R K SrivastavaR K Srivastava

FinancialFinancialInstitutionsInstitutions

forforRuralRural

DevelopmentDevelopment

Indian Banking sectorIndian Banking sector

Indian banking sector consists of :

Scheduled Commercial banks Regional Rural Banks Local Area Banks Urban Cooperative banks State Cooperative Banks- DCCBs,

PACS State Cooperative Agriculture and

Rural Development banks

What is banking ?What is banking ?

Section 5 (b) of BR Act says,

“Banking means the accepting, for the purpose of lending or

investment, deposits of money from the public, repayable on

demand or otherwise, and withdrawable by cheque, draft,

order or otherwise”

Major Activities of Major Activities of BanksBanksAcceptance of deposits Loaning and investmentIssuing Letter of credit, traveller’s

chequesBuying and selling of bullionProvision of safe deposit vaults/

Remittance of moneyActing as agent for government /

local authorities/ persons

Scheduled Commercial BanksScheduled Commercial Banks

Scheduled Commercial banks are those banks which are included in second schedule of RBI Act 1934

These banks have to comply with the provisions of Section 42 (6) of RBI Act.

The value of its paid up capital and reserves is not less than Rs. 5.00 lakhs

Scheduled Commercial Scheduled Commercial BanksBanks

Value means real or exchangeable value and not the nominal value which may be shown in the books of accounts

RBI is satisfied that its affairs are not conducted in a manner deterimental to the interest of depositors

Categories of Scheduled Categories of Scheduled Commercial banksCommercial banks

• 27 Public sector banks-• SBI and 6 associate banks,

• 19 Nationalized banks

• IDBI bank

• 7 New Private Sector banks–• ICICI, HDFC, Kotak Mahindra, Yes

Bank, Indusind bank, Axis bank and Development Credit bank

Categories of Scheduled Categories of Scheduled Commercial banks Commercial banks (contd..)(contd..)

• 15 Old private sector banks – prominent are Nainital Bank, Jammu and Kashmir Bank, ING Vyasa, Dhanlakshmi, Federal bank

• 31 Foreign banks – largest banks in terms of their branches in India are • Standard Chartered Bank – 90• HSBC Ltd. – 47• Citi Bank – 41

• Foreign banks are mostly operating in urban and metropolitan centers

Outreach of Scheduled CBs Outreach of Scheduled CBs as on 31.03.09as on 31.03.09

Rural Branches

Semi Urban

branches

Urban Branches

Metro ATMs

2005820058 1614616146 1476114761 1364313643 4365143651

Activities covered under Activities covered under servicesservices

Transport OperatorsComputer SoftwareTourism, hotels and restaurantsShippingProfessional servicesTrade – Wholesale ( Other than food

procurement )Retail TradeReal Estate LoansNon Banking Financial CompaniesAll other services

Personal Loans- activitiesPersonal Loans- activities

Consumer DurableHousingAdvances against FDRsAdvances to individuals against

share, bonds, etc.Credit card outstandingEducationOther personal loans

Deposits Deposits (Rs. Crore)(Rs. Crore)

Components 31.03.08 31.03.09 Growth rate

Demand deposits

442056442056 472578472578 6.466.46

Savings Deposits

744051744051 874539874539 17.5417.54

Term deposits

21339532133953 27160842716084 27.2827.28

Total 33200603320060 40632014063201 22.3822.38

Loans and advances Loans and advances (Amount (Amount in Rs. Crore )in Rs. Crore )

Purpose 31.03.0831.03.08 31.03.0931.03.09 Growth %Growth %

Food credit 4439944399 4621146211 4.084.08

Agri and allied

275343275343 338656338656 22.9922.99

Industries 866875866875 10543901054390 21.6321.63

Services 553185553185 646765646765 16.9116.91

Personal loan

507488507488 562479562479 10.8310.83

Total 22472892247289 26485012648501 17.8517.85

Highlights of performance of Highlights of performance of SCBsSCBs

• The banks’ CRAR was 13.2 % as on 31.03.09

• Deposits touched Rs. 4063203 cr. from Rs. 3320061 cr. (growth rate 22.4%)

• Loans outstanding touched Rs. 2648501 cr. from Rs. 2247289 cr. (growth rate 17.85%)

• The banks’ profits increased from Rs. 31203 cr. to Rs. 42726 cr.

