the federal bank limited

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1

CHAPTER 1

INTRODUCTION



2

Introduction

The growing problem of poverty in our country has promoted economic

planners to come up with various programs that can help in combating it. While

most of these programs have failed to deliver the expected results, certain

innovative efforts hold out fresh hopes. One such effort is the formation of self

help groups (SHGs) for enabling the poor to participate in the process of

development. In India this approach has been extensively used by voluntary

agencies for a long time, but has been incorporated in the con ventional

development programs only in the present decade.

The credit delivery to rural people has been target orient ed and imposed on banks through government schemes. Hence it has many inherent defects and the

recovery level is very low. However credit delivery through Self help Groups is

a credit innovation program initiated by NABARD through the pilot study in

1992 and offers cost effective approaches to banks for expanding outreach to

the poor .Since groups are catered to and banks do not have to deal with

individuals, transaction cost is substantially reduced and the customer outreach

is highly expanded.

The year 2005 was declared as the international year of micro credit by the

United Nations for giving special impetus to microcredit programs throughout

the world. Micro credit can be defined as the provision of thrift, credit and other

financial services and products of very small amount to the poor in r ural, semi

urban and urban areas for enabling them to raise their income levels and to

improve their standards.

In most of the developing countries, the policies concerning microcredit,

especially in rural areas, include setting up of specialized credit related banks,

fixation of sectoral targets for credit dispensation, loans on subsidized rates etc.

In spite of the vast expansion of formal credit portfolios in our country the



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dependence of rural poor on money lenders continue in many areas, especially

for meeting emergent requirements. The credit delivery system is weakened by

poor credit discipline among borrowers resulting in low recovery of dues.

Further banks experience constrains like high transaction cost high risk due to

non availability of physical and collateral security etc, which restrict the

outreach of formal banking system to the poor.

The national bank for agriculture and rural development (NABARD) formulated

a scheme during 1991-92 extending finance to self help groups, to ove rcome the

above impediments in credit delivery and recovery and there by addressing the

economic aspirations and credit needs of the rural poor.

.



4

CHAPTER 2

RESEARCH DESIGN



5

BACKGROUND OF THE STUDY

India has the world¶s most extensive banking infrastructure. There are about

60,000 retail credit outlets of the formal banking sector comprising of 12,000

branches of district level co-operative banks , over 14,000 branches of

regional rural banks and over 30,000 rural and semi-urban branches of

commercial banks, in addition to 1,12,000 cooperative credit societies at the

village level. There is at least one retail outlet on an average for about 5,000

rural people or every 1000 households. However poor credit -deposit ratios,

unsustainable lending and high levels of nonperforming assets often cripple

much of this infrastructure.

Notwithstanding the phenomenal expansion of the outreach of the formal

banking structure and the pro-poor directed policies and programmes , the All

India Debt and Investment Survey ,1992, gave indications that the share of

non institutional agencies (informal sector) in the outstanding cash dues of the

rural households as quite as high at 36% . The main players in this sector are

traders, money lenders, friends and relatives; revolving savings and credit

associations and other neighborhood self help groups.

The credit delivery to rural people has been target oriented and imposed on the

banks through government schemes. Hence it has many inherent defects and

the recovery level is generally low. Whereas the credit delivery through self

help groups is a credit innovation program, which works on the principles of

group dynamics and peer pressure and offers cost effective approaches to

banks for expanding quality asset creation in rural areas. Since groups are

catered to and since banks do not have deal with individuals, transaction costis substantially reduced and the customer outreach is highly expanded. The

study has relevance on the impact on the rural community considering that the

focus is mainly on the rural poor, especially women and facilitates their

empowerment. The study also centers around the macro- economic objectives



6

of the growth of the country. In addition to all these, speci fic advantages to the

bank being lenders and the rural poor being the borrowers, prompted me to

take up the study.

Developments in the last two decades in the provision of financial services to

the poor, both savings and credit, have demonstrated the potential of

microcredit. Poverty is an un acceptable human condition, microfinance is an

important means to address the critical challenge of poverty; it enables the

hard core and asset less poor to access socio economic entitlements. A silent

revolution is taking place in rural areas where the poorest of rural women are

provided with collateral free micro credit for economically viable projects that

help in their empowerment. Hence a study on microcredit assumes great

significance.



7

OBJECTIVES OF THE STUDY:

The broad objectives of the study can be listed as follows :

1. To study the evolution of micro credit concept in Indian banking

scenario with particular reference to the Federal Bank Ltd.

2. To assess the awareness level of micro credit concept among the

general public and bank officials with particular reference to the

Federal Bank Ltd.

3. To assess the impact of SHG concept in credit disbursement by the

bank and the performance of loans granted under the scheme.

4.

To assess the present polices and strategies adopted by the FederalBank Ltd., in the micro credit portfolio.

5. To assess the future plans of the Federal bank Ltd in the area of

micro credit and their relationship with SHGs.

6. To assess the impact of micro credit concept in the overall lending

strategies of banks with particular reference to the federal bank Ltd.

7. To improve recovery and reduce the level of NPA, thus reducing

the credit risk of the federal bank Ltd.

8. To spread outreach of the Federal Bank Ltd with the aim of having

at least one member of a rural family to start banking operations for

other than credit needs.

9. To have an exposure to the work environment that relates to the

actual practice of banking industry with reference to the Federal

Bank Limited.



8

RESEARCH METHODOLOGY

Research design: Descriptive study is done by analyzing the SHG financing o f

Federal Bank for a period of 5 years from 2005-06 to 2009-10.

Primary data: it is proposed to collect primary data by interviewing the bank

officials, members of self help groups, voluntary agencies, nongovernmental

organizations, panchayath authorities etc.

Secondary data:

Inputs to this category will be collected from Federal bank archive by referring

to bank circulars, reports, statements, balance sheets etc. It is also collecte d

from data published by NABARD, RBI etc.

Expected contribution from the study:

It is expected that after completing the study, it will be possible to evolve

methods for

1. Reducing the cost of rural financing by the bank.

2. Improving the outreach of the bank.

3. Improving the opportunities to the bank like utilization of the SHGs for

activities like recovery, marketing of banks products etc.

4. Ensuring future quality clients to the bank in rural areas.

5. Reducing the dependence of the rural people on mo neylenders at

exorbitant rates and thus helping them to get out of the dept trap.

6. Increasing thrift and savings mentality among rural poor

7. Empowering the rural poor, towards credit discipline, improvement of

standard of living, awareness of hygiene standards and overall

community development.



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LIMITATIONS OF THE STUDY

The study has certain limitations such as

1. The period under study is limited to a time span of 5 -6 years,

depending on the availability of data and the relevance if the available

data.

