Role of Banks in Economic Development

Role of Bank in Economic Development
“ROLE OF BANKS IN ECONOMIC DEVLOPMENT”
A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce
By
RUPESH NAGYA NAIK

ROLL NO: 2455
Under the Guidance of
HARSHADA JAGTAP
KARNATAKA SANGHA' MANJUNATHA COLLEGE
OF COMMERCE,
THAKURLI (EAST)
MARCH 2020
1
CERTIFICATE
This is to certify that Mr. RUPESH NAGYA NAIK has worked and duly completed her/his
Project Work for the degree of Bachelor in Commerce (Accounting & Finance) under the Faculty of
Commerce in the subject of “ROLE OF BANKS IN ECONOMIC DEVLOPMENT” and her/his
project is entitled,
“PROF. HARSHADA JAGTAP” under my supervision.
I further certify that the entire work has been done by the learner under my guidance and that no part
of it has been submitted previously for ang Degree or Diploma of ang University.
It is her / his own work and facts reported by her/his personal findings and investigations.
Internal Examiner
External Examiner
Co-ordinator
Principal
DR. V. S. ADIGAL
Place:
Date:
2
DECLARATION
I the undersigned Mr. RUPESH NAGYA NAIK here by, declare that the work embodied in this
project work titled “ ROLE OF BANKS IN ECONOMIC DEVELOPMENT” forms my own
contribution to the research work carried out under the guidance of Asst. Prof. HARSHADA
JAGTAP is a result of my own research work and has not been previously submitted to any other
University for any other Degree / Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly indicated as such
and included in the bibliography.
I, here by further declare that all information of this document has been obtained and presented in
accordance with academic rules and ethical conduct.
RUPESH NAGYA NAIK
Certified By:
Prof. HARSHADA JAGTAP
3
ACKNOWLEDGEMENT
To list Who all have helped me is difficult because they are so numbers and the depth is so enormous
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do this project.
I would like to thank my PRINCIPAL DR.V.S. ADIGAL for Providing the necessary facilities
required for completion of this project.
I take this opportunity to thank our Coordinator PROF. HARSHADA JAGTAP for her moral
support and guidance.
I would also like to express my sincere guidance towards my project guide
PROF. HARSHADA JAGTAP for whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every persons who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.
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INDEX
Sr. ECHAPTERS Page

No. No.
1. INTRODUCTION 7 to 26
1.1 Introduction
1.2 Features/Characteristics of Bank
1.3 Function of Banks
1.4 Phase of Evolution
1.5 Role of Banks in Economics

Development
1.6 Structure of Banking Industry
1.7 Importance of Banks
2. RESEARCH METHODOLOGY 27 to 43
2.1 Introduction
2.2 Focus of the Study
2.3 Need & Relevance of the Study
2.4 Problems statement & research questions
2.5 Research Framework
2.6 Objective of the Study
2.7 Hypothesis
2.8 Research Methodology
2.9 Scheme of the Study
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3. REVIEW OF LITERATURE 44 to 60
3.1 Utility of the Study
3.2 Limitations
3.3 Review of Literatures
4. Data Analysis & Interpretations 61 to 78
5. Conclusion & Suggestions 79 to 81
6. Bibliography 82
7. Annexure 83 to 86
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CHAPTER- 1
INTRODUCTION
1.1 Introduction
1.2 Features \ Characteristics of Banks
1.3 Functions of Banks
1.4 Phases of Evolution
1.5 Role Of Banks In Economic Development
1.6 Structure of Banking Industry
1.7 Importance of Banks
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1.1 INTRODUCTION
The term Bank is very important concept in the Indian economy. The finance is the lifeblood of each
and every sector of the economy such as trade, commerce and industry. For the modern business
concerns the banking sector performs as the backbone in recent times. Growth and development of
any nation totally depends upon the banking sector. The term bank is taken from French word
‘banque’ and also the Italian word ‘banca’ both of which mean a “Bench” or “Money Exchange
Table” In earlier times, European money lenders or money charges utilized to present coins of
various countries in large quantity on benches or tables for the reason of exchanging. A bank is
nothing but a financial institution which performs with deposits and loans and other connected
services. The bank collects money from those who need to save in the form of deposits and it gives
money to those who required it.
According to the oxford dictionary defines the term Bank as “an establishment for custody of money,
which it fills out an order of customer. There is various numbers of definitions which are defined by
the different authors. Therefore, by taking into account the various definitions we may define bank
as “A Bank is a true financial institution which collects the money from one group of people and
gives to other group of people. So, bank acts as the duty of financial middleman among the people
and generate the credit money”. The banking system is nothing but the structural panel of institutions
that deal financial Services within a nation. The members of the banking system and the operations
they specifically perform consists of
1. Commercial banks that collects deposits and loans.
2. Investment banks which specialist in capital market concepts and trading.
3. National central banks that concerns currency and confirms monetary policy.
1.2 Features / characteristics of Bank
 Dealing with Money
From the general public the bank accept deposits and giving money in advance as loans to the
essential people. Bank deals with different number of various deposits namely; saving
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deposits, current deposits and etc. accounts. But on the various terms and conditions only the
deposits are accepted.
 Accepted deposits must be able to withdrawn

Other than the fixed deposits, remaining all types of deposits can be able to withdrawn able
cheques, draft or otherwise, i.e., by pay cheques and bank issue. But, usually the deposits are
withdrawn able on demand only.
 Dealing in Credit
The banks are nothing but the institutions that can generate credit i.e., generating the additional
money for the purpose of lending. So, generating the credit is the special characteristics of banking.
 Generally it is commercial
Basically with the object of generating Profit all the banking operations are carried on. So, it
is termed as commercial institutions.
 Act as agent
Along with the basic functions of banking such as accepting deposits and lending money as
loans and advances, the bank also perform the character of an agent due to its number of agency
services.
 Company / Firm / Individual

A bank may be act as a company or firm or an individual. A banking company refers as a
company which is in banking business concern.
 Number of Branches
For the facility of the customers a bank can offer various numbers of branches. Because each and
every customer is not able to go directly to the main branch of the bank, the banks further increase
their branches to reach each and every customer.
 Identity
As we know, all people deal with banks having their various names, but the word ‘bank’ is common
for all of them.
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After knowing the main features of bank, we are now focusing towards the major functions
of banks.
1.3 FUNCTIONS OF BANKS :-.
 Primary functions of Bank
 Deposits accepting
The person who is having excess earnings and fined savings it convenient to deposits the
amount into the bank. The deposited amount of money also grows along with earned interest.
Generally people are motivated to deposit much more funds when bank provides higher rate of
interest. And also, it is safe to deposits funds into the bank for people.
 Providing loans and advances

The second major function of bank is to give loans and advances to needy people. Such loans
and advances are provided to the customers and to business related community at a high rate of
interest after allowed by bank on numerous accounts of deposits. And the charged interest rate on
loans and advances are varies according to the purpose, period and repayment mode. In procedure of
discounting of bill, overdraft and cash credit, the banks provide short-term financial support.
 Secondary Functions of Bank:

Along with the Primary functions such as accepting deposits and lending loans and advances,
the bank also play various other functions these are known as secondary functions. These are
a) Granting credit letter, Cheques of travellers and circular notes etc.

b) Undertaking valuables safe custody, documents which are much important, securities by
granting safe deposit lockers.
c) Giving facilities to customers of foreign exchange.
d) Credit worthiness reports are also giving to customers.
e) Demand drafts and pay orders are also providing.
f) Gathering business information and transferring.
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g) The bank also doing payments like premium of insurance, various subscriptions, rent, and etc.
Up to the order is revoked; the bank will start to do such payments consistently by debiting the
account of customers.
h) On behalf of the customer, the banks also doing the function of purchasing and selling various
securities such as shares, bonds and debentures etc.,
i) The bank itself prepares tax returns and gives suggestions on tax related matters for their
customers.
Evolution in Banking Sector
The banking evolution in India is having very interesting history. In the ancient period human
life and wealth both was not safety. Due to fear of theft the people hide their wealth under land but
this way was not that much safety. So, the people went to in search of the custodians of wealth.
Therefore, the evolution in banking sector started and it has passed the following phases.
1.4 PHASES OF EVOLUTION :-
 First phase of Evolution

After a strong struggle the people finally succeeded in detecting the reliable persons to deposit
their own funds and very worthy goods for security. Such types of people are known as goldsmiths.
Only due to their financial condition, people considered the most confidential persons. One more
important thing that they had a very strong iron safes for putting the valuable items like gold, money
and etc., But for this purpose the goldsmiths charges some sort of money and they also returned back
the deposited their funds whenever they required. It was the first phase of evolution in banking and
in early time goldsmith were the first bankers.
 Second Phase of Evolution

During the second phase of banking evolution, those document proofs which were provided
by the goldsmiths against the worthy goods, were being used as a tool of exchange by the merchants.
Against these documentary receipts, the public purchased the number of items from traders. And the
concerned traders also started taking the receipts for the payments. Therefore, the documentary
receipts were just utilised as similar to bank cheque of the modern age.
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 Third phase of Evolution

In the third phase of banking evolution, the goldsmiths come to know that the people used their
given receipt as a medium of exchange, and therefore very few customers demand their deposits so,
they come to conclusion that they also lend some part of their whole deposits to some other customer
and then they earn some sort of profit. From this it comes to know that the goldsmiths commenced
slowly the lending business. They also commenced filling interest to attract the net cash depositors.
So that this business came to very profitable, due to this reason traders and money lenders also
reached in this field.
 Forth phase of Evolution

The fourth phase started at the period when people were much excited to deposit much more
cash of the traders, goldsmiths and the money lenders only to accrue maximum Profit. Besides this,
the number of borrowers and lenders are increased, so, the regular institutions came into existence.
In recent times the bank is modernized structure of those institutions. But to earn much more income
every bank commenced issuing overdraft without controlling adequate cash reserve to balance the
demand of the depositors. Now to control and maintain the goodwill of every bank the government
has started the central bank. All the commercial banks act their duties by keeping in mind the
instructions of the central bank.
By discussion the main four phases of evolution of banking sector we concludes that it is result
of the various functions of goldsmiths, merchants and money lenders, they are the true founder of
modern banking system. All basic general functions of modern bank like accepting deposits,
Providing loans and creation of money are similar with the founders. Presently with the fining
requirements of business the secondary functions of banks have started along with the duration of
time.
1.5 ROLE OF BANKS IN ECONOMIC DEVELOPMENT
For Indian economic development, banks plays very important role. Banks have strong hold
over a main section of the supply of money in Circulation. If the banking system of any of country
is efficient, effective and proper controlled then it results in a rapid development in the various
sections of the economy. In developing countries banks are now giving credit for growth of
agriculture and small scale industries especially in rural places and also give short as well as medium
term loans to entrepreneurs to invest in new businesses and conduct the new method of Production.
In recent days, the development of our economy also
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depends upon proper Organization of internal trade and foreign trade expansion, particularly
exports. So, policies of the banking industry affect development of economy of our nation. The
basic Sources of economic which are available for business purpose are land, labour, capital and
entrepreneurs. But, to proper use of such resources, a business needs finance for the purchase of
land, hire labour capital goods payments and also pay to in individuals with qualified special skills.
The brief role of banks for economic development of India is explained below.
 Development of Trade
The banks give technical assistance, capital and other required facilities to the businessman
with a view to meet their needs, which leads to trade development.
 Development of agricultural Sector