Regional Rural Banks - Objective

• RRBs were established in 1975 with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans and small farmers.

RRB-HistoryRRB-History• The history of regional rural banks in

India dates back to the year 1975.

• It was the Narshimhan committee that conceptualized the foundation of Regional Rural Banks in India.

• Committee felt the need of 'regionally oriented rural banks' that would address the problems & requirements of the rural people with local feel, yet with the same level of professionalism of commercial banks.

RRBs History RRBs History (contd..)(contd..)

• RRBs were established by Commercial banks which were called Sponsor Banks.

• The share capital was contributed by Government of India, Sponsor Bank and State Government.

• Its’ authorised share capital is Rs. 5.00 crore and paid up capital is Rs. 1.00 crore.

• Five regional rural banks were set up on October 2 with a total authorized capital of Rs. 1 crore, which was later augmented to Rs. 5 crore. There were five commercial banks, viz. Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural banks.

RRBs- History RRBs- History (contd..)(contd..)

• The number of RRBs has touched 196.

• The restrictions imposed on them in the form of target group lending, restrictions on types of business to be undertaken, investments and poor recovery made these institutions sick.

• Government of India launched a restructuring programme for RRBs in 93-94.

RRBs- History RRBs- History (contd..)(contd..)

• The Government of India approved the recapitalisation of RRBs.

• Relaxations in business parameters were given.

• A Change Management Programme in the form of ODI was launched.

RRBs- History• The restructuring of RRBs gave

desired results.

• GoI accepted the recommendations of Narshiman Committee regarding adoption of prudential norms.

• Income recognition and asset classifications norms were made applicable to RRBs.

RRB- History• The advisory committee on Flow of

Credit to Agriculture & Related Activities (Vyas committee) recommended the restructuring of RRBs.

• With a view to improve the viability of RRBs and enable them to compete with other banking institutions, GOI has implemented the sponsor bank wise merger of RRBs at state level from the year 2005.

• No of RRBs is 86 as on 31.03.09.

RRB- HistoryRRB- History

• Scheme for phased recapitalisation of RRBs with negative net worth was announced in the budget for 2007-08.

• The recapitalisation process has been completed in case of 27 RRBs with an amount of Rs. 1796.00 cr.

Performance of RRBs during Performance of RRBs during 2008-092008-09

The deposits touched Rs. 120189 cr. and recorded an increase of 21%.

Loan outstanding touched Rs. 67802 cr. and recorded an increase of 15 %.

Credit Depost ratio was 56%.Net NPA of RRBs were Rs.1188.00 cr.

( 1.75% of outstanding)80 RRBs were in profit while 6 were

in loss.

Local Area BanksLocal Area Banks

• The Local Area Bank scheme was introduced in August 1996.

• The idea behind setting up new private local banks with jurisdiction over two or three contiguous districts was to help mobilisation of rural savings by local institutions and make them available for investment in local areas.

Local Area Bank

At present only 4 local area banks are functioning :

1. Capital Local Area Bank Ltd

2. Coastal Local Area Bank Ltd.

3. Krishna Bhima Samruddhi Local Area Bank Ltd.

4. Subhadra Local Area Bank Ltd.

Business Parameters Business Parameters

Sr. Sr. no.no.

ParticularsParticulars 31.03.0831.03.08 31.03.0931.03.09

1 Deposits 514514 616616

2 Advances 355355 439439

3 Profit 9.59.5 14.114.1

Present StatusPresent Status

RBI has decided not to issue new licences in respect of Local Area Banks.

Cooperative Credit Cooperative Credit Structure Structure

Cooperative Credit structure in India generally can be divided in two categories :

1. Urban Cooperative Banks

2. Rural Cooperative Credit institutions

Urban Cooperative Urban Cooperative BanksBanks

• The urban areas are served by urban cooperative banks

• These banks are divided into:

• Scheduled Scheduled

• Non –scheduledNon –scheduled

Grade wise distribution of Grade wise distribution of UCBsUCBs

UCBs are divided into 4 categories : Grade I and II are relatively stronger

banks Grade III and IV are weak and sick

banks With a view to improve the health of

Urban Cooperative Banks, a Vision Document was prepared by RBI in 2004-05 and based on feed back, a Medium Term Framework was put into place.

Medium Term FrameworkMedium Term Framework• The regulatory coordination between

the two authorities, RBI and State Government, was to be achieved by signing the MOU in each state with a view to address the problems of dual control.