2. Since most data relating to the bank is of confidential nature, full

information may not be available.

3. The time available for study is limited and hence it may not be

possible to cover all the areas in full depth.

4. Interaction with rural people may not give the complete result,

since most of the groups are informal in nature and members are

illiterate.

Since the primary data is to be collected from geographically diverse areas,

sample studies have to be resorted to and this may result in generalization of

data to some extent.



10

CHAPTER 3

PROFILE



11

INDUSTRY PROFILE

Banking in India is considered to as fairly as mature in terms of supply,

product range and reach; even though reach in rural India still remains a

challenge for the Private Sector and Foreign Banks. Even in terms of qualityof assets and capital adequacy, Indian Banks are considered to have clean,

strong and transparent balance sheets as compared to other banks. The

Reserve Bank of India in its road map for the banking industry has indicated

that the Indian market will be opened for international banks. It is expected

that many foreign banks would gain entry to Indian markets to tap the vast

potential that exists today. These banks with the help of advanced technology,

adequate capital for investment, and their customer centric approach will be

able to attract the profitable customers from existing banks. To effectively

meet the competitive challenges from such banks, Indian industry will have to

gear up and adopt the global best practices, which would make them stronger

and comparable with the international banks.

According to RBI, key monetary aggregates have witnessed some growth in

2008-09. This reflected in the changing liquidity positions arising fromdomestic and global financial conditions and policy initiatives taken by the

government. Also reserve money variations have largely reflected an increase

in currency circulation and reduction in cash reserve ratio of the banks. There

has been variation in credit expansion across bank groups. Several measures

initiated by reserve bank have resulted in banks reducing their deposit and

lending rates. The Indian banking industry has realized the critical importance

of IT based operational solutions for surviving the fierce competition to

enhance the customer base. Capital being a scarce resource in Indian banking

industry, it is necessary to increase the capital efficiency of Indian banks.

Hence Indian banks have to prepare for better management of capital risks

which would be the essence for their survival.



12

COMPANY ROFILE

THE FEDERAL BANK LIMITED

The Federal Bank Limited is one of India µs leading private sector banking ,

incorporated Linder company µs Act 1956 , and having ( more than 600

branches spread over india . The bank has a remarkable presence in the state

of Kerala where its headquarters is situated . The bank is governed by a Board

of Directors as per the Banking regulation Act 1949. The board consists of

eminent persons with practical experiences and specialized knowledge in

banking , accounting , agriculture , information technology, trade and

commerce. There are seven members in the Board including a full -time

chairman and Chief Executive Officer .The bank became a scheduled

commercial bank in 1970, which also coincided with the silver jubilee year,

since the bank commenced its operation in Aluva .

The bank became an authorized dealer in Foreign exchange in 1972 .

International Banking Department started functioning from Mumbai in

1973. Since then the bank could substantially increase in its market share of

the NRI business. The internationally Banking department was later shifted to

Cochin in 1982 as a part of consolidation and centralization of activities .

During the period 1973 to 1977 the bank adopted a massive branch expansion

program . The total number of branches reached 276 from a position of 114

in 1973 and now it has a network of more than 600 branches spread over

india . The bank has remarkable presence in the state of Kerala where its head

quarter is situated.

A board of directors appointed as per the Banking R egulation Act 1949

governs the bank. The board consist of eminent persons with practical

experiences and specialized knowledge in Banking , Accounting, Agriculture ,

Information Technology , Trade and Commerce etc . Federal bank has bagged



13

the prestigious IBA award for the best use of Information Technology in retail

banking for two consecutive years . The bank also has the unique distinction

as the first traditional bank to network all its branches and attain 100%

connectivity . There are seven members in the board including , a full time

chairman and Chief Executive Officer.

The bank is broadly guided by the policy objective of efficient and profitable

utilization of resources; risk diversified portfolios and commensurate return

for credit risks undertaken.

The bank advances credit in the retail sector , corporate sector etc and focuses

on social leading also. The bank has around 300 rural semi-urban branchesand credit extended under priority sector constituted more than 41% of the net

bank credit during the financial year 2006-07.

The steady growth in business necessitated the strengthening of its capital

base. The paid up capital was increased to 100 lakhs in 1977 from a position

of 10.66 lakhs. In 1994 the bank has gone for a public issue , which was

oversubscribed by 60 times, and now the paid up capital of the bank is Rs

21.76 crores. The bank µs business crossed Rs 10000 crore mark as on 31

march 1998 for the first time .

The bank employs nearly 7000 people in over 600 offices all over the country

with a dominant presence in the state of Kerala with more than 300 branches

and has over 400 ATMs to supplement its delivery options . Federal bank has

played a pioneering role in development and deploying new technology

related customer friendly products and services . The bank continues to be the

favorite choice for NRI¶s as is evidenced from the fact that about 40%

deposits come from the NRI segment .

The bank offers a range of treasury products , services to corporate and retail

customers in the form of derivative instruments and retail treasury products .



14

The bank is having arrangements for cash management services with various

institutions and corporate such as BSNL,LIC,ITC,Air India and HDFC and

banks like ABN AMRO , CITI BANK , HDFC Bank , ICICI Bank etc. the

bank offers other services like depository, electronic bill payments , debit

cards, co-branded credit cards , merchant banking etc.

The bank gives ample importance to the social responsibility aspect and has

been associated with many charitable or ganizations. A program branded

³Samurdhi´ is launched aiming to satisfy the banking needs of the residents of

selected villages as a part of innovations in rural banking. Ongoing research is

conducted to understand and anticipate the changing needs and exp ectations of

its customers , thereby making the bank into a financial supermarket.



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PRODUCT PROFILE

The Bank has now emerged into a financial supermarket giving the customers

a range of products and services. Apart from the entire slew of Banking

products and delivery channels bank also provide the following facilities:

y Depository Services

y Credit Cards

y Life Insurance Products in association with ICICI Prudential

y General Insurance Products in association with united India

Insurance

y Export Credit Insurance Products in association with ECGC

y Express Remittance Facility from Abroad ± FEDFAST

y Cash ±On- Line Express Cash Remittance

y Lock Box Service for NRI¶s in the US

y Cash Management Services

y Merchant Banking Services

y E-shopping Payment gateway

y BSNL Bill Payment

y Online LIC Insurance Payment

y Easy Pay ±On-line fee payment system

y Online Railway Reservation Systemy Online Kiosks for customers

The bank advances credit in the retail sector, corporate sector etc

.and focuses on social lending also . The bank is extending credit to SHGs

directly through bank linkage programme as well as through voluntary

agencies and non ± governmental organization . The bank is extending credit

to the Kudumbashree programmes set up under the Kerala State Poverty

Eradication Mission.

