banks should be utilized to assist India‟s planned development
strategy by mobilizing financial resources to strategically important sectors.
Reflecting these views, all large private banks were nationalized in two stages:
the first in 1969 and the second in 1980. Subsequently, quantitative loan targets
were imposed on these banks to expand their networks in rural areas and they were
directed to extend credit to prioritysectors. These nationalized banks were then
increasingly used to finance 4
fiscal deficits. Although non-nationalized private banks and foreign banks were
allowed to coexist with public-sector banks at that time, their activities were
highly restricted through entry regulations and strict branch licensing policies.
Thus, their activities remained negligible. In the period 1969-1991, the number of
banks increased slightly, butsavings were successfully mobilized in part because
relatively lowinflation kept negative real interest rates at a mild level and in
part because the number of branches were encouraged to expand rapidly. Never the
less, many banks remained unprofitable, inefficient, andunsound owing to their poor
lending strategy and lack of internal risk management under government ownership.
Joshi and Little (1996) havereported that the average return on assets in the
second half of the 1980swas only about 0.15 per cent, while capital and reserves
averaged about1.5 per cent of assets. Given that global accounting standards were
notapplied, even these indicators are likely to have exaggerated the banks‟true
performance. Further, in 1992/93, non-performing assets (NPAs) of 27 public-sector
banks amounted to 24 per cent of total credit, only 15 public-sector banks achieved
a net profit, and half of the public-sector banks faced negative net worth.

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The major factors that contributed to deteriorating bank performance included:(a)
Too stringent regulatory requirements (i.e., a cash reserve requirement[CRR] and
statutory liquidity requirement [SLR] that required banks tohold a certain amount
of government and eligible securities); (b) Low interest rates charged on
government bonds (as compared withthose on commercial advances); (c) Directed and
concessional lending; (d) Administered interest rates; (e) Lack of competition.
These factors not only reduced incentives to operate properly, but also undermined
regulators‟ incentives to prevent banks from taking risks via incentive-compatible
prudential regulations and protect depositors with a well-designed deposit
insurance system. While government involvement in the financial sector can be
justified at the initial stage of economic development, the prolonged presence of
excessively large public-sector banks often results in inefficient resource
allocation and concentration of power in a few banks. Further, once entry
deregulation takes place, it will put newly established private banks as well as
foreign banks in an extremely disadvantageous position

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2. Role Of RBI In Reform.
First, the committee recommended that the RBI withdraw from the 91-day treasury
bills market and that interbank call money and term money markets be restricted to
banks and primary dealers. Second, the Committee proposed a segregation of the
roles of RBI as a regulator of banks and owner of bank. It observed that "The
Reserve Bank as a regulator of the monetary system should not be the owner of a
bank in view of a possible conflict of interest". As such, it highlighted that
RBI's role of effective supervision was not adequate and wanted it to divest its
holdings in banks and financial institutions. Pursuant to the recommendations, the
RBI introduced a Liquidity Adjustment Facility (LAF) operated through repo and
reverse repos in order to set a corridor for money market interest rates. To begin
with, in April 1999, an Interim Liquidity Adjustment Facility (ILAF) was introduced
pending further upgradation in technology and legal/procedural changes to
facilitate electronic transfer. As for the second recommendation, the RBI decided
to transfer its respective shareholdings of public banks like State Bank of India
(SBI), National Housing Bank (NHB) and National Bank for Agriculture and Rural
Development (NABARD) to GOI. Subsequently, in 2007-08, GOI decided to acquire
entire stake of RBI in SBI, NHB and NABARD. Of these, the terms of sale for SBI
were finalised in 2007-08 itself.

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3. Impotant Reforms Of The Banking Sector
Indian banking sector has undergone major changes and reforms during economic
reforms. Though it was a part of overall economic reforms, it has changed the very
functioning of Indian banks. This reform have not only influenced the productivity
and efficiency of many of the Indian Banks, but has left everlasting footprints on
the working of the banking sector in India. Let us study some important reforms of
the banking sector:

 REDUCED CRR & SLR :