The banks provide finance to the most essential sector of the developing economies i.e.,
agriculture. The banks provide proper timely short term, medium term and so also long term financial
help for purchase of seeds and fertilizer, tube wells installation, warehouse construction and purchase
of tractor etc.
 Development of Industrial Sector

The countries that are much concentrated on industrial sector, those countries made full
economic development. Only with the proper help of commercial banks, the South Korea, Taiwan,
Indonesia, Malaysia and Hong Kong have currently developed their industrial sector.
 Formation of Capital
Capital formation is nothing but enhancing the number of units of production, technology and
then machinery and plant. They provide financial help to those projects which responsible for
enhancing the rate of formation of capital.
 Foreign Trade Development

The bank supports the traders of two different countries to conduct business. The credit letter
is approved by the importers bank to exporters, to fix the payment because the banks also manage
the foreign exchange.
 Money Transfer
The banks approve the facility of transferring funds from one location to another which leads
to the trade growth.
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 Increase Production
A good banking sector guarantees more production in all segments of the economy. It enhances
the production ability of the economy by updating structure of capital and division of labour.
 Transportation Development
Recently, all commercial banks financed the transport department. The main reason behind
this is, it reduces the unemployment in the country and also enhance the transport facilities.
Especially the remote areas are connected to main markets by developed transport system.
 Provide safe custody

The individuals and business firms can make themselves free totally from tension through
depositing their excess money in banks. The banks also give safe custody as lockers to keep their
valuable articles and required documents.
 Enhancing Savings of Customers

The banks motivate the public in general for more savings various saving plans and policies
with attractive rate of interest are introduced for this reason. Various numbers of bank branches are
stated in rural as well as in urban areas.
 Housing finance
The commercial banks give credit approvals to their customers for the reason of purchase or
construction of houses.
 Government Assistance
The banks provide financial assistance to government for various programs development; the
banks contribute the government for stability in economy.
 Decrease Unemployment
A nation’s economic growth depends on the development of commerce, trade, agriculture,
industry and proper effective communication, etc. and all these sections are appropriate financed by
the commercial banks and unemployment threats are decreasing.
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 Metallic Reserve Savings
It is important to note that cheques and drafts are acts like money. In this concept the
requirement of precious metals to do coins decreases and metallic reserves of the nation can be used
to other important subjects.
 Creation of Credit
Generally the banks are referred as the credit factories. They grant advances more than what
they collect from public in the form of deposits. By this process of creation of credit, the banks give
financial support to all areas of the economy, so making them much developed than earlier.
 Proper Utilisation of Money

All people in the Society deposits their surplus savings into the bank. So, the collected
deposited money becomes a large amount in the way, this can be utilised for various projects in a
proper way.
 Success in Monetary Policy

For the success of monetary policy all scheduled commercial banks do efforts only under the
effective supervision and control of central bank.
 Proper Utilisation of Modern technology

The Proper and effective utilisation of modern technology in less developed countries is just
possible in the appearance of developed commercial banking as it can be the major source of their
finance.
 Advices regarding finance

The banks along with the credit facilities also provide useful advice regarding financial matter
to promote the business of their customers.
 Promotion of export
In order to promote the country’s export, the banks have started export promotion cells for the
proper guidance to the concerned exporters.
 Economic Prosperity
The economic Prosperity of a nation largely depends upon various important factors consists
the development of commercial banking. An effective banking system supports the
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economic criteria of the people by approving them short term medium term and long term loans.
Now, it is much essential to review the banking structure in the Indian context and also with a
target to enable the banking sector to spread to the requirements of a developing and globalizing
economy as well as highlighting financial inclusion. Therefore, it is much essential to study and
point out in detail the structure of Indian Banking Industry. As per the detailed study the Indian
financial system includes an impressive network of banks and so also institutions relating to financial
nature and a large range of financial mechanisms. There has been a remarkable not ending and
deeding of financial structure of Indian economy. And the main objective of RBI is to control a
monetary equilibrium balance in the economy by structuring number of policies from time to time
and fully controlling the financial mechanism of the economy
1.6 STRUTURE OF BANKING INDUSTRY
The Structure of Indian banking industry can be organized as given below.
Reserve Bank of India [Monetary Authority]
 Commercial Banks : 1)Public Sector Banks: a) State Banks Groups

b) Other Nationalized Bank
2) Private Sector Banks: a) Indian Banks
b) Foreign Banks
 Co-Operative Banks: 1) State Co-operative Banks

2) Central Co-operative Banks
3) Primary Credit Societies
 Regional Rural Banks

 Development Banks
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Now we can discuss the above structure of banking industry in India in brief.
Reserve Bank of India
RBI controls the apex place in the Structure of Indian banking. The RBI plays various numbers
of developmental and effective promotional important functions. It undertakes wide control and
powers to manage, control and supervise the structure of banking. It acquires the valuable place in
the monetary and structure of banking of the nation. In different countries the central bank having
different names, for example, in USA it is called as Federal Reserve Bank, in UK is known as Bank
of England, etc. The RBI is having powers and authorities to frame and implement policies like
monetary and credit. And also, the RBI is undertaking monopoly authority of issuing notes.
Commercial Banks
The commercial bank are those banks, which accept deposit from customers, makes trade loans
and then also offer concerned services to various types. Such as accepting customer deposits, lending
loans to needy people and provide advances to general customers and business concerns. Such banks
functioning have to make Profit.
They spread to the financial need of industrial and other different sectors like agriculture,
development of rural, etc. it is a Profit Oriented institutions owned and managed by government or
Private or both.
Public Sector Banks
The Public Sector banks in India having a vital place in the Indian Banking structure. It
consists of SBI, 7 SBI associate banks and also 19 nationalised banks. Totally there are 27 public
sector banks in Indian banking system. And it is much important to note that 90% of total banking
business in India includes only Public sector banks. The State Bank of India occupies largest place
in Indian commercial bank in concept of volume of all commercial banks.
Private Sector Banks:
Private sector banks are nothing but those banks whose total equity is handed in private
shareholders. For example: HDFC Bank, ICICI Bank and etc. The Private Sector bank performs a
main part in the development of banking industry of India.
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Foreign Banks
The Banks whose head offices situated in abroad, such types of banks are called as foreign
banks. Such as HSBC, CITI Bank, standard chartered etc. are few names of foreign banks in India.
Co-Operative Banks
In 1904, by approving a Co-operative Act the Co-operative bank was formulated. On the basis
of Co-Operation and mutual understanding the Co-operative banks are organized, managed and
controlled. The primary objective of Co-operative bank is to give credit to rural people. In the year
1912, the Co-operative credit societies act was amended with a target to broad basing it to possible
to Organization of non-credit bases societies. The Co-operative banking includes three tier structures
namely:
a) At the apex level the state co-operative bank.

b) At district place central co-operative banks
c) The base level or local level the Primary Co-Operative banks.
Regional Rural Banks
The regional rural banks Provide credit towards development of agriculture and rural sector.
The primary objective of RRB is to upgrade economy of rural India. Their borrowers consists farmers
of small and marginal, labourers of agriculture, artists and etc. The NABARD holds the supreme
authority in the rural and agricultural development.
Development Banks and various financial institutions
A development bank is nothing but a financial institution, which gives a long term financial
help to the industries for development reason. This structure consist of banks like ICICI, IDBI, IFCI
and etc., The institutions of state level are such as SFC’s, SIDC’s etc., And this type of institutions
also includes investment institutions such as LIC, GIC and UTI etc.
After discussing the whole structure of Indian banking industry, the researcher now focuses
towards the role of Private sector banks for the development of Indian economy. Because no doubt
the Public sector banks occupy the huge place in Indian banking sector and play very important role.
They motivate the banks of public sector by indirectly through offering a strong competition to them.
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1.7 IMPORTANCE OF BANKS
 Providing high level of Professional management

The Private sector banks support in introducing high level of professional management and
concept related to marketing towards banking. It helps the banks of public sectors as also to develop
simultaneous technology and skill.
 Generates strong competition

The private sector banks give a strong competition on common efficiency degree in the system
of banking sector.
 Supports to enhance foreign Capital markets

This type of service is much easier in these days only because of the appearance of foreign
banks head offices other connected branches in an important foreign centre. In such way they support
a huge proportion in the promotion of trade and industry in the nation.
 Supports to develop innovation and reach expertise

The Private sector banks are always in try to find out new schemes, services, etc and make the
industries to reach specialist in their related fields by providing qualitative service and the guidance.
In the banking industry they innovates new technology. Thus, they connect the other banks in number
of various new areas. For example computerised operations introduction, business of credit cards,
service of ATM and etc.,
Among all top most Private sector bank is ICICI is also one. The ICICI bank is one of the most
popular private banks in India. So, the researcher undertook a study of ICICI bank for their research
work.
In the year 1955 the ICICI was formulated at the beginning of the World Bank, the government
of India and so also representatives of Indian industry. The Primary or major object to form a
developmental financial institution i.e. ICICI Bank was just mainly to provide timely medium term
and long-term financing to projects. The ICICI bank offers a large number of various banking
products and services.
The ICICI bank globally spread throughout 19 countries, consisting India. And also include
network of 2535 branches and 6810 ATMs in India. The ICICI bank limited become nation’s second
largest private sector bank, in the year December 2011, with total consolidated asset of over USD
110 billion.
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In the year 1995 the parent company was formed as a joint venture of the World Bank, India’s
public sector insurance company and so also public sector bank to assist and gives a project financing
to Indian industry. During the year 1988, the ICICI bank commenced operations related to internet
banking, among all four large banks of India, the ICICI bank is one along with state Bank of India,
Punjab National Bank and Canara Bank.
The ICICI Bank launched ‘iWish’ flexible recurring deposit product for their customers of saving
accounts. ‘iWish’ is a flexible and much interesting scheme. Which motivate and support savings
among youth by fulfilling their dreams? The ‘iWish’ recurring deposit product permits customers to
deposit their saving money at any time period of their choice and position. One more remarkable
point that no penalties will be fined if a customer misses any time their monthly contribution to the
recurring deposit with just Rs. 500, customers can easily open such type of account. In this way the
ICICI bank gives number of various customers beneficiary schemes are offering to the public in
general. Therefore, the popularity of ICICI bank was increased and became one of the top largest
banks among all the private sector banks in India. The following are the ICICI bank’s 7 points of
marketing. The marketing of services offered by ICICI bank is
Product Mix
The Product mix of ICICI bank consists of deposits, investments, anywhere banking and loans.
All these products are offered by ICICI bank in huge varieties as suit to the customer’s requirements.
Pricing Mix
When deciding the Price mix the customer services rank occupies top position.
Place Mix
Such type of content of marketing mix is connected to the offering of services. The services are
offered by the way of different branches. The two main decision making places are:
 Make it possible to reach the promised services to the end users.