The bank functions from a network of branches and the branches are

controlled by the Regional Offices set up at twelve locations spread across the

country . The total business of the bank stands at Rs 36483.54 crores as on



16

march 2007 which shows a growth of 23.19% . it includes deposits of Rs

21584.44 crores and advances of Rs 14899.10 crores .

The Federal bank is a vibrant bank geared to take up the emerging

opportunities and threats in the banking industry by the capita lization on its

core competencies and smart sizing the operations thereby emerging as the

³perfect Banking Partner´.



17

PROFILE OF THE STUDY AREA

Study area

The present study is made to evolve a strategic plan for the Federal Bank

Limited to expand its credit delivery in rural areas with simultaneous

expansion in deposit mobilization and outreach. The study is based on the

SHG finance made by the bank directly and through Voluntary Agencies in

Kerala. The performance of the bank in financing to self -help groups for the

past five years in the state of Kerala is analyzed.

The profit of the Federal Bank Limited, its general performance, credit

delivery areas, lending to priority sector, agriculture, weaker sections, SHGs

etc. are touched upon in this chapter to gather a general idea on the banks

performance and interest.

The Federal Bank Limited

The total business of the bank stands at Rs.29615.21 crore as on 31 march

2010 which includes deposits of Rs.17878.74 crore and advances of

Rs.11736.47 crores. The banks registered a profit if Rs.225.21 crore during the

financial year ended 2010.

The bank offers a number of deposit products to its retail customers, in cluding

Non-resident Indians , such as savings bank accounts, current deposits, time

deposits and recurring deposits with suitable variations for customized

products targeting different groups like students, salaried employees, senior

citizens etc.

The bank offers a variety of loan products and services to corporate customers,

small and medium Enterprises and Retail customers. The pricing of loans and

advances is linked to the benchmark Prime Lending rate (PLR) of the bank,

subject to periodical reviews to protect the interest margin.



18

The special retail loan products such as housing loans, auto loans, educational

loans, personal loans, etc. that have been tailor -made to suit specific segments

constitute the bank¶s retail loans. The bank has tie -up arrangements with

agriculture machinery manufactures, SIDBI, Kerala Chamber of Commerce

and industry , rubber producers¶ co-operative societies, etc. to have strong

growth in agriculture and SME advances. The unique Federal Credit Card, is

well received in the market.

The total credit portfolio of the bank registered a growth of 33.03% during the

current fiscal 2009-10. The growth of advances under retail sector is 50%,

housing loan segment is 53%, SME segment is 31% and agricultural advances

is 123%. Standard advances constitute 95.38% of the total advances. Gross

NPA was 4.62% of gross advances and net NPA was 0.95% of net advances.

The bank offers a range of treasury products, services to corporate, and retail

customers in the form of derivative instruments and retail treasury products .

The bank is having arrangements for cash management services with various

institutions / corporates such as BSNL, LIC, ITC, Air India, HDFC etc., and

banks like ABN Amro, Citibank, HDFC bank, ICICI Bank etc. The bank

offers other services like depository, electronic bill payments, debit cards, co -

branded credit cards, merchant banking, etc.

The bank has well placed systems for integrated risk management, risk rating,

portfolio management, credit approving, loan review mechanis m etc. The

bank has formulated a separate policy for operational risk management. It has

a well-documented Asset Liability Management policy.

The bank has taken several initiatives in technology up gradation for customer

convenience. All the branches and offices of the bank are networked and offer

any where banking facilities. The customers have the opportunity to avail of

multiple channels like internet banking services, VISA enabled ATM network,



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mobile and e-mail alert service, electronic bill payment system, Tele-banking,

etc. The bank offers express remittance facility ± Fed fast- to Non Resident

Indian for inward remittance from gulf countries. It offers RTGS facility

through all its branches. The bank offers online services like payment of

BSNL bills through a e-enabled comprehensive bill presentment and payment

system, reservation of railway tickets, payment of LIC premium, etc.

There are adequate internal control systems with well -established audit and

inspection methods. The bank has adopted effective human resources practices

aiming at attracting, motivating and retaining qualified and competent

employees and consistently up grading their knowledge and skills. The bank

gives ample importance to the social responsibility aspect and has been

associated with many charitable organizations. A progrmme branded

µsamrudhi¶ is launched aiming to satisfy the banking needs of the residents of

selected villages as a part of innovations in rural banking.



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CHAPTER 4

REVIEW OF LITERATURE



21

MICRO FINANCE`

Micro financing in the global context is commonly understood to refer to

programs meant for providing credit for self employment and other

financial and business services provided to rural people to operate small or

micro enterprises , provide services work for wages or commission and other

individuals and groups working at local levels.

CONCEPT OF MICRO FINANCE

Micro credit means the credit as repeated credit provided in small measures

to suit recipients¶ requirements with a comfortable pace of payment and at an

approximate rate of interest. Micro finance is the provision of a broad range

of financial services such as:

Deposits

Loans

Payment services

Micro credit can be interpreted in a broader context as micro credit and micro

savings. The aim of micro finance is to develop habits and fi nancial vision

among the rural poor, such that they are able to save seek credit and know

several finance related aspects, and thus improve their financial positions and

living standards. The focus of micro finance is to facilitate the shift from the

induced developments.

NABARD has defined microfinance as the provision of thrift credit and

other financial services and products of very small amounts to the poor in

rural semi urban or urban areas so as to enable them to raise their level of

income standards. The satisfaction of financial need of poor clients having

little current income and no assets to use, to meet any of their financial needs,

which is of small quantity take the shape of microfinance. Therefore typical



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FEATURES OF MICRO CREDIT

The important features of micro credit are :

Loans under micro credit programs are very small ,usually

less than Rs. 50000.

Micro credit is targeted to rural and households.

Credit under microfinance follows thrift ie. Mobilizing

savings and lends the same.

Low transaction cost.

Transparency in operation.

Shorter repayment period.

Need based loan disbursement.

No collateral security needed for loans.

SOURCES OF MICRO CREDIT

Micro credit provides a wide range of financial services to the poor on a

sustainable basis and is slowly but steadily gaining popularity.

It is provided primarily through the following sources:

Formal institutions ie. cooperative banks and rural banks.

Semi formal institutions ie.. nongovernmental organizations.

Informal sources ie.. money lenders and shopkeepers.

Institutional micro credit includes credit services provided by both formal and

semi formal institutions. Micro finance institutions are those whose major

business is provision of micro finance services. Micro financing is recognized

world over as a powerful tool for raising the poor above poverty line. It is

accost effective way to help the poor ,overcome their poverty .