The South East Asian countries introduced banking reforms wherein bankCRR and SLR
was reduced, this increased the lending capacity of banks. The markets fell
precipitously because banks and corporates did notaccurately measure the risk
spread that should have been reflected intheir lending activities. Nor did they
manage such risks or provide forthem in their balance sheets. And followed the
South East Asian Crisis. The monetary policy perspective essentially looks at SLR
and CRRrequirements (especially CRR) in the light of several other roles they
playin the economy. The CRR is considered an effective instrument formonetary
regulation and inflation control. The SLR is used to imposefinancial discipline on
the banks, provide protection to deposit-holders,allocate bank credit between the
government and the private sectors, andalso help in monetary regulation. However
bankers strongly feel thatthese along with high non-performing assets (on which
banks do not 8
earnany return) 10 percent CRR and 25 percent SLR (most banks have SLRinvestments
way above the stipulation) are affecting banks' bottomlines.With an effective
return of a mere 2.8 per cent, CRR is a major drag o nbanks' profitability The Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually reduced
during the economic reforms period in India. By Law in India the CRR remains
between 3-15% of the Net Demand and Time Liabilities. It is reduced from the
earlier high level of 15% plus incremental CRR of 10% to current 4% level.
Similarly, the SLR Is also reduced from early 38.5% to current minimum of 25%
level. This has left more loanable funds with commercial banks, solving the
liquidity problem.

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 DEREGULATION OF INTEREST RATES:

During the economics reforms period, interest rates of commercial banks were
deregulated. Banks now enjoy freedom of fixing the lower and upper limit of
interest on deposits. Entry deregulation was accompanied by progressive
deregulation of interest rates on deposits and advances. From October 1994,interest
rates were deregulated in a phased manner and by October 1997, banks were allowed
to set interest rates on all term deposits of maturity of more than 30 days and on
all advances exceeding Rs 200,000. Interest rate slabs are reduced from Rs.20 Lakhs
to just Rs. 2 Lakhs. Interest rates on the bank loans above Rs.2 lakhs are full
decontrolled. These measures have resulted in more freedom to commercial banks in
interest rate regime.

 FIXING PREDENTIAL NORMS: In April 1992, the RBI issued detailed guidelines on a
phased introduction of prudential norms to ensure safety and soundness of banks and
impart greater transparency and accounting operations. The main objective of
prudentialnorms is the strengthening financial stability of banks. In order to
induce professionalism in its operations, the RBI fixed prudential norms for
commercial banks. It includes recognition of income sources. Classification of
assets, provisions for bad debts, maintaining international standards in accounting
practices, etc. It helped banks in reducing and restructuring Non-performing assets
(NPAs).

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 INTRODUCTION OF CRAR : Capital to Risk Weighted Asset Ratio (CRAR) was introduced
in 1992. Capital adequacy ratio (CAR), also called Capital to Risk (Weighted)
Assets Ratio (CRAR), is a ratio of a bank's capital to its risk. Capital adequacy
ratio is the ratio which determines the bank's capacity to meet the time
liabilities and other risks such as credit risk, operational risk etc. It resulted
in an improvement in the capital position of commercial banks, all most all the
banks in India has reached the Capital Adequacy Ratio (CAR) above the statutory
level of 9%.

 ASSET LIABILITY MANAGEMENT (ALM) SYSTEM The Reserve Bank advised banks in
February 1999 to put in place an ALM system, effective April 1, 1999 and set up
internal asset liability management committees (ALCOs) at the top management level
to oversee its implementation. Banks were expected to cover at least 60 per cent of
their liabilities and assets in the interim and 100 per cent of their business by
April 1, 2000. The Reserve Bank also released ALM system guidelines in January 2000
for all-India term-lending and refinancing institutions, effective April l, 2000.
As per the guidelines, banks and such institutions were required to prepare
statements on liquidity gaps and interest rate sensitivity at specified periodic
intervals.

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

Implementation of asset liability management (ALM) system

RBI has issued guidelines regarding ALM by which the banks have toensure coverage
of at least 60% of their assets and liabilities by Apr ‟99. This will provide
information on bank‟s position as to whether the bank islong or short. The banks
are expected to cover fully their assets andliabilities by April 2000. .ALM
framework rests on three pillars

ALM Organisation:

The ALCO consisting of the banks senior management including CEOshould be

responsible for adhering to the limits set by the board as well asfor deciding the
business strategy of the bank in line with the banksbudget and decided risk
management objectives. ALCO is a decision-making unit responsible for balance sheet
planning from a risk returnperspective including strategic management of interest
and liquidity risk.Consider the procedure for sanctioning a loan. The borrower
whoapproaches the bank, is appraised by the credit department on various parameters
like industry prospects, operational efficiency, financialefficiency, management
evaluation and others which influence theworking of the client company. On the
basis of this appraisal the borrower is charged certain rate of interest to cover
the credit risk. For example, aclient with credit appraisal AAA will be charged
PLR. While somebody with BBB rating will be charged PLR + 2.5 %, say. Naturally,
there will becertain cut-off for credit appraisal, below which the bank will not
lend e.g.Bank will not like to lend to D rated client even at a higher rate of
interest. The guidelines for the loan sanctioning procedure are decided in the
ALCOmeetings with targets set and goals established 12


ALM Information System

ALM Information System for the collection of information accurately,adequately and

expeditiously. Information is the key to the ALM process. Agood information system
gives the bank management a complete pictureof the bank's balance sheet.

ALM Process

The basic ALM process involves identification, measurement andmanagement of risk

parameter s. The RBI in its guidelines has askedIndian banks to use traditional
techniques like Gap Analysis for monitoringinterest rate and liquidity risk.
However RBI is expecting Indian banks tomove towards sophisticated techniques like
Duration, Simulation, VaR inthe future

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 RISK MANAGEMENT GUIDELINES The Reserve Bank issued detailed guidelines for risk
management systems in banks in October 1999, encompassing credit, market
andoperational risks. Banks would put in place loan policies, approved by their
boards of directors, covering the methodologies for measurement, monitoring and
control of credit risk. The guidelines also require banks to evaluate their
portfolios on an ongoing basis, rather than at a time close to the balance sheet
date. As regards off-balance sheet exposures, the current and potential credit
exposures may be measured on a daily basis. Banks were also asked to fix a definite
time-frame for moving over to the Value-at-Risk (VaR) and duration approaches for
the measurement of interest rate risk. The banks were also advised to evolve
detailed policy and operative framework for operational risk management. These
guidelines together with ALM guidelines would serve as a benchmark for banks which
are yet to establish an integrated risk management system.

 OPERATION AUTONOMY During the reforms period commercial banks enjoyed the
operational freedom. If a bank satisfies the CAR then it gets freedom in opening
new branches, upgrading the extension counters, closing down existing branches and
they get liberal lending norms.

14
 DISCLOSURE NORMS – Banks should disclose in balance sheets maturity pattern of
advances, deposits, investments and borrowings. Apart from this, banks are also
required to give details of their exposure to foreign currency assets and
liabilities and movement of bad loans. These disclosures were to be made for the
year ending March 2000. As a move towards greater transparency, banks were directed
to disclose the following additional information in the „Notes to accounts‟ in the
balance sheets from the accounting year ended March 31, 2000: (i) Maturity pattern
of loans and advances, investment securities, deposits and borrowings, (ii) Foreign
currency assets and liabilities, (iii) Movements in NPAs and (iv) Lending to
sensitive sectors as defined by the Reserve Bank from time to time.

 RBI norms for consolidated PSU bank accounts The Reserve Bank of India (RBI) has
moved to get public sector banks to consolidate their accounts with those of their
subsidiaries and other outfits where they hold substantial stakes. Towards this
end, RBI has set up a working group recently under its Department of Banking
Operations and Development to come out with necessary guidelines on consolidated
accounts for banks. The move is aimed at providing the investor with a better
insight into viewing a bank‟s performance in totality, including all its branches
and subsidiaries, and not as isolated entities.

15
According to a banker, earlier subsidiaries were floated as external independent
entities wherein the accounting details were not incorporated in the parent bank‟s
balance sheet, but at the same time it was assumed that the problems will be dealt
with by the parent. This will be a path-breaking change to the existing norms
wherein each bank conducts its accounts without taking into consideration the
disclosures of its subsidiaries and other divisions for disclosure. As per the
proposed new policy guidelines, the banks will be required to consolidate their
accounts including all its subsidiaries and other holding companies for better
transparency.  Result: This will require the banks to have a stricter monitoring
system of not only their own bank, but also the other subsidiaries in other sectors
like mutual funds, merchant banking, housing finance and others. This is all the
more important in the context of the recent announcements made by some major public
sector banks where they have said they would hive off or close down some of their
under performing subsidiaries.