 Proper selection of appropriate designation for branches of bank.
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Promotion Mix
The ICICI bank uses such type of component of the promotion mix with the prime object of
persuading, sensing and informing the customer about their various new and existing products. And
also publicity through the road shows, visits to campus, etc.
Process Mix
Only by the guidelines of RBI the all main activities of ICICI bank follows. There have been
some precautions to certain regulations, principles and rules in the operations of banking. The
activities have been grouped into number of departments namely standardisation, simplicity,
customer involvement and customization.
Physical Education
Any of services the physical education is a material part. The fact is that there are no physical
connections to a service. Therefore, a customer relates to depends on material status. The following
are few examples of physical evidence.
 Paperwork of banks
 Related broachers
 Furnishings of office /branch building
 Cards of business
 Internet connectivity
People
All people who are directly or indirectly connected with utilization of banking services. Skilful
workers, bank employees, Management of all levels and various other customers are frequently add
important worth to the offering final product and services. In the organization of bank the employees
are required the contact person with customers. So, an employee of bank acts a very significant part
in the operations and functioning of an organisation service. In the internal marketing path a
numerous operations are utilized internally as an active, service of marketing. The primary objective
of internal marketing is to motivation development and the employees’ customer seriousness. It is
one of the remarkable facts that the any of Service Company can be much successful only when
related people are in good condition. Therefore, the ICICI bank realises the requirements of
customers and so, it is leveraging technology to service customers fast and effectively.
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The following table explains the journey of ICICI bank from 1955 to 2013
Table No. 2
Year Journey
1955 ICICI was established / formed at the beginning of the World Bank, the Government
of India and representatives of Indian industry for providing medium and long term
project financing to Indian business was the main objective to create a development
financial institution.
 ICICI limited selected Mr. A Ram swami Mudaliar as the first chairman.
1956 3.5% first dividend announced by ICICI.
1958 ICICI appointed Mr. G.L. Mehta as the second Chairman.
1961 From Kredianstalt, ICICI Bank obtained the 1st West German loan of DM 5 Million.
1967 ICICI declared 1st debentures for Rs. 6 cores, which was subscribed.
1969 ICICI Bank’s first two regional offices set up in Calcutta and Madras.
1972 The 3rd Chairman of ICICI appointed as Mr. H. T. Parekha
1977 The formation of Housing Development Finance corporation sponsored by ICICI
1978 The fourth chairman of ICICI appointed Mr. James Raj.
1979 The fifth Chairman of ICICI appointed as Mr. Siddharth Mehta.
1982 In 1982, to raise European currency units ICICI became the 1st ever Indian borrower
1984 The 6th Chairman of ICICI appointed as Mr. S. Nadkarni
1985 The 7th Chairman and Managing Director appointed as Mr. W. Vaghul
1986 The Receive ADB Loans ICICI became the 1st Indian institution.
Shipping credit and Investment company of India limited promoted by ICICI.
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1987 For sterling Pound 10 million with commonwealth Development corporation

(CDC). ICICI signed a loan agreement, the first loan by CDC for financing Projects
in India.
1988 TDICI – India’s first venture capital Company promoted by ICICI.
1993 With J.P. Morgan set up the ICICI securities and Finance company limited are joint
ventured.
1994 ICICI Bank was set up in the year 1994.
1997 The Industrial Credit and Investment corporation of India Ltd., name changed as –
ICICI ltd.,
 In the year 1997 the ICICI ltd., declared the takeover of ITC classic finance.
1998 To identify a common corporate for the ICICI group the new symbolical logo is to
be introduced.
 The takeover of Anagram Finance announced by ICICI.

1999 ICICI offered retail finance as – Car Loans, house loans and loans for consumer
durables.
2000 The first commercial bank from India to list its stock on NYSE is nothing but ICIC.
 In 2000, the ICICI Bank was announced merger with Bank of Madura.
2001 In the year 2001, the merger of ICICI with ICICI Bank approved by the board of
ICICI ltd., and ICICI Bank.
2003 In Pune the first Integrated currently Management centre was launched.
 In Singapore the ICICI Bank was declared the setting up of its first ever offshore.
 In Dubai ICICI Bank’s representative office inaugurated.
 In retail credit in India ICICI Bank became the market leader.
2005 In Uttar Pradesh at Delpandarwa, Hardoi the fist rural branch and ATM were
launched.
 In terms of its market capitalization, ICICI Bank becomes the biggest bank in
India.
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 To mate a simultaneous equity offering of $K 8 billion in India, the United States

and Japan the ICICI became first Indian company.
2007 The year 2007 the Sangli Bank was collaborated / amalgamated with ICICI Bank.
2008 ICICI Bank launches their first branch in Frank fart after entering Germany
 ICICI Bank opens its first branch in New York after entering US
2009 For bill payments ICICI bank join with BSNL cell one.
2010  The ICICI bank won award as the most ‘Tech-Friendly Bank’ from Business
World
 The Managing Director and CEO of ICICI Bank awarded as the outstanding
Business Woman leader for the year 2010 from CNBC TV18.
 By trade and forfeiting Review, UK the ICICI Bank got award as ‘Best Local
Bank’
2011  By the Finance Asia, the ICICI Bank got award as “Best Foreign Exchange Bank”
 The Managing Director and CEO, of ICICI Bank won at the 10 th Asia Business
Leader Award as “Corporate Social Responsibility Award” from CNBC
2012  The ICICI bank got ranked 15th in “top service 50 Brands”
 From the Asset Triple A, the ICICI Bank awarded as “Best SME for Treasurer
and Working Capital”
2013  In the Large Enterprise category the ICICI Bank awarded winner at the Express
IT Innovation Award.
 For the Purpose of ‘Outstanding Institution Builder’ Mr. Kamat, ICICI Bank
Chairman got the award as “AIMA Managing India”.
The ICICI Bank (Industrial Credit and Investment Corporation of India] in the year 1955 registered
as a Private limited company of India. It was formulated as to support and provide assistance for
Private sector development bank also to enhance and upgrade private industrial concerns in the
nation. The following are some of main objectives to formulate ICICI Bank.
i) To provide assistance for creation, modernisation and so also expansion of concerns of private
sectors.
ii) To support the involvement in internal and external capital in the private sector.
iii) To support and assist ownership of private of industrial investment.
24
The major importance functions of ICICI Bank are as below
i) The new issues are to be underwritten and also sponsored.

ii) One more important function of ICICI bank is to give medium term and long term loans
support to industrial sector.
iii) To guarantee loans are to be undertaken by other various private sources.
iv) To provide advice related to the administrative, technical and managerial to the industrial
sector.
v) The one important function of ICICI bank is to most available funds for the purpose of
reinvestment.
vi) To provide advance loans in form of foreign currency to the imported cost of capital
equipments.
vii) It also facilitates extension of guarantee of differed payments.
viii) To provide financial assistance of buy the shares and debentures of companies of newly
formed.
 The Characteristics of ICICI Bank.

The important characteristics of the functioning of ICICI Bank are as follows.
i) The assistance related to finance as given by the ICICI bank consists rupee loans, loans of
foreign currency, shares and debentures underwriting and so also shares and debentures direct
subscription.
ii) Initially, the ICICI was started to give assistance of financial related to the industrial concerns
in private sectors. But recently, the scope of this bank has been expanded by consisting industrial
concerns in the public sector, private sector and co-operative sectors.
iii) This bank has been giving particular attention towards financing riskier and industries of the
non-traditional such as heavy engineering, petrochemicals, products of metal, and chemicals. Thus
such type of industries have mentioned for more than half of the whole assistance.
iv) The ICICI bank after some period gradually also assisting financial help to the small scale
industries and the backward areas projects.
v) With the all other financial institutions, the ICICI bank has also strongly participated in
adopting surveys to evaluate potential of industries of various states.
25
vi) The ICICI Bank also incorporated the Housing Development Finance Corporation Ltd.,
during the year 1977, to provide term loans for building and buying of residential houses.
vii) The ICICI has been giving assistance regarding leasing for modernization, schemes
replacement; conservation of energy; orientation of exports; expansion of pollution controller and
etc., Since from 1983.
viii) With concept from April 1, 1996, the shipping credit company of India Ltd was totally merged
with ICICI bank.
After focusing in detail the history of banking industry and about the ICICI Bank’s incorporation,
growth, development, functions, objectives and features of ICICI bank, now research come towards
most important concept of research study i.e. Profitability.
The measurement of Profitability is one of the most significant measures of the evaluation of success
of the business concern. Any of business entity without earning profitable cannot survive in the
economy. As a result, a business firm that is largely profitable has the capacity to refund its owners
with a huge return of their final investment. Enhancing the Profitability is one of the most remarkable
targets of the enterprise managers. The good quality manager always in touch to change the business
conditions only to improve profitability. So, these effective Profitable changes have been measured
with the help of Pro-forma income statement or a budget of Partial. And whereas a partial budget
allows the business managers to gather the influence on profitability of a small changes in the trade
before it is finally implemented.
A variety of and a large number of profitability ratios can be utilised to gather business’s financial
conditions. And such ratios are to be created from the statement of income, must be match up with
bench marks of industry. And also, with decision tool can be locked over a time of years to recognize
emerging problems. Profitability is the primary aim or object of any of business concerns. Without
the profitability, any business cannot run in long way. Therefore, the evaluation of past profitability,
current profitability and predicting the future profitability is very essential thing.
26
CHAPTER - 2
RESEARCH & METHODOLOGY
2.1 Introduction
2.2 Focus of the study
2.3 Need and relevance of the study
2.4 Problems statement and research question
2.5 Research framework
2.6 Objective of the study
2.7 Hypothesis
2.8 Research methodology
2.9 Schemes of the study
27
2.1 INTRODUCTION
A Sound Banking System is necessary for future growth of any Financial System. The Financial
Sector reforms were implemented in our Country during 1991 – 92 with an objective to improve the
efficiency of the Banking System, effective conduct of monetary policy and creation of conducive
environment to enable integration of Indian Financial System with that of the Global System.
2.2 FOCUS OF THE STUDY
The first phase of reforms has been well timed to ensure smooth transition from a highly regulated
regime to a market based system to improve operational efficiency, productivity and profitability.
Also, implementation of Prudential Norms (income recognition/asset classification/provisioning
requirements) and capital adequacy requirements formed a part of the first phase of Banking reforms.
The second generation of Banking Sector reforms in 1998 was focused on strengthening the
foundations of the entire Banking System, streamlining the processes and procedures, up-gradation
of technology, human resources development and structural changes in Banking System.
2.3 NEED AND RELEVANCE FOR THE STUDY
The Banks have made a remarkable progress in achieving their social objectives during 1980s. Before
implementation of reform measures, Indian Banking System was laden with several weaknesses like
low operational efficiency, inadequate capital base, high NPAs etc. It also faced several issues that
led to decline in productivity.
While the Indian Banking System continue to play a predominant role, it is significant
28
to note that, as a result of various reforms undertaken, the relative significance of Indian Financial
Market has also increased, which augured well for overall stability of the Indian Financial System.
The public have enormous confidence in sustainability of major Banks due to their ownership being
with Government of India. The massive expansion of The Indian Banking System, with wider
geographical coverage had resulted in certain stresses and strains like weakening of lines of
supervision and control.
The Liberalization Phase saw some reforms that had altered the organizational structure, ownership
pattern and operational domains of Indian Banks and also had infused competition in the system. The
competition has forced the Banks to reposition themselves for sustainable growth.
By and large, the studies conducted so far had confined only to the economic aspects (on profitability)
of Bank’s performance, while socio- economic factors did not receive the desired attention. Studies
were restricted to limited number of Banks, limited number of years and limited number of indicators.
Hence there is a need to undertake comprehensive study. Due to changes in Banking policies and
practices during the last 20 years of reform period, it is appropriate to evaluate the impact of reform
measures on the efficiency, profitability and overall performance of Commercial Banks in both
quantitative and qualitative aspects.
2.4 PROBLEMS STATEMENT AND RESEARCH QUESTIONS
During the last nearly two decades, the Indian Financial System is gaining momentum for a series of
changes through the means of Liberalization, Privatization and Globalization for improving the
performance of Financial System, especially Financial Markets and Financial Institutions including
Commercial Banks.
With dynamic nature of economy, intensified competition, increasing number of stressed assets,
thinning margins, higher capitalization requirements, the operating efficiency of Banks need to
improve on an on-going basis for sustainable growth. Therefore, the Banking System need to address
29
several issues and challenges to remain viable, sound and robust to absorb shocks arising at the time
of economic downturns. This requires a continuous systematic study.
Even though, large number of studies have been undertaken in India and Abroad on performance
analysis of Banks, the same is not adequate enough as the factors affecting the Banks’ performance
differs/varies from Country to Country and period
to period. Thus it calls for a continuous study to identify the factors and to suggest remedial measure.
Review and study of previous literature reveals lack of consistency in approach for performance
analysis of Banks. Hence, there is a need for more sophisticated performance evaluation measures to
be deployed to better evaluate the performance of the Commercial Banks.
An effort has been made in this Study for exploring the following major research questions:
a) Why was the reforms needed for Indian Banking System?
b) Did the implementation of the reform measures contribute towards improvement in the
financial performance of Indian Commercial Banks?
In order to deeper explore the aforesaid research questions, the Current Study has been subdivided
into several objectives and hypothesis framed thereof.
30
2.5 RESEARCH FRAMEWORK
2.5.1 Theoretical Framework including Literature