24

CLASSIFICATION O MICROFINANCE ORGANISATIONS

The different organisations in the field can be classified as

1. Mainstream ( Inclusive MFIs)

2. Alternative ( Exclusive MFIs).

Main stream micro finance institutions:

These institutions provide financial services to the poor :

1. National Bank for Agricultural and Rural Development(NABARD)

The micro finance initiatives by NABARD has evolved as a sustainable

social movement over a decade by now. The relevance of micro finance

program was greatly enhanced for the partners through the core strategy

of SHG bank linkage , the pilot project started in 1992 has turned into a

national movement, linking more than one million SHGs with bank

leading to socio economic empowerment of women.

2. Small Industries Development Bank of India (SIDBI)

SIDBI operates micro credit scheme 1994 . it provides bulk lending to

NGOs for on lending to SHGs or individuals by NGOs. SIDBI has

modified its approach of bulk lending to NGOs from time to time and

has emerged as a major apex financial institution in the field of micro

finance in India. The SIDBI has initiated a micro finance development

for promotion and capacity building for micro entrepreneurs .the SIDBI

foundation for micro credit(SFMC) was launched for delivering the

funds to poor people through a new focus and approach.



25

Alternative micro finance institutions:

These are institutions which have come up to fill the gap between the

demand and supply for micro finance. These institutions provide financial

services to tile poor at least at the entry level and their first time customer is

poor.

1. Non government organizations (NGOS)

2. Federation of SHGs

3. Mutually aided cooperative societies (MACS)

4. MFIs, which are organized as NBFCs.

NGOs are mainly engaged in promoting SHGs and their federations and

linking SHGs with the banks . NGOs directly lend to borrowers , who are

either organized into SHGs or into Grameen Bank style groups and centers.

Some alternative micro finance lending institutions are SEWA bank in

Gujarat, MACTs in Andhra Pradesh , MYRADA in Karnataka, and PREM in

Orissa etc..

MODELS OF MICRO FINANCE PREVAILING IN INDIA

There are two models of micro finance prevailing in India. They are

1. Direct Financing Model: In this model the bank lends to NGOs, and

NGOs promotes and imparts training to SHGs and provides credit facilities

for them.

2. Self Help Group Bank Linkage Model: In this model SHGs act as a

bridge between bankers and grass root clients. Banks transfer funds to micro

finance bodies that are responsible for disbursal and collection. The risk

completely lies with the banks. Advances to the SHGs would be reflected

in the portfolios of the banks.



26

RISK MANAGEMENT IN MICRO CREDIT

As large number of activities is conducted through SHG the quality has become

a victim of quantity mainly because of the inadequate supervisory mechanism .

Some of the risk mitigating measures in micro finance through SHG is asfollows :

Encourage short-term loans to build credit track record history.

SHG to take up restructuring exercise .

Transparency and good governance are put in place for ensuring

end use of funds.

A structured risk assessment model may be evolved to capture the

risk at least on a half yearly basis .

Quality internal audit system should be put in place and the

important needs to be explained to SHG members.

Active SHG leaders are to be identified as field official to prevent

staff turnover , but rotation of leaders should be ensured.



27

CREDIT DELIVERIES TO SHGs BY THE FEDERAL BANK

LIMITED

The finance to Self Help Groups was introduced in the bank during 1988 . The

scheme has a very slow pick up in a few pockets in the state of Kerala,

especially in Alleppy and Thiruvananthapuram districts. With the

implementations of Government sponsored schemes like swarna jayanthi

Gram Swarozgar Yojana , Swarna Jayanthi Shaha ri Rozgar Yojana and

Kudumbashree there was enhanced initiative among the bank officials and

there was acceleration in the growth of SHG finance .

DESIGN FEATURES OF THE PRODUCT-SHG FINANCE

The design features of the product ±SHG finance is examined below :

1. Small and fixed savings at frequent intervals :small and fixed savings

made at regular intervals coupled with conditions like compulssary

attendance , penal provisions to ensure timely attendance , saving ,

repayment etc forms a deterrent for the ric h to join the SHG system

thereby enables exclusion of the rich .

2. Self-selection: The members select their own members to form groups .The members residing in the same neighbourhood ensure better character

screening and tend to exclude deviant behaved ones .

3. Focus on women: As regular meetings and savings are compulssary

ingridients in the product designed , it becomes most suitable for the

women clients ± as group formations and participatory meetings is a

natural ally for the women to follow.

4. Savings first and credit later: The saving first concept enables the poor

to gradually understand the importance of saving , appreciate the nuances

of credit concept using their own money before seeking external support

(credit ) for fulfilling future needs . The poor tend to understand and

respect the terms of credit better .



28

5. Intra group appraisal systems and prioritization: Essentials of good

credit management like ( peer) appraisal for predict needs (checking the

antecedents and needs before sanction ) , (peer ) monitoring - end use of

credit ; ( peer sympathy ) re-schedulement in case of crisis and (peer

pressure ) collateral incase if willful non- payment etc all seems to coexist

in the system - making its one of the best approaches for providing

financial services to the poor .

6. Credit rationing : The approach of prioritization i.e .:meeting critical

needs first serves as a useful tool for intra ± groups lending . This ensures

the potential credit takers / uses to meticulously follow up credit already

dispensed , as future credit disbursals rely on repayments by existing

credit uses .

7. Shorter repayments terms : Smaller and shorter repayments scheduled

ensures faster recycling of funds , greater fiscal prudence in the poor and

drives away the slackness and complacency that tends to set ± in , in long

duration credit cycles.

8. Market rates of interest : self - determined interest rates are normally

market related . Sub ± market interest rates could spell doom ; distort the

use and direction of credit

9. Progressive lending : The practice of repeat loans and often ± higher

doses is followed by SHGs in their intra group loaning , thereby enticing

prompt replacements .

10. A multiple eyed operation : The operations of SHG are transacted in

group meetings thus enabling high trust levels and openness in the SHG

system . The banking transaction are also generally conducted by SHG

members facilitating openness and freedom from unfair practices .



29

SHG FINANCE IN FEDERAL BANK

The bank finances to SHGs under the 3 basic models of SHG ± banks linkage,

as follows :

1. SHGs financed directly by the bank

2. SHGs financed directly with NGO¶s facilitation

3. SHGs finance through the medium of NGO¶s

A detailed examination of the delivery of credit to Self Help Groups by the

bank under the above 3 models for the past 5 years, as the end of the financial

years of 2005-10 is made in the following pages . T he data as on 31st

march

of every year is tabulated . The year wise data under the t hree basic models of financing is tabulated in the following pages . The data relating to the finance

under the 3 basic models during the years 2005-10 is tabulated in following

pages.