• As on 20 July 2009, MOUs have been signed with 26 State governments and also with Central Government in respect of multi state UCBs.

Progress Progress • The number of UCBs declined

from 1770 in 2008 to 1721 in 2009.

• Similarly, the number of Grade III and IV banks declined from 496 in 2008 to 392 in 2009.

• The number of Scheduled UCB has remained 53 while the number of unscheduled UCBs have declined to 1668 in 2009 from 1717 in 2008.

Business Parameters as on Business Parameters as on 31.03.0931.03.09

Sr. no. Particulars (Rs.in crs. )

2008 2009 Growth rate

1 Deposits 139871139871 158733158733 13.513.5

2 Advnaces 9044490444 9791897918 8.38.3

3 Profit net 15201520 17461746 23.223.2

4 NPA 60836083 53185318 (12.57)(12.57)

Rural Cooperative Credit Rural Cooperative Credit Structure Structure

Rural cooperative credit structure can be divided into two parts : • Short term Cooperative credit

Structure – comprising of SCB, DCCB and PACS which cater to short term and medium term credit requirement of farmers.• Long term credit structure – consisting

of SCARDBs and PCARDBs- catering mainly to long term credit needs of the farmers.

Rural Cooperative Credit Rural Cooperative Credit structure as on 31.03.09structure as on 31.03.09

• Short term cooperative credit structure – 96061

- SCB (31), DCCB (371), PACS (94942)

• Long term Cooperative Credit Structure

- SCARDB (20), PCARDB ( 697)

What is PACS ?What is PACS ?

• PACS means Primary Agriculture Credit Society, the principal business of which is to provide financial accommodation to its members for agricultural purposes or purposes connected with agricultural activities (marketing of crops).

• Byelaws do not permit the admission of any other cooperative society as a member.

• DCCB which is contributing to share capital from state government funds can be a member.

Central Cooperative Central Cooperative Bank Bank

Central Cooperative bank means the principal cooperative society

in a district of a state, the primary object of which is

financing of other cooperative societies in that district.

State Cooperative bank State Cooperative bank

State Cooperative bank means the principal

cooperative society in a state, the primary object of which is

financing of other cooperative societies in the

state.

State Land Development State Land Development Bank Bank

State Land Development bank means the cooperative which is the principal land development bank ( by whatever name called ) in a state and which has as its primary object of providing long term finance for agriculture development.

Two tier and Three tier Two tier and Three tier structure structure

• In case of STCCS, both two tier and three tier structure are functioning in different states :

• Two tier means

SCB - PACS

• Three tier means

SCB – DCCB - PACS

Performance of SCB as on Performance of SCB as on 31.03.0831.03.08

Sr no.

Particulars 31.03.07 31.03.08

1 DepositsDeposits

( Rs. Crore)( Rs. Crore)4856048560 5297352973

2 AdvancesAdvances

(Rs. Crore)(Rs. Crore)4735447354 4822848228

3 ProfitProfit

( Rs. Crore)( Rs. Crore)275275 185185

4 NPANPA 67046704 61696169

Performance of SCARDB as on Performance of SCARDB as on 31.03.0831.03.08

Sr.Sr.

no. no.

ParticularsParticulars 31.03.0731.03.07 31.03.0831.03.08

11 DepositsDeposits

( Rs. Crore)( Rs. Crore)605605 645645

22 BorrowingBorrowing

( Rs. Crore)( Rs. Crore)1666216662 1548315483

33 AdvancesAdvances

(Rs. Crore)(Rs. Crore)1864418644 1821718217

44 ProfitProfit

( Rs. Crore)( Rs. Crore)8989 -247-247

55 NPANPA 56435643 62926292

Performance of DCCB as on Performance of DCCB as on 31.03.0831.03.08

Sr.Sr.

no. no.

ParticularsParticulars 31.03.0731.03.07 31.03.08 P31.03.08 P

1 DepositsDeposits

(Rs. Crore)(Rs. Crore)9452994529 102986102986

2 AdvancesAdvances

(Rs. Crore)(Rs. Crore)8903889038 9137491374

3 ProfitProfit

(Rs. Crore)(Rs. Crore)3131 -65-65

4 NPANPA 1649516495 1872818728

Performance of PCARDB as on Performance of PCARDB as on 31.03.0831.03.08

Sr Sr no. no.