The theory applied in this study relates to Financial Management, particularly Financial Statement
Analysis, as it would facilitate financial performance analysis. The analysis of financial statements
is generally undertaken for evaluating the financial position/performance of the company, to be used
by its stakeholders such as Investors, Creditors and Managers. The outcome of analysis also helps in
predicting financial performance for future period.
Khan and Jain (2011) have defined the analysis of Financial Statements as a process of evaluating
the relationship between parts of financial statements to obtain a better understanding of the firm’s
position and its performance.
There are two broad approaches used to measure Bank performance, the Accounting Approach,
which makes use of financial ratios and secondly Econometric Techniques.
Traditionally, Accounting Methods are largely based on the use of financial ratios, which have been
employed for assessing Bank performance (Ncube, 2009).
Tarawneh (2006) in his study measured the performance of Oman Commercial Banks using
financial ratios and Banks were ranked on the basis of their performance. The findings indicated that
Bank performance was strongly and positively influenced by Operational Efficiency, Asset
Management and Bank Size.
Samad (2004) investigated the performance of seven locally incorporated Commercial Banks during
the period 1994-2001. Financial ratios were used to evaluate the Credit Quality, Profitability and
Liquidity Performances.
Bhatawdekar (2010) explains that Financial Ratio Analysis is the systematic use of ratio to interpret
the components of financial statements for evaluation of strength and weaknesses of a firm in
addition to its historical performance and present financial condition.
31
Hassan and Bashir (2005) believe that financial ratios are popular due to several reasons as they
are easy to calculate, interpret and permit comparison between the Banks.
Halkos and Salamouris (2004) conclude that financial ratios permit comparisons between the Banks
and the benchmark, which is usually the average of the industry sector.
The relevance of financial ratios underpins the fact that it reflects the Bank’s performance on a
comparative basis and also helps in inferring their financial performance specifically. There are three
types of comparison that are generally involved;
1) Trend analysis which involves comparison of the firm over the period. In other
words, it compares current position of the firm with its past performance, usually from a year to five
years.
2) Inter-firm analysis that involves comparison of the firm with others in the same
line of business or in the entire industry.
3) Last but not least, comparison with standards or industry average (Khan and Jain
2007).
Financial Ratio Analysis, enables to answer research questions and achieve the objectives.
32
2.5.2 Conceptual Framework
Conceptual framework describes the relationship between the specific variables identified in this
study. The following diagram is drawn for easy understanding of conceptual framework:
Chart 2.1 - CONCEPTUAL FRAMEWORK
No. of Employees
Total Business
Financial Branch Level Efficiency

Volum No. of Branches
Banking Performance Employee Level Efficiency
e &
Sector Analysis of Efficiency
Indian Banks Size Operating Profits to Total
Reforms
[Profitability] Assets
(ROA) Operating Expenses to
[Dependent Variable] Total Assets
Gross NPAs to Gross
Asset Quality Advances
Net NPAs to Net Advances
[Independent Variables]
33
It displays the overall objective of this study to assess the impact of Banking Sector reforms on the
Financial Performance of Public and Private Sector Banks, which is measured through Profitability
(ROA) of the Banks (dependent variable). Profitability of the Banks depends and relies upon few
performance indices (Volume and Size, Efficiency and Asset Quality), which are independent
variables.
2.6 OBJECTIVES OF THE STUDY
1. To understand the key reforms introduced in the Banking Sector.
2. To study the Financial Performance of Public and Private Sector Banks.
3. To make a Comparative Financial Performance Analysis between Public and

Private Sector Banks.
4. To study the Impact of Reforms on the Financial Performance of Banks.
2.7 HYPOTHESIS
Within the framework of the above objectives, following hypothesis have been framed and verified
during analysis:
HO1: There is no significant impact of reforms on the financial performance of the Public
and Private Sector Banks.
HO2: There is no significant co-relation between Volume and Size and Profitability
(ROA) of the Banks.
HO3: There is no significant co-relation between Efficiency (Branch Level and Employee
Level) and Profitability (ROA) of the Banks.
2.8 RESEARCH METHODOLOGY The current study is a descriptive research. Numerous approaches
have been followed in the past to measure the Banks’ performance, few of them mentioned here below:
34
a) Calculate the average cost and present it through curvature to judge the efficiency.
Such curvature would demonstrate relationship between Bank size and unit of production
b) Data Envelopment Analysis (Non-Parametric)
c) Stochastic Frontier Approach (Parametric)
In a Service Industry like Banking, it is not possible to measure physical output in absence of clear
definition. Therefore, neither of the aforesaid methods have been used for the current study.
However, the study has been conducted by using specific financial ratios to study the comparative
analysis of the PSBs and Private Sector Banks. The specific ratios are helpful in evaluating the
efficiency of Banks, which not only indicate the past trend but would predict the likely performance
in future as well. These ratios have been classified into five Performance indicators viz. Volume and
Size, Efficiency, Profitability, Asset Quality and Soundness, Growth trend and several specific
performance ratios, as listed in 2.8.4 and explained in Appendix -1, have been studied in depth to
evaluate the financial performance of Indian Banks (PSBs and PBs).The findings of the study would
be of assistance to the management of the Banks for planning their financial strategies for attaining
the set financial performance objectives and in exploring further opportunities.
In addition to the above, following statistical tools have been used to analyse the relevant data, in
SPSS 16.0, for testing the Hypothesis framed for the study:
a) Mann-Whitney U test
b) Karl Pearson Correlation Coefficient
35
The Mann-Whitney U test is used to compare differences between two independent groups when
the dependent variable is either ordinal or interval/ratio, but not normally distributed. A non-
parametric test that compares the mean values of two samples. The Mann-Whitney test can be used
to evaluate two different data populations, such as performance results from two separate production
lines, or customer survey responses taken before and after a process improvement has been
implemented.
Karl Pearson Correlation Coefficient
Pearson's correlation coefficient between two variables is defined as the covariance of the two
variables divided by the product of their standard deviations. A statistic measuring the linear
relationship between two variables in a sample and used as an estimate of the correlation in the whole
population. It not only gives an idea about the
co-variation of the two series but also indicates the direction of relationship. It ranges from +1 to -1.
Table 2.1 Karl Person’s Linear Relationship
+1 perfect positive linear

relationship
-1 perfect negative linear

relationship
0 no linear relationship
2.8.1 Description of Area (Scope) of Study

Presently, there are total86Scheduled Commercial Banks operating in our Country, as included in II
Schedule of Reserve Bank of India (RBI) Act, 1934. These Banks are grouped by the RBI as under:
36
Table 2.2 Bank Groups
State Bank of India (SBI) 1
SBI Associates 5
SBI Group (G-1) 6
Nationalized Banks (G-2) 19
Other Public Sector Bank (IDBI Bank Ltd.) 1
Public Sector Banks (PSBs) 26
Old Private Sector Banks (G-3) 13
New Private Sector Banks (G-4) 7
Private Sector Banks (PBs) 20
Foreign Banks (G-5) 40
Scheduled Commercial Banks (SCBs) 86
The study has been conducted Group-wise on PSBs (G-1 + G-2) and PBs (G-3 + G-4) Groups,
containing all the 26 Public and 20 Private Sector Banks mentioned above. G-5 containing 40 Foreign
Banks are excluded from the detailed study, as majority of their operational parameters/conditions
are in variance with other Indian Commercial Banks.
37
The period of study is in two phases: One for the period 1991-92 to 1997 – 98 (Narasimham
Committee–I) and second for the period 1998-1999 onwards (Narasimham Committee–II) till 2011–
12.
2.8.2 Selection of Banks
The present study has evaluated the performance of all the 26 Public and 20 Private Sector Banks
operating in our Country.
2.8.3 Sampling Technique
i. Sampling Unit – The Researcher has conducted the study on Scheduled