30

CHAPTER 5

ANALYSIS AND INTERPRETATION



31

ANALYSIS AND INTERPRETATION

The study on delivery of credit to Self Help Groups by the Bank during the last

five years is conducted under the following sub heads:

1. Growth in finance to SHG by Bank during the last five years.

2. Market share of the Bank of the portfolio in the state of Kerala

3. Comparison of SHG finance of the Bank with other banks.

4. Recovery in SHG portfolio.

5. Growth of Savings Bank Account in connection with SHGs.

6. Share of SHG finance in Total Priority Sector Advances.

7. Share of SHG finance to Agricultural Loans

8. Comparison of SHG finance to Agricultural Loans

9. Comparison of SHG finance to Loans to Weaker Sections.

The following aspects of finance to Self Help Groups are anaylysed:

10. Awareness level of micro credit concept among Federal Bank Offi cials.

11. Use of SHGs in marketing/ servicing of banks products.

Data Source: Statements of Micro Credit of the Federal Bank Ltd.

submitted to RBI



32

GROWTH IN FINANCE TO SHG

The number of SHGs financed and the amount disbursed during the last five

years have been examined and the growth in the disbursement studied. The data

is tabulated below. A bar chart showing the comparison is plotted.

Table 1. Growth in finance to SHG during the last five yearsYEAR WISE GROWTH ±NUMBER OF LOANS DISBURSED- REGION WISE

(amount in lakhs)

Sl.no. Region 2005-06 2006-07 2007-08 2008-09 2009-10

1 Alappuzha 119 122 235 457 719

2 Ernakulam 17 48 37 181 194

3 Kozhikode 20 6 0 38 59

4 Kottayam 69 131 123 126 126

5 Pathanamthitta 19 11 5 24 54

6 Thrissur 3 19 28 25 42

7 Thiruvananthapuram 38 85 82 289 771

8 Kolkata 0 0 0 0 0

9 Bangalore 0 0 0 0 113

10 New-Delhi 0 0 0 0 0

11 Mumbai 0 0 0 0 0

12 Chennai 0 0 0 0 0

Total 285 422 510 1140 2078

YEAR WISE GROWTH ±AMOUNT OF LOAN DISBURSED- REGION WISE(amount in lakhs)

Sl.no. Region 2005-06 2006-07 2007-08 2008-09 2009-10

1 Alappuzha 58-78 37.55 143.30 605.02 412.72

2 Ernakulam 10.40 7.75 15.81 52.44 128.45

3 Kozhikode 10-81 3.50 0.00 32.13 78.88

4 Kottayam 4.75 47.84 53.44 55.44 52.49

5 Pathanamthitta 5.77 7.76 5 45.54 83.50

6 Thrissur 0.45 7.10 28 10.86 22.15

7 Thiruvananthapuram 23.61 60.03 31.45 115.86 592.078 Kolkata 0.00 0.00 0.00 0.00 0.00

9 Bangalore 0.00 0.00 0.00 0.00 3.52

10 New-Delhi 0.00 0.00 0.00 0.00 0.00

11 Mumbai 0.00 0.00 0.00 0.00 0.00

12 Chennai 0.00 0.00 0.00 0.00 0.00

Total 114.57 171.53 271.09 917.29 1373.78



33

SUMMARY-

YEAR WISE GROWT -FINANCE TO SHGs BY FE ERAL BANK

(amount in lakhs)

2005-06 2006-07 2007-08 2008-09 2009-10

No of SHGsf inanced

285 422 510 1140 2078

Amount

disbursed

114 57 171 53 271 09 917 29 1373 78

CHAR T 1

INFER ENCE

There i growth i the number of SHGs f inanced and the amount of loan

disbursed. The trend line shows marginal increase onl . For substantial growth,

the bank needs to improve the thrust on SHG f inance.

0

500

1000

1500

2000

2500

2005-06 2006-07 2007-08 2008-09 2009-10

No of SHGs financed

Amount disbursed



34

MARKET SHARE OF THE BANK IN THE PORTFOLIO IN KERALA

Cumulative number of SHGs financed and the amount of loan disbursed by

Federal Bank is compared with the total figures for Kerala as on 31 March

2010. The figures corresponding to the regions of the Bank are tabulated. Some

of the regions spread to more than one district.

Table 2. Market share of Federal Bank in SHG Finance

Region of Bank Cumulative number of SHGs financed

31 March 2010

Cumulative Amountof bank loan 31 March 2010

All Banks Federal Bank % All

Banks

Federal

Bank

%

Alappuzha 7587 1862 25% 7263 984 14%

Pathanamthitta 3648 366 10% 3688 532 14%

Ernakulam 6430 364 6% 2018 165 8%

Thiruvananthapu

ram

17986 1479 8% 9852 832 8%

Kozhikode 15421 177 1% 6428 210 3%

Kottayam 13952 172 1% 8111 70 1%Thrissur 21964 183 1% 10855 114 1%

Total 86988 4603 5% 48215 2907 6%



35

CHAR T 2

CHAR T 3. Market Share in Kerala ± SHG Finance

Cumulative Amount of loan disbursed ± as on 31 March 2010

INFER ENCE

The market share of the bank is normal. The percentage of loan disbursed when

compared with the total amount disbursed by all banks is 14% in Alleppey and

Pathanamthitta. In the rest of regions, it is less than 10%. There is much scope

for improvement.

0

5000

10000

15000

20000

25000

AllBanks

FederalBank

%

0

2000

4000

6000

8000

10000

12000

AllBanks

FederalBank

%



36

COMPARISON OF SHG FINANCE OF THE BANK WITH OTHER

BANKS.

The position of Federal Bank is compared with other banks as on 31 March

2010 and the data is tabulated below. The comparison is plotted on a pie-chart

for easy reference.

Table 3. Comparison of Performance of Federal Bank with Other Banks as on 31

March 2010

Cumulative Percentage on total for all banks

NAME OF BANK No.of

SHGs

Amount

in Lakhs

No Amount

State Bank of India 392494 204709 33.0% 29.3%

Andhra Bank 113466 84290 9.6% 12.1%

ICICI Bank 17755 41253 1.5% 5.9%

State Bank of Travancore 8719 5208 0.7% 0.7%

United Bank of India 16677 2783 1.4% 0.4%

Oriental Bank of Commerce 8132 2706 0.7% 0.4%

Dhanalakshmi Bank 5592 2514 0.5% 0.4%

Federal Bank 3060 2264 0.3% 0.3%

South Indian Bank 2155 1127 0.2% 0.2%

UTI Bank 328 200 0.0% 0.0%

Total for all commercial banks 1188040 698744



37

CHAR T 4

INFER ENCES:

The compar ison of performance with other banks shows that there is only

nominal exposure for the bank in the por tfolio.