 The Investors Advantage Getting all these accounts consolidated with that of the
parent bank will provide the investor a better understanding of the banks‟
performances while deciding on their exposures. More so, since a number of public
sector banks are now listed entities whose stocks are traded on the stock
exchanges. Some public sector banks are even preparing their accounts in line with
US GAAP norms in anticipation of a US listing. These norms will therefore be in
line with the future plans of these banks as well. The working group was set up
following the need to bring about transparency on the lines of international norms
through better disclosures.

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 INCOME RECOGNITION
The regulation for income recognition states that the Income on NPAs cannot be
booked. Interest income should not be recognized until it is realized. An NPA is
one where interest is overdue for two quarters or more. In respect of NPAs,
interest is not to be recognized on accrual basis, but is to be treated as income
only when actually received. RBI has advised the banks to evolve a realistic system
for income recognition based on the prospect of realisability of the security. On
non-performing accounts the banks should not charge or take into account the
interest. Income-recognition norms have been tightened for consortium banking too.
Member banks have to intimate the lead-bank to arrange for their share of recovery.
They will no more have the privilege of stating that the borrower has parked funds
with the lead-bank or with a member-bank and that their share is due for receipt.
As of now, for income recognition norms, the RBI has suggested that
theinternational norm of 90 days be implemented in a phased manner by2002. The
current norm is 180 days.

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

BANKING DIVERSIFICATION:

The Indian banking sector was well diversified, during the economic reforms period.
Many of the banks have stared new services and new products. Some of them have
established subsidiaries in merchant banking, mutual funds, insurance, venture
capital, etc which has led to diversified sources of income of them.
Diversification of banking activities helps banks to mitigate the two problems
raised above by providing them with an opportunity to gainnon-interest income and
thereby sustain profitability. This enables banksto maintain long-term
relationships with clients throughout their life cycles and gives them an incentive
to process inside information and monitor their clients. Banks can stabilize their
income by engaging in activities whose returnsare imperfectly correlated, thereby
reducing the costs of funds and thuslending and underwriting costs. Diversification
promotes efficiency by allowing banks to utilize insideinformation arising out of
long-term lending relationships. Thanks to thisadvantage; banks are able to
underwrite securities at lower costs than non- bank underwriters. Firms may also
obtain higher prices on their securities underwritten by banks because of their
perceived monitoring advantages. Further, banks can exploit economies of scope from
the production of various financial services. Diversification may improve bank
performance by diluting the impact of direct lending (through requiring banks to
allocate credit to prioritysectors). Direct lending reduces the banks‟ incentives
to conductinformation processing and monitoring functions. As a result, this not
onlylowers banks‟ profitability by limiting financial resources available to more
productive usages, but also results in a deterioration of efficiency andsoundness
by discouraging banks from functioning properly. 18
 DISCLOSURE NORMS
Banks should disclose in balance sheets maturity pattern of advances,deposits,
investments and borrowings. Apart from this, banks are alsorequired to give details
of their exposure to foreign currency assets andliabilities and movement of bad
loans. These disclosures were to be madefor the year ending March 2000 In fact, the
banks must be forced to make public the nature of NPAs being written off. This
should be done to ensure that the taxpayer‟s moneygiven to the banks as capital is
not used to write off private loans without adequate efforts and punishment of
defaulters.

 New Generation Banks : As per the guidelines for licensing of new banks in the
private sectorissued in January 1993, RBI had granted licenses to 10 banks. Based
on areview of experience gained on the functioning of new private sectorbanks,
revised guidelines were issued in January 2001. The mainprovisions/requirements are
listed below :  Initial minimum paid-up capital shall be Rs. 200 crore; this will
beraised to Rs. 300 crore within three years of commencement of business. 
Promoters‟ contribution shall be a minimum of 40 per cent of the paid-up capital of
the bank at any point of time; their contribution of 40 percent shall be locked in
for 5 years from the date of licensing of thebank and excess stake above 40 per
cent shall be diluted after oneyear of bank‟s operations

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

Initial capital other than promoters‟ contribution could be raisedthrough public

issue or private placement.