Commercial Banks, Group wise i.e. all Public Sector Banks and all Private Sector Banks (Foreign
Banks excluded from detailed study).
ii. Sample Size – The sample size for the study is both the Banking Groups (G-1
+ G-2) and (G-3 + G-4)comprising all the 26 Public and 20 Private Sector Banks mentioned above.
iii. Sampling Method – All the 26 Public and 20 Private Sector Banks among both
the Bank Groups i.e. Public Sector Banks and Private Sector Banks were taken up for study.
2.8 .4 Data Collection and Analysis
The current study has evaluated the performance of both the Banking Groups (G-1 + G-2) and (G-3
+ G-4) comprising all the 26 Public and 20 Private Sector Banks separately, which include the
following:
38
1. Volume and Size
I. No. of Employees
II. No. of Branches
III. Aggregate Deposits
IV. Aggregate Advances
V. Total Business
VI. Market Share of Group of Banks in Total Business
2. Efficiency
a) Branch Level Efficiency
i. Business per Branch
ii. Profit per Branch
b) Employee Level Efficiency
i. Business per Employee
ii. Profit per Employee
c) Operating Profits to Total Assets
d) Operating Expenses to Total Assets
3. Profitability
I. Return on Assets (ROA)
39
II. Return on equity (ROE)
III. Net Interest Margin (NIM)
IV. Other Income to Total Income
V. Credit-Deposit Ratio
4. Asset quality
I. Gross NPAs to Gross Advances
II. Net NPAs to Net Advances
5. Soundness
I. Capital Adequacy Ratio (CRAR)
II. Distribution of Banks by CRAR
2.8.5 Duration of Study
The duration of the study is three years.
2.8.6 Data Source
The study relied on the secondary data published by the following:
i. Annual Reports of the Commercial Banks
ii. Publications of Reserve Bank of India
1. Reports on Trends and Progress of Banking in India (1995-96 to 2011-12)

40
2. Report on Currency and Finance (Annual)
3. R.B.I. Bulletins (Monthly)
4. Hand Book of Statistics on Indian Economy
5. A Profile of Banks (2006-2012)
6. Statistical Tables relating to Banks in India (1979-2009)
7. Database in Indian Economy
iii. Publications of Indian Bankers Association (IBA), Mumbai
1. Database on Indian Banking (1987-98)
2. Indian Banking at a Glance (2008-2012)
3. Performance Highlights of Public Sector Banks-Various Issues
4. Performance Highlights of Private Sector Banks-Various Issues
iv. Economic Survey of Govt. of India
v. I.B.A. Bulletins (Monthly and Special Issues)
vi. Publications of Indian Institute of Banking and Finance, Mumbai
vii. Publications of National Institute of Bank Management, Pune
viii. Business Dailies and Periodicals etc.
In addition to the above, the Researcher has reviewed the following:
Journals – Indian Banker, Prajnan (NIBM), Vikalp, Vinimay, Management Research Review, Bank
Quest (IIBF), Paradigm (IMT), The Icfai Journal of Bank Management, International Journal of
Research in Commerce, Economics and Management, Asian Journal of Research in Banking and
41
Finance, International Journal of Commerce and Management, Journal of Services Research, Global
Management Review, Journal of Internet Banking and Commerce, The Journal of Indian
Management and Strategy, Journal of Applied Sciences. International Research Journal of Finance
and Economics, International Business and Economics Research Journal, The International Journal
of Finance, The International Journal of Electronic Finance, The International Journal of
Management and Business Studies, The International Journal of Productivity and Performance
Management, Journal of Economic Studies. Other journals published by Indian Bankers Association
- Mumbai (IBA Bulletin), The Bankers - New Delhi and visited the sections of the RBI site (Speech,
Archives, Publication, Statistic, Reports etc.).
Websites – www.rbi.org.in,www.cmie.com/database, www.ebsco.com,

www.emeraldinsight.com,http://j-gate.informindia.co.in/, www.iba.org.in, www.iibf.org.in,
www.Banknetindia.com, http://www.Bankingonly.com, www.nibmindia.org,
www.moneycontrol.com, www.ft.com, www.economictimes.com, www.business-standard.com,
www.thehindubusinessline.com, www.doaj.org, www.springer.com, www.wileyindia.com
Business Dailies – Economic Times, Business Standard, Business Line, etc.
The Research Methodology for the purpose of current study has been so adopted that it reflected the
realities and had helped in reaching the logical conclusion in an objective and scientific manner.
2.9 SCHEME OF THE STUDY
The study comprises of eight chapters. The First Chapter is an introductory chapter which describes
the theme of the study including Indian Banking scenario, Role of Banks in growth of Indian
economy.
Chapter Two extensively covers review of Literature for the studies that were earlier conducted in
India and abroad.
42
The Third Chapter discusses need and relevance for the study, Objectives of the study and Hypothesis
framed thereon, Research Methodology adopted, Utility of the study and Limitations of the Study.
Chapter Four is related to Reforms in Indian Banking Sector, which, inter-alia, consists of Growth
and Development of Banking-Pre and Post reform periods, Impact of reforms on Indian Banks, Post
reform gains of Indian Banking Sector.
Fifth Chapter analyses the Financial Performance of Public Sector Banks, Group- wise, SBI and
Associates (G–1) and Nationalised Banks (G-2) through some well- defined and acceptable
performance indicators, viz. Volume and Size of the Bank, Efficiency, Profitability, Asset Quality
and Soundness.
Chapter Six discusses the Financial Performance of Private Sector Banks, comprising old Private
Banks (G-3) and new generation Private Banks (G-4) in terms of above referred performance
indicators.
The Chapter Seven presents analysis of Comparative Financial Performance of Public Sector Banks
and Private Sector Banks, followed by testing of Hypothesis through various statistical tools like
Mann Whitney Test, Karl-Pearson Correlation Coefficient.
Last Chapter Eight provides Findings, Suggestions and Conclusion emanated from the study for
further improvement in performance of the Indian Banks on an on-going basis
CONCLUSION
The present study aims to analyse the financial performance of Indian Banking Sector, in general,
since introduction of reforms. Several Private Sector Banks commenced operations during the said
period, which further accelerated channelizing the savings of investors more efficiently and
effectively. A comparative analysis of PSBs and PBs will definitely help in evaluating the overall
performance of Indian Banking System.
43
CHAPTER -3
REVIEW OF LITERATURE
3.1 Utility of the Study
3.2 Limitations
3.3 Review of Literature
44
3.1 UTILITY OF THE STUDY
The outcome of the study will immensely help the Bank management to –
i. Strategize policy measures for enhancing their competitiveness and

opportunities and also to make them operate in a market – led competitive environment.
ii. To introspect how to meet the increasing peer competitive pressure by

enhancing customer orientation and increased customer focus.
iii. To shift the focus from process-based management to risk –based

management, cost reduction, introduction of innovative new products, especially fee- based
services to further improve the profitability.
3.2 LIMITATIONS
a) All the economic and scientific studies are generally faced with several
limitations and the current study is no exception to the phenomenon.
b) The basic objective of the study suffered to some extent due to inadequacy
of time series data from relevant sources. There has also been problem of sufficient
homogeneous data from different sources. Therefore, the averages have been used on certain
occasions.
c) Besides what has been discussed above, since it is a PhD report, the
Researcher did face certain problems related to resources like time and money.
45
3.3 Review of Literature
Banking is a prime mover in the economic development of a nation and research is so essential
to improve its working results. The management without any right policy is like “building a
house on sand”. It means an effective management always needs a thorough and continuous
search into the nature of the reasons for, and the consequences of organization. In line with
this, some related earlier studies conducted by individuals and institutions are reviewed to
have an in-depth insight into the problem and exploring the reformation of banking policy.
The main theme and essence of few relevant studies are presented below.
Domar and Timbergen (1946), measured the profitability of banks for the economic
development purpose and settled the theoretical framework in expanded form which was first
introduced by Jorgenson and Nishimizudin for international economic growth comparison and
development.
Sharma (1974) said, “The expansion of banking facilities was uneven and lopsided and banks
were concentrating their operations in metropolitan cities and towns. A fairly large number of
rural and semi urban centre with reasonable potentialities of growth failed to attract the
attention of commercial banks. As far as the deposit mobilization in the rural areas is
concerned, much remains to be done."This gives emphasis on the rural and semi urban growth
of banks.
Gopal Karkal(1977)’ said, “Some regions have done well in spreading the banking facilities,
while some regions have still very backward. Further, our clients are larger merchants and big
industrialists. They approach with their demand for larger loans and advances, and in return
give large business. If we transfer our limited resources to small industry, agriculture etc., how
can we increase our deposits, advances etc., and how can we survive.” As it give
emphasis on a policy of planned and systematic branch expansion laying stress
not only on opening branches in the underdeveloped and neglected areas but also in the
providing additional banking facilities to the growing metropolitan and
46
urban areas to cope with the ever-increasing requirements of trade, industry and commerce is
more desirous.
Raghupathy (1977), gave his view on the system cf banking sector that “if the objectives are
not fully achieved, the fault does not lie entirely with the bankers. The fault lies in our, not being
able to integrate all powerful instruments of development into an effective system”.
Shah (1977), gave his view regarding bank profitability and productivity. He has expressed
concern about increased expenses and overheads. Slow growth in productivity and efficiency
is due to wasteful work of the banks. He concludes that the higher profitability can be result
from increased spread and innovations have a limited role. He favored written job descriptions
for improvement of staff productivity. He also emphasized reduction of costs, creation of a
team spirit improvement in the management for improving oank profitability and productivity.
V.N. Saxena(1978),analsyed that “Improvement in the systems and procedures of inspection of