AndhraBank

ICICIBank

Stat

Bankof Travan¡

or

Unit

dBankof India

Ori¢

ntalBankof Comm¢

r£ ¢

Dhanalakshmi Bank

FederalBank

South IndianBank

UTI Bank

Amount disbursed by selected Banks



38

R ECOVERY IN SHG POR TFOLIO OF FE ERAL BANK

The recovery position in the por tfolio for the last f ive years have been studied.

The percentage of recovery is calculated based on the data. The data is tabulated

below and is plotted as a bar char t.

Table-4 demand Vs Recovery analysis for last f ive years

2005-06 2006-07 2007-08 2008-09 2009-10

DEMAND 13 30 116 395 543

R EC¤

¥

ER ¦

13 28 111 383 517

% R EC¤

¥

ER ¦

100% 93% 96% 97% 95%

CHAR T 5

INFER ENCE

Even though the percentage of recovery have declined, the NPA with respect to

SHG lending is nil throughout the per iod under study. The recovery percentage

is almost 100% showing that this is a low r isk por tfolio.

0

100

200

300

400

500

600

2005-06 2006-07 2007-08 2008-09 2009-10

DEMAND

RECOVERY



39

GROWTH OF SAVINGS BANK ACCOUNT IN CONNECTION WITH

SHGS

The SHGs maintain their thrift savings in savings Bank accounts and all their

internal micro credit activities are routed through the SB account. Hence there

is good operation in these accounts and the group members are brought to the

banks. The group members open individual accounts for their personnel needs.

Hence the bank benefits from increase in the outreach to each and every

household in the locality. The growth in the number and amount of SB

accounts is studied in detail and a combined bar and line graph is plotted to

study in the increase.

Table 5. Year wise growth of SB a/c under SHG bank linkage programme.

Sl.

no.

Region 2005-06 2006-07 2007-08 2008-09 2009-10

No. Amount No. Amou

nt

No Amount No. Amou

nt

No Amou

nt

1 Alappuzha 821 2134 917 2717 2105 7726 1311 4337 2073 5655

2 Ernakulam 192 1415 268 1319 265 1495 908 6733 1075 5927

3 Kozhikode6 42 6 42 138 689 372 2879 515 3340

4 Kottayam 723 2356 1098 3729 1104 2770 1175 3728 1114 3749

5 Pathanamthitta 421 956 544 1512 377 964 578 5471 584 5608

6 Thrissur 61 1821 307 2086 106 564 625 2777 691 2971

7 Thiruvananthapuram 1187 4134 1257 5944 1256 4988 1849 9374 2674 46853

8 Kolkata 0 0 0 0 0 11 108 3 17

9 Banglore 0 0 0 18 63

10 New Delhi 0 0 0 0 0

11 Mumbai 0 0 0 0 0

12 Chennai 0 0 0 0 0

TOTAL 3411 12858 4397 17349 5351 19196 6829 35407 8747 74183



40

Yearwise growth-savings accounts under SHG f inance

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Number 3411 4397 5351 6829 8747

Amount 12858 17349 19196 35407 74183

INFER ENCE

There has been appreciable increase in savings bank accounts in connection

with SHG f inance and the growth in the amount in SB Accounts is more than

50% dur ing 2009-10

0

10000

20000

30000

40000

50000

60000

70000

80000

2005-06 2006-07 2007-08 2008-09 2009-10

Number

Amount



41

SHAR E OF SHG FINANCE IN NET BANK CR E IT OF BANK .

The amount of credit in the SHG f inance in the Net Bank Credit of the bank is

analysed for the last f ive years. The share of SHG f inance is expressed as a

percentage of the Net Bank Credit. The data is tabulated below and plotted as a

bar-char t showing the growth in percentage.

Table 6 Finance to SHGs Vs Net Bank Credit

2005-06 2006-07 2007-08 2008-09 2009-10

NET BANK CR EDIT 261975 463993 640917 789590 1069319

SHG LOANS 93 206 321 975 2266

% 0.04% 0.04% 0.05% 0.12% 0.21%

Chart-7

INFER ENCE:

There is increase in the cumulative share of SHG over the years even though

nominal. The share is 0.21% of the NBC in 2010.

0

200000

400000

600000

800000

1000000

1200000

2005-06 2006-07 2007-08 2008-09 2009-10

NET BANK CREDIT

SHG LOANS



42

SHG FINANCE COMPAR E WITH TOTAL PRIORITY SECTOR

LOANS

The amount of credit delivered in SHG sector has been compared with the Total

Pr ior ity Sector advances of the Bank. The percentage share is worked out based on

the data. The data is tabulated below and expressed as a bar-char t with percentage

line.

Table 7 SHGs vs Total Priority Sector Loans-last 5 years

2005-06 2006-07 2007-08 2008-09 2009-10

TOTAL PR IOR ITY SECTOR LOANS 167507 202672 249391 319371 443076

SHG LOANS 93 206 321 975 2266

% 0.06% 0.10% 0.13% 0.31% 0.51%

INFER ENCE:

The share of SHG in total Pr ior ity Sector Advances has been increasing

nominally and the percentage is 0.51% dur ing 2010.

0

100000

200000

300000

400000

500000

2005-062006-07

2007-082008-09

2009-10

TOTAL PRIORITY SECTOR LOANS

SHG LOANS



43

COMPARISON OF SHG FINANCE TO AGRICULTURAL LOANS

The credit disbursals to SHGs have been compared with Agr icultural Loans for

the last f ive years to analyze the potential of expansion in the agr icultural

por tfolio. The data is tabulated below and expressed as a bar-char t.

Table 8 SHG f inance Vs Agricultural Loans

2005-06 2006-07 2007-08 2008-09 2009-10

AGR IC§

LTUR AL LOANS 36097 36915 50008 68433 147035

SHG LOANS 93 206 321 975 2266

% 0.26% 0.56% 0.64% 1.42% 1.54%

Chart -10

INFER ENCE :

The loans to SHGs have been increasing and the percentage of SHG loans to

Agr icultural Advances is 1.54% as on 31 March 2010.

0

50000

100000

150000

2005-062006-07

2007-082008-09

2009-10

AGRIC̈ LTURAL LOANS

SHG LOANS



44

COMPARISON OF SHG FINANCE TO LOANS TO WEAK ER

SECTIONS.

The SHG f inance is compared with the credit given to weaker sections of the

society since the SHG f inance star ted as a hel ping hand to the weaker sections.

Table 9 SHG vs Loans to weaker sections-last 5 years

2005-06 2006-07 2007-08 2008-09 2009-10

LOAMS TO WEAKER SECTIONS 22096 22891 23686 64144 76414

SHG LOANS 93 206 321 975 2266

% 0.42% 0.90% 1.36% 1.52% 2.97%

CHAR T 10

INFER ENCE : The percentage of SHG loans to that towards weaker sections

have been increasing. But the share is nominal at around 3% on 31 March2010.