While augmenting capital to Rs. 300 crore within three years,promoters need to
bring in at least 40 percent of the fresh capital which will also be locked in for
5 years. The remaining portion of fresh capital could be raised through public
issue or private placement

During the reforms period many new generation banks have successfully emerged on
the financial horizon. Banks such as ICICI Bank, HDFC Bank, UTI Bank have given a
big challenge to the public sector banks leading to a greater degree of
competition.

 Improved Profitability and Efficiency : During the reform period, the

productivity and efficiency of many commercial banks has improved. It has happened
due to the reduced Non-performing loans, increased use of technology, more
computerization and some other relevant measures adopted by the government. Banks
can stabilize their income by engaging in activities whose returnsare imperfectly
correlated, thereby reducing the costs of funds and thuslending and underwriting
costs. With these reforms, Indian banks especially the public sector banks have
proved that they are no longer inefficient compared with their foreign counter
parts as far as productivity is concerned.

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 ASSET CLASSIFICATION
While new private banks are careful about their asset quality andconsequently have
low nonperforming assets (NPAs), public sector bankshave large NPAs due to wrong
lending policies followed earlier and alsodue to government regulations that
require them to lend to sectors wherepotential of default is high. Allaying the
fears that bulk of the Non-Performing Assets (NPAs) was from priority sector, NPA
from priority sectorconstituted was lower at 46 per cent than that of the corporate
sector at 48 per cent. Assets should be classified into four classes - Standard,
Sub-standard,Doubtful, and Loss assets. The banks should classify theirassets based
on weaknesses and dependency on collateral securities into four categories: 
Standard Assets:

It carries not more than the normal risk attached tothe business and is not an NPA.
 Sub-standard Asset:

An asset which remains as NPA for a periodexceeding 24 months, where the current
net worth of the borrower,guarantor or the current market value of the security
charged to the bankis not enough to ensure recovery of the debt due to the bank in
full.  Doubtful Assets:

An NPA which continued to be so for a periodexceeding two years (18 months, with
effect from March, 2001, asrecommended by Narasimham Committee II, 1998).

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

Loss Assets:

An asset identified by the bank or internal/ externalauditors or RBI inspection as

loss asset, but the amount has not yet beenwritten off wholly or partly.

 SPECIAL TRIBUNALS AND ASSET RECONSTRUCTION FUND

Setting up of special tribunals to speed up the process of recovery of loans and
setting up of Asset Reconstruction Funds (ARFs) to take overfrom banks a portion of
their bad and doubtful advances at a discount wasone of the crucial recommendations
of the Narasimham Committee. To expedite adjudication and recovery of debts due to
banks and financial institutions (FIs) at the instance of the Tiwari Committee
(1984),appointed by the Reserve Bank of India (RBI), the government enacted the
Debt Recovery Tribunal Act, 1993 (DRT). Accordingly, DRTs andAppellate DRTs have
been established at different places in the country. The act was amended in January
2000 to tackle some problems with the old act.

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 RECONSTRUCTION OF WEAK BANKS
How to deal with the weak Public Sector Banks is a major problem for the next stage
of banking sector reforms. It is particularly difficult because the poor financial
position of many of these banks is often blamed on the fact that the regulatory
regime in earlier years did not place sufficientemphasis on sound banking, and the
weak Banks are, therefore, notresponsible for their current predicament. This
perception often leads toan expectation that all weak Banks must be helped to
restructure afterwhich they would be able to survive in the new environment.Keeping
in view the urgent needto revive the weak banks, the ReserveBank of India set up a
Working Group in February, 1999 under theChairmanship of Shri M.S. Verma to suggest
measures for the revival of weak public sector banks in India

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 NEW INITIATIVES TAKEN BY PSBs
 Technology savvy: SBG daily 11 lakh ATM transactions amounting toRs 140 crore per
day Specialised branches   New products targeted at specific groups Change in
structure, systems and procedures involving quick turnaround time to meet world
standards     Marketing orientation Change in ambience Recruitment of
specialists Tie-ups, sharing networks, and strategic alliances

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CHAPTER IV
1. Complication Of Data Collected
This research was subjected to following limitation:  Shortage of time:The time
period that we had for doing detailed study was too less. In a short time period
that is very difficult that I could get the knowledge about each and everything
related to my project.  Secondary data:I used secondary data in my study that is
not a reliable source of information for doing research work.  Nature: The study
is suggestive in nature and not much conclusive.6.  Unavailability of Primary
data: The information in banks is not to be disclosed to any resource of
information. Hence I was unable to access that information