ParticularsParticulars 31.03.0731.03.07 31.03.08 31.03.08 PP

11 DepositsDeposits

( Rs. Crore)( Rs. Crore)341.00341.00 331.00331.00

22 BorrowingBorrowing

( Rs. Crore)( Rs. Crore)12751.0012751.00 10206.0010206.00

33 AdvancesAdvances

(Rs. Crore)(Rs. Crore)12114.0012114.00 9529.009529.00

44 ProfitProfit

( Rs. Crore)( Rs. Crore)-147.00-147.00 -346.00-346.00

55 NPANPA 4316.004316.00 5113.005113.00

Performance of PACS as on Performance of PACS as on 31.03.0831.03.08

Sr. Sr. no. no.

ParticularsParticulars 31.03.0731.03.07 31.03.08 P31.03.08 P

1 DepositsDeposits

( Rs. Crore)( Rs. Crore)2348423484 2544925449

2 AdvancesAdvances

(Rs. Crore)(Rs. Crore)5862058620 656666656666

3 % of overdues to loan % of overdues to loan outstandingoutstanding

26.926.9 36.636.6

4 NO of societiesNO of societies 9722497224 9494294942

Revival of STCCSRevival of STCCS

Government of India appointed a Task Force under the Chairmanship of Shri A. Vaidyanathan of Madras Institute of Technology in the year 2004 to recommend an implementable action plan for reviving the RCIs, taking into consideration, interalia, main recommendations by various committees in this regard.

DETAILS OF STCCS AT THE TIME DETAILS OF STCCS AT THE TIME OF STUDYOF STUDY

112309 PACS- ACC.LOSSES RS.4595 CR

367 DCCBs- ACC.LOSSES RS.4401 CR

30 SCBs- ACC.LOSSES RS.281 CRDECLINE IN MARKET SHARE- FROM

62% IN EARLY 92-93 TO 34% IN 2002-03

PACS –MEMBERSHIP-12 CRORE- 50% BORROWING MEMBERS

RecommendationsRecommendations

REVIVAL AND REVITALSIATION COMPULSORY BOTH ON IDEOLOGICAL AND FUNCTIONAL GROUNDS

COOPERATIVES HAVE A WIDER AND DEEPER REACH IN RURAL AREAS

Salient features of Revival package

• Aims at reviving the short term RCI

• Three components

- Provide financial assistance to bring the system to an acceptable level of health

- Introduce legal, institutional reforms necessary for their democratic, self reliant and efficient functioning

- Take measures to improve the quality of management

Present statusPresent status25 state governments have signed MOU. Special Audit has been taken up in 79,822

PACS and completed in 79,530 PACS.Special Audit of CCBs has been taken up

in twelve states. Rs.7,987.60 crore has been released by

NABARD as GOI share for recapitalisation of 49,764 PACS in fourteen states, while the State Governments have released Rs.752.88 crore as their share.

Non banking Financial Non banking Financial CompanyCompany

A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or

arrangement or any other manner, or lending in any

manner is also a non-banking financial company (Residuary

non-banking company).

NBFCNBFC• A Non-Banking Financial Company (NBFC) is

a  company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

Difference betweenDifference betweenNBFCs and BanksNBFCs and Banks

NBFCs can not accept demand deposits

NBFCs are not part of payment and settlement system hence can not issues cheques drawn on itself or demand draft

Its deposits are not covered by DICGC

Types of NBFCsTypes of NBFCs

i) Asset Finance Company (AFC)

(ii) Investment Company (IC)

(iii) Loan Company  (LC)

What is an AFC ?What is an AFC ?• AFC would be defined as  any company which

is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines.

• Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

What is a Loan What is a Loan CompanyCompanyLoan company" means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an equipment leasing company or a hire-purchase finance company

What is investment companyWhat is investment company

Investment company" means any company which is a financial institution carrying on as its principal business the acquisition of securities.

Examples of NBFCs-Loan company

• Mahindra and Mahindra Financial Services Limited is one of India’s leading non-banking finance companies.

• It provides Loans For Festival Expenditure, Medical needs, Education needs, Agricultural needs, Marriage Health enhancement, Vehicle repairing and Insurance purchase etc.

Examples of NBFCExamples of NBFC

oBajaj Finance

oSKS Micro Finance

oElectronic Finance Limited – Asset Finance Co – Hire purchase or term loan

oPeerless General Finance and Investment Co.Ltd.

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