0

20000

40000

60000

80000

2005-062006-07

2007-082008-09

2009-10

LOAMSTO WEA© ERSECTIONS

SHG LOANS



45

AWARENESS LEVEL OF MICRO CREDIT CONCEPT AMONG

FEDERAL BANK LIMITED

Around seventy percent of the branches of the Bank are located in rural/semi

urban areas and there is enormous potential for the Bank in the portfolio.

However , the exposure of the Bank in SHG finance is nominal and confined

to centers like Alleppey , Thiruvananthapuram , Pathanamthitta and

Eranakulam districts of Kerala.

However , the need for exposure has been identified by the bank and steps

have been initiated for improving the awareness level of the officials at

various levels.

The following steps have been taken in this respect :

1. Bank issues circulars to the branches/ offices providing details of

instructions to be followed , RBI guidelines , NABARD guidelines etc.

2. Bank sends three managers / officials of potential branches for the

training programs at external institutions like Regional Training Centre ,

NABARD , National Institute of Banking Management, Pune , Bankers

Institute of Rural Development , Lucknow , College of Agricultural

Banking , Pune etc.

3. Bank gives training to managers / officials of potential branches at

bank¶s own training college .

4. Bank conducts contact programmes with the NGOs promoting self help

groups, with the participation of group members.

Further and continuing efforts are required for imparting knowledge to theofficials of the bank to improve their awareness level about the opportunity

available and the procedures to be followed for successful implementation of

the schemes .



46

USE OF SHGs IN MARKETING /SERVICING OF BANK¶S

PRODUCTS

The bank formulated a scheme for utilizing the services of SHGs for the

routine functioning of bank¶s branches , during 2005 . SHGs with good track

recovers are appointed as agents on commission basis for

1. Selling various products of the bank

2. Collecting loan installments from customers

3. Rendering value added services to deposit clients like collection of

cheques , delivery of demand draft, cash , cheque books ,registering for

debit cards , internet banking and other technology enabled products etc.

4. Selling of insurance products of companies with whom the bank has

corporate agency arrangements .

5. Collection of utility bill payments

6. Distributing the brochures/pamphlets/notices on various deposit /loan

schemes of the bank.

Detailed instructions are provided to branches and Regional Offices of the

bank for implementing the scheme.

However, there has been very slow progress in the implementation of the

scheme. The reasons for the slow pick up of the scheme can be attributed to

the slow growth in SHGs. Even in areas where SHG finance is growing , the

formal utilization of the groups by the branches have not improved .

More thrust is required at Regional levels for implementation of the scheme

and regular follow up for effectively utilizing the services of the groups for the

benefit of the bank.



47

LIMITATIONS AND CONSTRAINTS

The present study is made on the Self Help financing of The Federal Bank

Limited for analyzing the position of the bank in the scheme of finance and the

advantages for the bank in extending the finance.

a. The study mainly focuses on the opportunity available to The Federal

Bank Limited for expanding thrust in extending finance to Self Help Groups

and hence is limited to the macroeconomics of the finance. The operation of

the scheme and the performance at the branch level has not been examined.

b. The scope of study is limited to a period of five years from 2005-10.

c. The data available is vast in nature and hence detailed analysis of all

related aspects has not been possible. The study had to be focused on a very

small spectrum, giving thrust to the analysis of the present position of the

bank.

d. The data for the study has been obtained from the published reports of

NABARD, RBI and the bank and the study is based on the same.

e. The data of the bank is collected from the head office of the bank where it

has been complied after collecting from the branches / offices. There arechanges that the accuracy may be affected during reporting by branches and

compiling at head office.

f. The collection of data is restricted to the requirements of reporting to

Reserve Bank of India, NABARD, etc. and the utility of the data to the bank

is inadequate.

g. The rational conclusions made in the study are based on personal

interaction with the officials of the bank, the voluntary organizations, the

members of the group, and are not quantifiable.

h. The continued patronage of NABARD and the support from the central

and state governments are inevitable elements for the existence and

sustainability of the groups and the scheme of finance. The viability and the



49

CHAPTER 6

FINDINGS AND SUGGESTIONS



50

FINDINGS AND SUGGESTIONS

Micro Finance, the provision of a wide range of financial services to the

poor on a sustainable basis, has proved to be immensely valuable. Access to

financial services has allowed many families throughout the developingworld to make significant progress in their own efforts to escape poverty. In

recognition of the potential of the micro finance to address the diverse

aspects of poverty, the United Nations launched the International year of

micro credit 2005. In the words of Mr. Kofi Annan, then UN secretary

general ³The importance of micro finance is identified as an integral part of

our collective effort to meet the Millennium Development Goals. The

challenge before us is to address the constrains that exclude people from full

participation in the financial sector´. The importance of microfinance and

the relevance of participation in the process by the banks globally in the

evident from these words.

In the light of the forgoing study and analysis, summary of the findings is

listed and a few conclusions are made.

FINDINGS

1. The number of loans disbursed under SHG finance by Federal Bank as on

31 March 2005 was 285 and it increased to 422 in 2006, 510 in 2007, 1140

in 2008 and 2078 in 2009 . The amount of loan disbursed was 114.57 lakhs

in 2006, 171.53 lakhs in 2007, 271.09 lakhs in 2008, 917.29 lakhs in 2009

and 1373.78 lakhs in 2010

2. The market share of the bank taking into consideration the cumulative

amount of loan disbursed as on 31 March 2010 was 14% in Alleppy and

Pathanamthitta regions, 8% in Ernakulam and Trivandrum reg ions, 3% in

Kozhikode region and 1% each in Kottayam and Thrissur regions in the state

of Kerala



51

3. A comparison of the performance of SHG finance by Federal Bank with

some other banks shows that the bank has a nominal share of 0.30% in the

sector of finance on a national level, while the state bank of India holds a

29.3% share, Andhra Bank 12.1% and ICICI bank holds 5.95. Among Kerala

based banks, State Bank of Travancore holds 0.7%, Dhanalakshmi Bank

0.4% and South Indian Bank 0.2%.

4. As per the demand versus recovery analysis made, the % recovery is

100% during 2006, 93% in 2007, 96% in 2008, 97% in 2009,and 95% in

2010.

5. The number of savings Bank accounts increased from 3411 in 2006 to

8747 in 2010. The amount in Savings Bank accounts also correspondingly

increased from 12858 in 2006 to 74183 in 2010.

6. The share of SHG loans in net bank credit increased from 0.04% in 2006

to 0.21% in 2010.