stocks, maintenance of stock register is required. Reforms should be initiated in extension of
sponsorship schemes, recovery, and consultancy”. This can be supporting tools for banks.
Desai (1978), conducted a study entitled “Measuring Staff Productivity in Bank
- A New Approach” in 1981, covering a regional office of a premier bank having 155 branches
in the region. Primary objective of the study was to detect and correct staffing imbalances.
The study emphasized on providing for the management of productivity related staff
development technique. He followed it up with another study of Patna Circle of the bank having
C07 branches, in 1982. The main objective again was to provide management with the
productivity- based technique for rational manpower development. It identified ‘Labour-
Intensive and Less Labour-Intensive’ banking sector and identified pockets of
staffing imbalances. He felt that a services industry like banking with wide variations in work
mix, a universally applicable and fully scientific formula is difficult to involve in any area of
management.
47
Divatia and Venkatachalam (1978), in their study of operational efficiency and performance.
They recognized the problems in creating such a composite index, some of which will be due to
understanding of the term: operational efficiency. This study divided the chosen indicators
into operational efficiency in terms of productivity, operational efficiency in terms of social
objectives, and profitability. The approach was taking to the approach profitability of banks
proposed to create a composite index that would explore certain indicators that would suitably
represent varied aspects of banks of PEP Committee.
Kulkarni (1979) examined his study on developmental responsibility and profitability of banks
stated that while considering banks costs and profits-social benefits arising out of bank
operations cannot be ignored. He claimed that profit maximization approach is out of place
while referring to profitability of banks. He recognized that while fulfilling the social
responsibility, banks should try to make the developing business as successful as possible, to
reduce costs, improve banking system and increase the overall productivity.
Venkatachalam (1979) give the reasons for erosion in bank profits and profitability in recent
years. This study is purely based on published figures. They argued that there is a trade-off
between social obligations to be performed by the banks and increasing profits.
Mumupilly (1980), examined the cost and profitability of commercial banks in India. The study
provides an analytical view of the trends in the components of cost of earnings of different
groups of Indians commercial banks since nationalization. The study mainly focuses on the cost
and profitability of banking industry as whole rather than individual banks.
K.S. Krishnaswam y (1980) , Chairman of the Working Group appointed by Reserve Bank of
India in his report on the ‘Role of Banks in Priority Sector Lending and the 20-Point Economic
Programme’ has suggested modifications in
the definition of priority sector lending. It also recommended that the private
48
sector commercial banks should actively participate in extending ass:stance under the priority
sector and the 20-Point Economic Programme.
Srivastava (1981), advocated the use of work measurement principle in banking to test the
efficiency by using these concepts in a simple manner. He identified other uses of work
measurement, as to adjust current staffing levels, projecting future staffing levels, justifying
overtime, determining unit cost and pricing of services, budgeting staff expenses, comparing
employee or branch performance, etc. However, practical utility of the application of work
.measurement concept in banking is questionable.
Subrahmanyam (1982) has discussed conceptual issues in productivity measurement approach

to inter-bank and inter-temporal productivity comparisons. He has highlighted some of the
conceptual issues that are faced in the Total Factor Productivity (TFP) measurement associated
with neutral technical progress. Out of a non-parametric index number app oach and a
parametric production function approach, he confined to economic implications of non-
parametric approach. He has examined particularly, the mechanics of Laspayres and Divisia
index number procedures; their affinity to linear and homogenous translong production
functions and preferred Divisia index over Laspayers index. Limitation of Divisia index and
index number approach has also been pointed out. He felt that production function approach
may be more advantageous as it can handle problems arising due to non-separability of inputs
and outputs non-constant return to scales etc. In his paper concentrating on methodological
issues involved in the measurement and comparison of productivity levels in commercial banks
at the aggregate level, has discussed the use of Kendrick, Solow,
Karkal (1982), viewed the concept of profit and profitability the factors that the volume or areas
of profit and the techniques used in profit planning. He has suggested some measures to
improve the profitability in banks through increasing the margin between lending (advances)
and borrowing (deposits) rates, improving the efficiency of staff, and implementation of a
uniform maximum
49
service charge. The study did not touch up the area of cost of banking services, and costing
exerc:ses in the banking industry.
Nayan, K. (1982) conducted study on the performance evaluation of commercial banks and
presented a performance evaluation model on the besis of important quantifiable parameters of
performance. The main conclusion were: a)the present system of ranking the banks on the basis
of aggregate deposits failed to reflect their overall achievements, b) the existing system of
performance budgeting is not suitable at branch level and c) on the basis of all the important
and quantifiable parameters of performance. An integrated performance index needs to be
developed for evaluating the perfoimance of commercial banks.
Angadi and Devraj (1983) study is mainly based on published financial statements instead of
their break-up. The authors observed that besides the social responsibilities discharged by the
public sector bank, deficiencies, ineffective mobilization of funds at lower costs; attractive
retail banking, augmenting earnings from other sources; effective cash and portfolio
management have contributed to declaration in productivity and profitability of banks.
Amandeep (1983) examined the various factors that affect the profitability of commercial
banks with the help of multiple regression analysis. The author has tried to determine the share
of each factor that determines the profitability of commercial banks. The trend analysis, ratio
analysis, multiple regression analysis has been effectively used to know the profitability of
commercial banks. The study is methodologically very sound but the coverage is too small.
Birla Institute of Scientific Research (1983) 45, conducted a study to evaluate the performance
of nationalized banks in comparison with that of banks in private sector. The emphasis of the
study was on the objectives of nationalization and their achievements, reiative performance of
private sector banks and nationalized banks since 1969 and the effect of nationalization on rest of
the banking sector. The study reveals that the growth and development in banking after
50
nationalization was not just because of transfer of ownership. It was rather because of various
incentives and punitive measures that were implemented with more vigilance and care after 1965
by the government and the Reserve Bani‹ of India to make banks fulfill their social
responsibilities. Similarly, in the same sphere, even better results were achieved by non-
nationalized banks. The performance of private sector banks in the Post-nationalization period
was noteworthy, especially because of the odds they faced in securing the growth of the
business. The achievement of significantly high growth in deposits, advances, and branches
etc. clearly showed the high quality of entrepreneurship and management of these banks.
Verghese (1983) explores the profits and profitability of Indian commercial banks in the
Seventies. It is a comprehensive study on bank’s profitability. I' provides a useful analysis of
the income statements of commercial banks during 1970-1979, but some of the concepts used
have a limited applicability Bani‹er.
Banker, Charnes and Cooper (1984), take into account the effects of returns to scale within the
group of DMUs to be analyzed. The purpose here is to point the most efficient scale size for
each DMU and at the same time to identify its technical efficiency. To do so, the Banker,
Charnes and Cooper (BCC) model introduces another restriction, convexity, to the envelopment
requirements. This model requires that the reference point on the production function of DMUs
will be a convex combination of the observed efficient DMUs. The BCC model, known as
variable returns to scale model, gives the technical efficiency of DMUs under investigation
without any scale effect. It is possible to create and estimate models that provide input-oriented
or output-oriented projection for both CCR (constant returns to scale) and BCC (variable
returns to scale) envelopment. An input-oriented model attempts to maximize the proportional
decrease in input variables while remaining within the envelopment space. On the other hand,
an output-oriented model maximizes the proportional increase in the output variables, while
remaining within the envelopment space.
51
Humprey (1985), made a useful distinction between the ‘production’ approach and the
‘intermediation’ approach to bank behavior. The production approach views bank as legal
estate loans, and installment loans, using capital, labour, and materials to do so. In this case, the
number of accounts and loans outstanding provide the appropriate measures of bank output,
and total costs include all operating costs incurred in the production of the five outputs. The
intermediation approach treats banks as collector of funds, which are then ’intermediated’ into,
loans and other assets. The dollar volume of deposit accounts and loans is the appropriate
measure of bank output under this treatment, and operating costs and interest costs provide the
appropriate measure of total cost. Which approach one chooses to adopt depends upon what
issues one is attempting to resoive. The production approach is appropriate for studying the cost
efficiency of banks since it concerns just the operating costs of banking. The intermediation
approach is concerned with the overall costs of banking and is appropriate for addressing
questions concerning the economic viability of banks.
Chakrabarthy (1986), made a modest attempt to access empirically the relative performance
of each bank in the context of three variables viz, profit, earnings and expenses. In his study,
Herfindahi index has been computed to measure the inequality in the sharing of profits, net
profits, earnings and expenses by each group of bank. The author has suggested that each
scheduled commercial bank should take up some exercise to evaluate the relative performance
of each office of the particular bank for profit planning.
Joshi (1986), has examined the various reasons for declining trends in profitability. His study
is based on published data. He has suggested profits planning both at micro and macro levels
for the banking industry to overcome the declining trends in profitability.
Gupta and Goswami (1986), in their study introduced some radical change in measurement of
profitability of commercial banks. They indicated the major cause for declining profitability as
the enormous increase in establishment costs. They pointed out that the conventional indications
are based on published profits,
52
which do not reflect the true position. They, therefore, suggested an alternative measure that is
based on the cost of mobilizing business, other things being equal elasticity of establishment
costs (per unit of business) with respect of staff strength may be used to compare the operational
efficiency (and thereby profitability) of different banks.
Godse (1987), in his essay, “Looking Afresh At Banking Productivity” observes that
productivity aspect is only at the conceptualization stage in the banking industry. He suggests
improvement in productivity through manpower aspects, system and procedures, costing of
operations, capital expenditures etc., looking into the future he observed that continued thrust
on branch expansion in rural and semi-urban areas at unbanked centres and backward districts
could result in a change in the concept of profit as a corporate objective and as the indicator of
productivity. All branches may not reach breakeven and a reduction in operational deficit can
be a measure of productivity. Godse suggested indicators of productivity that may be used at
various levels of management in bank. He further made certain suggestions regarding
improvement of productivity He expressed the view that for preparing banking industry to face
the environmental changes including changes in work technology in a systematic manner, an
integrated multi-disciplinary and tota! planning effort is necessary.
Jayanti Lal Jam stated (1987) the credit deposit ratio in Haryana (69 Per cent), Tamilnadu (76
per cent), and Andhra Pradesh (71 Per cent) is high. And every bank has some states where
credit deposit ratio is very high say 90 per cent and the other States where it may be 20. Thus,
inter-regional imbalances are quite significant in the deployment of resources mobilized by
the banks in spite of massive branch network and multiplicity of banks”.
Balakrishna (1987) gave his view on regional banking disparities. He observed that
“disparities cannot be eliminated completely because of differences in topography, population,
agricultural development, etc. If commercial banks maintain their tempo in future years also,
then these disparities can further be eliminated to a great extent”.
53
Ojha (1987), in his paper made an international comparison of productivity and profitability of
public sectcr banks of India making compafison on the basis of per employee indicators and
taking the example of State Bank of India Group and Punjab National Bank noted that Indian
banks are the lowest on all the accounts. However, such an international comparison will not be
fair for number of reasons. He also made an inter-bank/inter- country comparison by relating
per capita assets in terms of per capita income of the country concerned. However he was not
satisfied with the results. Analyzing the productivity of public sector banks he observed that
there has been substantial growth in productivity per employee since 1969, calculated at
current prices. Analysis indicated an unsatisfactory position in the case of Regional Rural
Banks (RRB) and relativeiy lower productivity in the private sector banks.
Satyamurty (1988) stressed the imperative need for improving efficiency, productivity and
customer service in banks to help them in accelerating their consolidation process. He
suggested the action points that may be paid attention. Satyamurty clarified the concepts of
profits, profitability and productivity applicable to the banking industry. It is agreed by the
bank managements that the pressure on the profitability is more due to the factors beyond their
control. He has suggested the technique of ratio analysis to evaluate the profit and profitability
performance of banks. He is of the opinion that endeavors should be made to improve the spread
performance through better funds management. In another paper, he has made an attempt to
bring out the factors generally affecting efficiency and productivity. It recognized that
business per employee and relation of average business to establishment expenses are the most
popular indicators of productivity. However, it was favoured a disaggregated approach for
measuring the efficiency and productivity of banks. It was favoured that the performance of a
bank could be assessed in the different areas of business development at a disaggregated level
in terms of profitability, income generated, costs involved and customer services. The level of
desegregation may be decided in the light of-guidelines of RBI and government of India from
time to time.
54
Subrata Sarkar(1988) , anaysed that “Present day corporate customers value efficiency highly
rather than old connections and acquaintances. A well equipped and modern bank which
functions smoothly and efficiently would be the first choice of a corporate customer. The bank
should create an image of efficiency so as to attract gooci corporate customers”.
S. Chandran (1989) , narrated that “Legal action should not be the inevitable last step in the
process, branches should be educated to evaluate this option for recovery, like any other option,
objectively before launching the same. Building up an information infrastructure at the apex
level first and at the lower tiers subsequently should be initiated”.
Ajay Maindiratta (1989) in his paper, analysis DEA, which evaluates input savings that
could have been affected by a decision-making unit, given its ohserv°d task, to inquire into
whether even greater savings would be possible if the task were to be optionally apportioned
to a numbef of smaller units. The notion of size efficiency is introduced to measure this
potential for further input reductions, and then compared and contrasted to the extent notion
of scale efficiency. The existence of a largest radically size-efficient output scale is established
as a ray property of the production frontier.
Singh (1990), has studied the productivity in the Indian Banking Industry. He has studied Intra-
bank, Inter-Bank groups and inter-bank groups productivity of public sector banks and SBI
group. He has analyzed branch productivity, per- employee productivity, and financial
parameters at constant prices. But his study does not consider nationalized banks and causes of
varying productivity in banks.
Related to the branch expansion policy, Satya Sundaram (1991) stated that, “there are still wide
disparities in spread of banking facilities regionally. The lead bank surveys at the district level
have identified a number of unbanked rural centers which have potentials for opening branch
office”.
55
Swami and Subrahmanyam (1993) emphasised on “Profitability within Public sector banks.
The study made an attempt to set benchmarks for laggards of public sector banks in terms of
performance”.
Amita Batra (1996) examined the impact of policy Constraints on the profitability of Indian
scheduled commercial banks for the period 1955-87. The profit function approach has been used
in the analysis. Previous bank profitability studies have been, in several ways, limited and confined in
their scope of enquiry to questions of either ‘operational’ or ‘technical’ efficiency The study
provides a comparative view on pre- and post-nationalization periods of Indian banking. It
indicates the importance of loans and advances in the bank asset portfolio as also of policy
variables like SLR, CRR and branch expansion in explaining bank profitability.
Mannur (1996) stated that ‘there was no further need for any policy of branch expansion; and
the expansion of branches should be primarily an internally management decision on their
assessment of the commercial prospects".
Murty (1996), has analyzed various factors that can be helpful to improve the profitability of
public sector banks. The study examines the impact of monetary policy and market interest
rates on the bank profitability and also suggests various measures to improve the
profitability of the public sector banks in India.
Ramappa’s (1996), argued, “there is nothing inherently non-viable about banking in ruralareas.
Inadequate management competence in individual bank is a majcr cause of the non-viability of
rural branches of many public sector banks.” The biggest ever-challenge that the banking
industry now faces is the phenomenon non- performing assets. However, there is nothing to
lose hope about it.
Sarker and Das (1997), compared performance public, private and foreign banks for the year 1994-95 by
using measures of profitability, productivity and financial management. They found that Public Sector Banks
compare poorly with
56
the other two categories. However, they caution that no firm inference can be derived from a
comparison done for a single year.
Abhiman Das (1997) , stated that “State bank group is more efficient that the nationalized
banks. The main source of inefficient was technical in nature, rather than allocative inefficiency
in public sector banks is due to under utilization or wasting of resources rather than incorrect
input combination. Public sector ba.nks improved +their allocative efficiency significantly in the
post liberalization period”.
Ammanayya(1997)’, analysis that branch rationalization is more relevant is the context of