25
CHAPTER V 1. Findings
The legal infrastructure for the recovery of non-performing loans still does not
exist. The functioning of debt recovery tribunals has been hampered considerably by
litigation in various high courts. It is a major drawback of this ruling. Capital
Adequacy and Quality of Assets: The capital adequacy norm means the banks have to
find additional, costly money to refurbish the capital base. Among the nationalised
banks, Canara Bank obtained the first position in capital adequacy and quality of
assets by attaining the full score of 100 earmarked for the parameter followed by
Dena Bank obtaining a score of 97.5 and five other banks a score of 95.
Profitability Canara Bank has the highest score of 63.31 in profitability followed
by Union Bank of India occupying the second position with a score of 62.06 . The
fifteenth position of Syndicate Bank in profitability with a score of 41.30 is the
outcome of its poor performance. Health Performance (HP) Canara Bank with its best
performance in capital adequacy and quality of assets and profitability, is able to
attain the first position in Health Performance by a score of 163.31 out of maximum
of 200 earmarked for Health performance. Canara Bank is followed by Union Bank of
India in Health Performance with a score of 157.2.

26
Social Banking Allahabad Bank has the highest score in social banking with a score
of 81.45 followed by Punjab National Bank with a score of 75.2. Syndicate Bank has
a score of 51.15 to keep it at the fifteenth position in its performance in social
banking. Growth Though Syndicate Bank has the lowest performance position in
capital adequacy and quality of assets along with eleven other banks and it has
only the fifteenth position in profitability, health performance, and social
banking, it has the ninth position in 'growth' with a score of 43.91. Priority
Performance (PP) In priority performance, which is the outcome of a bank‟s
performance in social banking and growth as per the present study. Syndicate Bank
has the fourteenth position with a score of 95.06. Productivity Bank of Baroda has
the highest productivity performance with a score of 85.09 and Bank of Maharashtra
with a score of 20.64 has the lowest productivity performance. Efficiency
Performance (EP) The eleventh position of Syndicate Bank in Efficiency Performance
with a score of 111.26 is the outcome of its performance in productivity and
customer service.Unlike Health Performance and Priority Performance where Syndicate
Bank has only the fifteenth position and the fourteenth position respectively, it
has a slightly better performance position in Efficiency Performance.

27
2. Conclusion.
Since the banking reforms of 1991, there have been significant favourable changes
in India‟s highly regulated banking sector. It concludes that the banking reforms
have had a moderately positive impact on reducing the concentration of the banking
sector (at the lower end) and improving performance. Allowing banks to engage in
non-traditional activities has contributed to improved profitability and cost and
earnings efficiency of the whole banking sector, including public-sector banks. By
contrast, investment in government securities has lowered the profitability and
cost efficiency of the whole banking sector, including public-sector banks. Lending
to priority sectors and the public-sector has not had a negative effect on
profitability and cost efficiency, contrary to our expectations. Further, foreign
banks (and private domestic banks in some cases) have generally performed better
than other banks in terms of profitability and income efficiency. This suggests
that ownership matters and foreign entry has a positive impact on banking sector
restructuring.

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3. Recommendations.
After stating the findings of the study it is appropriate to put forward the
following recommendations to improve the performance effectiveness of the Indian
banking sector.  Low performing banks should take every effort to improve their
quality of assets, capital adequacy, profitability, and customer service. Steps
should be taken to improve their Health Performance, Priority Performance and
Efficiency Performance.  The banks should make every endeavor to enhance customer
satisfaction. They should try to improve quality service through effective staff
training, service monitoring, orientation and recognition programs  All top and
senior executives should be placed in duly respective areas of responsibility and
should be held answerable and accountable for all that happens within their
respective areas.  The operational efficiency of the banks is to be ensured,
maintained and improved through modern technology, systems and better staff
management on a regular basis.

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Bibliography
http://kalyan-city.blogspot.in/2010/09/economic-reforms-of-banking-sector-in.html
http://pptbusiness.net/ppt/banking-system/
http://www.isrj.net/PublishArticles/515.aspx
http://www.thehindubusinessline.in/2010/03/05/stories/2010030550730800.htm
http://www.banknetindia.com/banking/rbip3a.htm http://shodhganga.inflibnet.ac.in/

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