7. The share of SHGs in Total Priority Sector loans increased from 0.26% in

2005 to 1.51% in 2010.

8. The share of SHGs in agricultural loans increased from 0.26 in 2005 to

1.54% in 2010.

9. The share of SHGs in Loans to weaker sections increased from 0.42% in

2005 to 2.97% in 2010.

10. The bank has identified the need for improving the awareness level of

micro credit concept among its officials.

11. The bank has formulated schemes for utilizing the services of the groups

for marketing/ servicing of its various products



52

SUGGESTIONS

Based on the findings and conclusions drawn from the study the following

suggestions are made:

1. The bank need to focus more attention to the scheme of finance taking

into account the benefits for excellent recovery and scope for expanding

outreach especially in the state of Kerala where the bank is having a good

number of rural / semi urban branches.

2. There is scope for improvement in increasing the share of finance in

Ernakulam and Trivandrum regions of the bank, which can be achieved

through identifying potential branches in the region and resorting to

concentrated efforts.

3. The exposure of the bank in the northern Kerala in the scheme of finance

is very low. Intensive efforts are required in the regions of Thrissur,

Kozhikode and Kottayam to increase the bank¶s presence. There is ample

scope in the districts of Malapuram, Wayanad, Kazarkode etc.,where the

SHG initiative is getting deep rooted.

4. Professional approach is needed for implementing the scheme, collecting

relevant data for identifying potential areas, following up of performance of potential branches , facilitating the process of loans and providing necessa ry

support to the branch level officials.

5. Most of the people in the rural areas are not aware of the financial

inclusion programme of the government . So bank should take initiatives to

increase awareness about financial inclusion to rural people through

campaigns and other promotional activities.

6. Setting up of a micro enterprise development cell, which may provide,

services like training , financing, advisory, and host of other services, in the

relation to micro enterprises development.

7. Network of groups may be used by the bank to strengthen its marketing

efforts.



53

8.The bank may contemplate opening of specialized branches for micro

credit in each district, which will cater credit requirements of SHGs NGOs

and MFIs .

9.The bank should take initiatives in expanding the business of the bank

using the SHGs not only by giving credit, but also utilizing their services

for marketing bank¶s products.

10.Most of the SHGs have only partial utilization of bank credit. There

must be proper monitoring from the part of bank for the effective utilization

of bank credit.

11. The bank needs to chart a vision plan , achievable in terms of short term

missions for every year



55

Ensure that SHGs becoming eligible gets repeat linkages by keeping a threshold

of at least 50% of the SHGs rank for repeat linkages.

Set a new vision in terms of per branch business and per employee business in

terms of number of SHGs credit linked and quantum o credit deployed.

Establishing micro credit cells at head office and Regional Office levels.

Setting a certain share of micro finance clients to be mainstreamed as regular

clients of the bank.

Using SHGs to maximum advantage in addressing to overcome the NPASs and

strive to clear off all NPA accounts through SHGs.

Recruiting more women agricultural officers to serve the micro finance mandate

so that there is better ownership by SHGs and bank is organically weaved into

SHG based lending.

Announcing and celebrating SHG year / month/ week at branch/ bank level.

Participating in joint identification of prospective SHGs for credit linkages in

large programes.

Agreeing on commitment to support government initiatives in SGSY

programme.

Establishing tie-ups with committed voluntary agencies for their banking needs

and banks business needs.

Framing monitoring methods for assessing, analysing, and expanding the

portfolio.

Respect for the SHG clients as any other customer of the bank.

Look at micro finance as an approach and generate as many SHG based micro

finance products as possible.



56

The innovations that are taking place in the rural hinterland are many. The

Central and State Governments have been trying to reach out to the rural

mass by announcing the programs like developed India 2020, PURA

(providing urban amenities in rural areas ), ³Bharat Nirman´ programe etc.

Each of these innovations offers potential to replicate with a view to reach the

unreached. The pace, depth , and universality of these changes are exciting.

As competition among banks intensifies that there is a very need that

Broadening and deepening of the innovation process is viewed with interest.

Self Help Groups and micro credit are the pillars of growth in rural areas and

Voluntary Agencies and banks play pivotal role in the process of growth. As

a growing bank with considerable rural presence, The Federal Bank Limited

needs to involve intensely in the area.



57

CONCLUSIONS

On the basis of the analysis following conclusions are made:

1. There is increasing in the number and amount of credit delivered to SHGs

over the years. The rate of growth in the finance was gradual in the initial

period and has reached out around 50% in the recent years. The growth

registered by Federal Bank in micro financing through SHG in the recent

years is on the higher side as compared to earlier years.

2. The bank has good market share in Alleppy and Pathanamthitta regions.

There is scope for improvement in Ernakulam and Trivandrum. Focus is

required to increase the presence in Kozhikode , Kottayam and Thrissur

regions, which are potential regions for the business. Northern region of

Kerala comprising Kasarkod, Kannur, Kozhikode, Wayanad and Malappuram

is not fully explored.

3. On the national level, bank holds a nominal share of 0.3%. The bank

being a Kerala Based bank, the presence outside the state is limited to

commercial centres and there is not much scope for expanding the business

outside Kerala , except in Tamil Nadu, Karnataka and Andhra Pradesh.

4. The recovery percentage is almost 100% depicting that SHG finance is a

low risk portfolio.

5. The Savings Banks accounts have increase d substantially due to the SHG

linkage since the groups open thrift and savings accounts for their operation.

The increase is more than 50% in the recent years.

6. The SHG finance is increasing over the years. However, the share on Net

Bank Credit, Total Priority Sector Advances, Agricultural Advance and Loansto weaker Sections show marginal increase only.

7. There are quite a few expert officials in the bank dealing with the

portfolio. However, the general awareness level is low and there is a need to



58

improve the awareness of the officials at least in the rural and semi urban

areas.

8. The bank has taken initiatives in expanding the business of the bank using

SHGs not only by giving credit, but also utilizing their services for marketing

the banks products , recovery of other loans etc., which is a move in the right

direction.

9. The participation and lending to SHG is fragmented and limited to certain

pockets. Most of the potential areas are not attended. There is no strategic

planning, split into short term goals. There is need for long term vision plan.



59

BIBLIOGRAPHY



60

WEBSITES

Along with the secondary sources of data, the following websites were also

used :

y www.microfinancegateway.org

y www.kerala.gov.in

y www.rbi.org

y www.nabard.org

y www.federalbank.co.in

y www.adb.org

y www.gsgsk.org

y www.kudumbashree.com

REPORTS

y Annual reports of The Federal Bank Limited

y Annual reports of NABARD

y Economic survey (2008-09)

the federal bank limited

Documents