achieving balanced development; and freedom will be given to the commercial banks in re-
locating branches and opening of specialized branches. As per the new policy, “Commercial
banks have opened NRI branches, recovery branches, small scale industries branches,
professional branches, agricultural finance branches, personal banking branches and so on.
Bhattacharya (1997), analysed the impact of the limited liberalization initiated before the
deregulation of the nineties on the performance of the different cat gories of banks, using
Data Envelopment analysis. Their study covered 70 banks in the period 1986-91. They
constructed one grand frontier for the entire period and measured technical efficiency of banks
under study. Under their study they found public sector banks had the highest effici=ncy.
Das(1997), compares performance among public sector banks for three years in the post-reform
period, 1992, 1995 and 1998. He enalysed a certain convergence in performance. He also find
that while there is a welcome increase in emphasis on non-interest income, banks have tended
to show risk-averse behaviour by opting for risk-free investments over risky loans”.
P.B. KuIkarni(1998) “Nationalization of banks in 1969, no doubt produced a number of

desired results but it also created a number of weaknesses and problem’s for the banks and
within the system as a whole. They are: (i) deterioration in customer service (ii) development
of a culture to please people who mattered for one’s career (iii) publishing of’ no fair view’
balance sheets to
57
avoid the stigma of shGwing losses and (iv) lack of transparency in overall operations”.
N.K. Thingalaya (1998) , “One major change observed in recent years is the process of de-
regulation of the interest rate structure by the Reserve Bank of India. This is certainly a
welcome step in improving the competitive efficiency of banks”.
Tapora(1998) with great foresight said that “Nationalisation is not the best means of achieving
a national institution”.
Rajendra Kumar Jam(1999) “The Government must get down to planning a phased
programme to remove the burden of non-performing assets from the banking sector. This
would not only increase the liquidity of the banks but will also resuit in a more effective,
albeit, slightly, costlier, credit delivery system to the priority sector”.
The Verma Committee (1999) , identified weak banks, strong banks and potential weak banks
based on the study of seven financial performance parameters. These parameters include
capital adequacy ratio, coverage ratio, return to assets, net interest margin, operating profits
to average working funds, cost to income, and staff cost to net interest income plus other
income. Accordingly, UCO Bank, United Bank of India and Indian Bank were identified as
weak banks in whose case none of the seven parameters were met. As against this, Oriented
Bank of commerce and State Bank of Patiala were identified as strong banks because they
satisfied all the parameters. But in respect of six banks, viz. Allahabad Bank, Central Bank of
India, Indian Overseas Bank, Pun jab and Sind Bank, Union Bank of India and Vijay Bank,
most of the parameters
i.e. five or six of the total seven parameters were not fulfilled. Hence, they were described as
potential weak banks.The main weakness of financial ratio analysis adopted by Verma
Committee (1999) is that the choice of a few or a single ratio does not provide enough
information about the various dimensions of performance. As a result, a bank that is poorly
managed on certain dimension may appear to be performing well- as long as it compensates
in other dimensions. Furthermore, it is a short run analysis that may be inappropriate for
describing the actual efficiency of the bank in the long run, since it fails to consider the value
of management actions and investment decisions that will affect future performance. Another
prcblem that may arise is the choice of a benchmark against which to compare a univariate or
multivariate score from ratio analysis. Also, commonly used performance ratios fail to consider
multiple outputs (services and/or transactions) provided with multiple inputs.
58
Shri M.S. Verma (1999) , Chairman, Working Group on Restructuring Weak Public Sector
Banks, Constituted by R.B.I. submitted its report in 1999. MS. Verma, suggested many
measures which include a major aspect namely weak PSBs should be allowed foi’ Public issue.
Committee(1999) on Technology Upgradation in the Banking sector, Constituted by R.B.I.

with Dr. A. Vasudevan, as Chairman submitted report in 1999. The Committee has strongly
adviced to adopt latest technology in Banking sector.
Scholten Bert (2000), stated that, ‘Competition, Growth and Performance in the Banking Industry’
examined profit performance of the banking industry in the international context, using a sample of
100 international banks over the year 1981-97.
A.Gnanadoss(2001) , highlighted “the branch expansion statistics from 1969 to 1999 with a
clear comparison of rural branch expansion with total branch expansion. The study includes
comparison of structural deposits and credits of all scheduled commercial banks from 1950 to
2000. He has compared the performance of scheduled commercial banks in priority sector
lending during 1990-2000”.
D.V.L.N.V.Prasada Rao’s (2001) study includes “Bank category wise amount of loan
given to various purposes in Belgaum district during 1997-1998. The study has listed
various organ:›sationaI, operational and co-ordinational problems
in credit support".
Kohli (2001) , emphasized on the importance of technology anissues emerging from this technology.
According to him, technology is emerging as a key-driver of business in the financial services industry. The
advancement in computing and telecommunications has revolutionized the financial industry and banking
on the net is fast catching on. As e-commerce gets transformed into e-commerce with the increasing use of
technologies like WAP, banking business is in for a major overhaul.
Kaveri (2001) examine to extend the study conducted by the Verma Committee more
specifically to ascertain whether enough signals of weakness were indicated much before the
event. The present, study considers 1998-99 as the year of event when the Verma Committee
identified weak banks, strong banks and potential weak banks. This study considers nine
efficiency parameters that are computed, based on the data collected from the Reserve Bank of
India publications. The parameters include; Capital Adequacy Ratio; Net Non- Performance
59
Assets/Net Adequacy; Net Profit/Total Assets; Gross Profit/Working Funds; Net Interest
Income/Total Assets; Interest Expended/Total Assets; Intermediation Cost/Total Assets; and
Provisions and Contingencies/Total Assets.
R.Nambirajan(2001), in his study compared gross and net Non Performing Assets of all
Public sector banks from 1998 to 2000 and could find marginal increase. The study states
that corporation bank has lowest NPAs (1.92 per cent) and Indian bank has highest NPAs
(16.18%).
Anuradha (2001), stated that “the need for the change of Indian banks and the forces behind the
change like globalization, liberalization, international trade, 11 revolution etc., The study also
highlights various consequences that are to be faced by the Indian banks if they remain
unchanged”.
60
CHAPTER – 4
DATA ANALYSIS, INTERPRETATION & REPRESENTATIONS
61
Q.1 Occupation
Particular Frequency Percentage
Student 34 87.2%
Business 2 5.1%
Services 3 7.7%
Retired 0 0%
Total 39 100%
INTERPRITATION:
87.2% of the people are student.
5.1% of the people are businessman.
7.7% of the people are servicer.
62
Q.2 Total number of year of economic development experience of bank?

Three 33 84.6%
Five 4 10.3%
Six 2 5.1%
Total 39 100%
INTERPRITATION:
84.6% of the total three year of economic development experience of bank.
10.3% of the total five year of economic development experience of bank.

5.1% of the total six year of economic development experience of bank.
63
Q.3 How would you rate the quality of banking service you currently give to your customers?
High 14 35.9%
Medium 19 48.7%
Low 2 5.1%
None of the above 4 10.3%
Total 39 100%
INTERPRITATION:
35.9% of the people are provide high rate the quality of banking service.
48.7% of the people are provide medium rate the quality of banking service.
5.1% of the people are provide low rate the quality of banking service.
10.3% of the people are not provide rates to particular banking service.
64
Q.4 Has your bank established any new development program or services?
Yes 31 79.5%
No 8 20.5%
Total 39 100%
INTERPRITATION:
79.5% of the people talk yes to bank established any new development program
or services.
20.5% of the people talk not established any new development program or
services of bank.
65
Q.5 Manual banking is more convenient than internet banking?
Yes 26 66.7%
No 13 33.3%
Total 39 100%
INTERPRITATION:
66.7% of the people are talk yes to Manual banking is more convenient than
internet banking.
33.3% of the people are talk not to Manual banking is more convenient than
internet banking.
66
Q.6 Which types of service mostly you give to your customers?
Online fund transfer 25 64.1%

Open FD 9 23.1%
Card to card fund 5 12.8%
Request a cheque book 0 0%
Total 39 100%
INTERPRITATION:
64.1% of the banks provide online fund transfer.
23.1% of the bank provide open FD.
12.8% of the bank provide card to card fund.
67
Q.7 Your bank promote economic development?

Yes 36 92.3%
No 3 7.7%
Total 39 100%
INTERPRITATION:
92.3% of the peoples are talk yes to promote economic development.
7.7% of the peoples are talk not promote economic development.
68
Q.8 Does bank have an electronic banking?
Yes 38 97.4%
No 1 2.6%
Total 39 100%
INTERPRITATION:
97.4% of the peoples talk to bank have an electronic banking.
2.6% of the peoples talk to not bank have an electronic banking.
69
Q.9 Any application forms available on website?
Yes 31 79.5%
No 8 20.5%
Total 39 100%
INTERPRITATION:
79.5% of the banks are provide any application forms available on website.
20.5% of the banks are not provide any application forms available on website.
70
Q.10 Degree of satisfaction from the service via internet comparatively to service
via banks?
High 8 20.5%
Medium 25 64.1%
Low 3 7.7%
Not at all 3 7.7%
Total 39 100%
INTERPRITATION:
20.5% of high satisfaction from the service via internet comparatively to service via banks.
64.1% of medium satisfaction from the service via internet comparatively to service via
banks.
7.7% of low satisfaction from the service via internet comparatively to service via banks.
7.7% of not at all satisfaction from the service via internet comparatively to service via
banks.
71
Q.11 Are you satisfied with your bank overall economic development role of
bank?
Yes 35 89.7%
No 4 10.3%
Total 39 100%
INTERPRITATION:
89.7% of the peoples satisfied with bank overall economic development role of
bank.
10.3% of the peoples not satisfied with your bank overall economic
development role of bank.
72
Q.12 Are you informed your customers about new economic policies?
Yes 31 79.5%
No 8 20.5%
Total 39 100%
INTERPRITATION:
79.5% of the banks informed customers about new economic policies.
20.5% of the banks not informed customers about new economic policies.
73
Q.13 Your customers agree with economic development?
Yes 37 94.9%
No 2 5.1%
Total 39 100%
INTERPRITATION:
94.9% of the banks customers agree with economic development.
5.1% of the banks not agree with economic development.
74
Q.14 Which among the following is the oldest development financial

institution of india?
IFCI 11 28.2%
IDBI 8 20.5%
ICICI 20 51.3%
Total 39 100%
INTERPRITATION:
28.2% od the peoples are IFCI following is the oldest development financial
institution of india.
20.5% of the peoples are IDBI following is the oldest development financial
51.3% of the peoples are ICICI following is the oldest development financial
75
Q.15 Co-operative development bank was set up by?
NABARD 8 20.5%
RBI 19 48.7%
SBI 12 30.8%
Total 39 100%
INTERPRITATION:
20.5% of Co-operative development bank was set up by NABARD.
48.7% of Co-operative development bank was set up by RBI.
30.8% of Co-operative development bank was set up by SBI.
76
Q.16 Which of the following is a development bank?
IFCI 16 41%
NHB 4 10.3%
ICICI 19 48.7%
Total 39 100%
INTERPRITATION:
41% of the IFCI is a development bank.
10.3% of the NHB is a development bank.
48.7% of the ICICI is a development bank.
77
Q.17 You give special benefit to your customers when development of

economy?
Yes 35 89.7%
No 4 10.3%
Total 39 100%
INTERPRITATION:
89.7% of banks provide special benefit to customers to development of economy.
10.3% of banks not provide special benefit to customers to development of economy.
78
CHAPTER 5
CONCLUSION AND SUGGESTIONS
79
CONCLUSION & SUGGESTIONS
The present study aims to analyse the financial performance of Indian Banking
Sector, in general, since introduction of reforms. Several Private Sector Banks
commenced operations during the said period, which further accelerated
channelizing the savings of investors more efficiently and effectively. A
comparative analysis of PSBs and PBs will definitely help in evaluating the overall
performance of Indian Banking System.
Banks are described as the catalyst in the economy of a nation. They discharge a
number of functions that include capital formation, investment generation thereby
providing a good and comfortable standard of living to the people. India is
considered a developing economy with abundant growth potential. In spite of growth and
progress discerned in the recent past, there are so many factors that hinder in the
economic development of the country. In India, banks are playing a pivotal role in the
economic development through creating financial infrastructure, augmenting
entrepreneurial opportunities, help in stabilisation of prices and supporting the
Government. If one looks at the banking development in India, it could be traced
back to the Vedic period where the society has some moneylenders. History repletes so
many examples of existence of banking operations for instance Kautilya’s
Aurthasastra has made a reference to creditors, lenders and lending rates. In the pre-
independence days, banking system was largely organised as joint stock companies in the
private sector. The first presidency bank in India was the Bank of Bengal
established in the year 1806. From the year 1901 to 1950, there is a foundation laid
for bringing a credible banking system in the country enacting of Reserve Bank of India
Act 1934, and Banking Regulations Act 1949 are the milestones. Establishing State Bank
of India (SBI) Group during 1950s is considered to be another milestone in the post
independence era. During this period banking has witnessed a
consolidation phase. The year 1969 can be described as a landmark in the history of Indian
Banking with the Nationalisation of 14 major scheduled banks with a clear purpose of
serving to the national priorities such as supporting agriculture, industries, export,
employment and taking banking to the backward areas.
In the year 1980, another six banks have come under the fold of nationalised banks with an
objective of taking banking to the rural areas. It is relevant to note that all thèse
80
developments in the banking sector have focussed on existence, consolidation, expansion and
aiming at society at large rather than the commercial goal. As major commercial banks are
in the fold of government, their agenda is led by the political party in power and banks were
given very less flexibility in designing their own strategies and developments. Apart from
this, nationalisation gave a blànket protection from the competition that brought in certain
lullness in the banking sector.
The year 1990 and after can be described as a breakthrough for the banking sector in
India when the Government started financial reforms accepting the concepts of
liberalisation, privatisation and globalisation. This has given the lead for rationalisation in
the economy and banking sector is not an exception to this.
81
CHAPTER-6
BIBLIOGRAPHY
A profile of banks 20011-12 RBI publications
1. https : \\ www.researchgate.net
2. https :\\ www.toppr.com
3. https :\\ www.slideshare.net
82
CHAPTER-7
ANNEXURE
ANNEXURE
83
1) Total number of years of economic development experience of bank ?
a) Three
b) Five
c) Six
2) How would you rate the quality of banking service you currently give to your
Customers?
a) High
b) Low
c) None of the above
3) Has your bank established any new development program or services?
a) Yes
b) No
4) Manual banking is more convenient than internet banking?
a) Yes
b) No
5) Which types of service mostly you give to your customers?
a) Online Fund Transfer

b) Open FD
c) Card to Card Fund
d) Request a cheque book
6) Your bank promote economic development?
a) Yes
b) No
7) Does bank have an electronic banking?
a) Yes
b) No
84
8) Any application forms available on website ?
a) Yes
b) No
9) Degree of satisfaction from the service via internet comparatively to service via
banks ?
a) High
b) Low
c) Not at all
10) Are you satisfied with your bank overall economic development role of bank?
a) Yes
b) No
11) Are you informed your customers about new economic policies ?
a) Yes
b) No
12) Your customers agree with economic development?
a) Yes
b) No
13) Which among the following is the oldest development financial institution of
India?
a) UTI
b) IDBI
c) ICICI
14) Co-operative development bank was set up by?
a) NABARD
b) RBI
c) SBI
85
15) Which of the following is a development bank?
a) IFCI
b) NHB
c) ICICI
16) You give special benefit to your customers when development of economy?
a) Yes
b) No
86

Role of Banks in Economic Development

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Role of Banks in Economic Development

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Role of Bank in Economic Development

“ROLE OF BANKS IN ECONOMIC DEVLOPMENT”

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

RUPESH NAGYA NAIK

Under the Guidance of

KARNATAKA SANGHA' MANJUNATHA COLLEGE

“PROF. HARSHADA JAGTAP” under my supervision.

RUPESH NAGYA NAIK

Prof. HARSHADA JAGTAP

I would also like to express my sincere guidance towards my project guide

Sr. ECHAPTERS Page

1.2 Features/Characteristics of Bank

1.3 Function of Banks

1.4 Phase of Evolution

1.5 Role of Banks in Economics

1.6 Structure of Banking Industry

1.7 Importance of Banks

2.2 Focus of the Study

2.3 Need & Relevance of the Study

2.4 Problems statement & research questions

2.5 Research Framework

2.6 Objective of the Study

2.8 Research Methodology

2.9 Scheme of the Study

3.1 Utility of the Study

3.3 Review of Literatures

4. Data Analysis & Interpretations 61 to 78

5. Conclusion & Suggestions 79 to 81

1.2 Features \ Characteristics of Banks

1.3 Functions of Banks

1.4 Phases of Evolution

1.5 Role Of Banks In Economic Development

1.6 Structure of Banking Industry

1.7 Importance of Banks

1. Commercial banks that collects deposits and loans.

2. Investment banks which specialist in capital market concepts and trading.

1.2 Features / characteristics of Bank

 Dealing with Money

 Accepted deposits must be able to withdrawn

 Company / Firm / Individual

1.3 FUNCTIONS OF BANKS :-.

 Primary functions of Bank

 Providing loans and advances

 Secondary Functions of Bank:

a) Granting credit letter, Cheques of travellers and circular notes etc.

Evolution in Banking Sector

1.4 PHASES OF EVOLUTION :-

 First phase of Evolution

 Second Phase of Evolution

 Third phase of Evolution

 Forth phase of Evolution

1.5 ROLE OF BANKS IN ECONOMIC DEVELOPMENT

 Development of agricultural Sector

 Development of Industrial Sector

 Foreign Trade Development

 Provide safe custody

 Enhancing Savings of Customers

 Metallic Reserve Savings

 Proper Utilisation of Money

 Success in Monetary Policy