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Rural banking in Himachal Pradesh: a comparative study of Himachal Gramin Bank and Parvatiya Gramin Bank.

Introduction

Rural development has to play a phenomenal role in the overall socio-economic development of a country like India, where the majority of the population lives in rural areas. Without the upliftment of the vast proportion of the rural population, the objective of complete development of the country cannot be achieved. In fact, the real growth of Indian economy lies in the emancipation of the rural masses from acute poverty, unemployment and socioeconomic backwardness. The rural sector affects, directly or indirectly, almost all the economic activities in the country and provides employment to the maximum number of people. It supplies food for the survival of the entire population of India. It also supplies materials necessary for the major industries of India. A large part of the revenue of the government is also generated from the rural sector.

Financial institutions especially in rural areas play a very significant role in the economic as well as rural development. It has a special role to play in removing the poverty. The overall development of the economy depends to a large extent on the banking sector, as financial institutions act as suppliers of capital for production of goods and services which in turn raises income and standard of living of the people. In India, the banking sector has received definite orientations from time to time, and this sector has come to occupy a prominent position among the infrastructural factors of economic development. Prior to nationalization of banks, their role and activities attracted a lot of criticism. The failure of the banking sector in performing its expected role in a planned economy led to their nationalization first in 1969 and again in 1980.

The cooperative banking in India started functioning in the year 1904 with the sole objective of providing credit facilities to the agricultural and rural people. The cooperative banks operate mainly for the benefit of rural areas, particularly the agricultural sector. These banks mobilize deposits and supply agricultural and rural credit with a wider outreach. They are the main source of institutional credit to the farmers. The cooperative banks are chiefly responsible for breaking the monopoly of moneylenders in providing credit to the agriculturists. They have also been an important instrument for various development schemes, particularly subsidy-based programmes for the rural masses. The cooperative banking system in the country is working on a three-tier system under which the Primary Credit Societies perform at the grass root level, the Central Cooperative Banks at the district level and State Cooperative Banks at the state level.

The rural finance is a matter of credit concern in a developing economy like India where 70 percent of the total population depends upon agriculture for its livelihood. Over 40 percent of the GDP in India is contributed by the rural sector. The economic development of our country can be achieved only through the upliftment of the village folk that mainly consists of farmers, agricultural labourers, artisans etc. Since finance is the lifeblood of every commercial venture, the availability of adequate funds at reasonable terms is a must to ensure speedy economic development of a village. Therefore, the need was felt for establishing financial institutions that specialized to cater to the needs of the rural poor in order to fill up the regional and functional gaps in the financial credit available to rural areas. It has been noticed that among various institutional agencies engaged in rural finance, the Regional Rural Banks have played a significant role in financing the target group in the rural sector. They are specially designed financial institutions working under the guidance of NABARD and the parent commercial banks, spread in rural areas with a close network of branches serving a particular district or region.

The Regional Rural Banks were established on October, 2nd, 1975. The main objectives of these banks are to provide credit and other facilities particularly to small and marginal farmers, agricultural labourers, rural artisans and small entrepreneurs so as to develop agriculture, trade, commerce, industry and other productive activities in rural areas. Initially, 5 Regional Rural Banks were set up on October 2, 1975 in Moradabad and Gorakhpur in Uttar Pradesh, Bhiwani in Haryana, Jaipur in Rajasthan and Malda in West Bengal. These banks were sponsored by the Syndicate Bank, the State Bank of India, the Punjab National Bank, the United Commercial Bank and the United Bank of India respectively.

The rural banking plays an important role in the development of a country. A sound, progressive and dynamic banking system is a fundamental requirement for rural development. The rural banks render vital services to the rural masses belonging to various sectors of economy like agriculture, industry whether small scale or large scale and also to the tertiary sector that is the service sector. The rural banks are expected to help the government in its pursuit of building up an egalitarian society with a rising standard of living by designing their lending policies accordingly. Taking into consideration the socioeconomic environment of India, the banks are not expected to be inclined towards the already developed sector but towards the underdeveloped and neglected sector of the economy. The rural banking industry in India is supposed to help in the removal of poverty and creation of more employment opportunities and in overcoming the disparities in the distribution of income and wealth, minimizing the gap between the rich and the poor and also in rural and urban areas.

The era of Regional Rural Banking in Himachal Pradesh commenced in 1976 when the first RRB of the state named Himachal Gramin Bank was established in district Mandi. This bank is sponsored by the Punjab National Bank and this bank is the largest RRB in the state of Himachal Pradesh as it operatives in eleven out of twelve districts of the state and caters to the financial requirement of the farmers, rural artisans and individuals in rural hinterlands of Himachal Pradesh State. As the rural front is transforming into one of the key economic players of the country, the bank seeks to partner with rural development by leveraging competencies in the business, achieving size and scale aligned to the needs of the rural clientele. The bank continues to deliver the customized services to farmers, entrepreneurs and the poorest of the poor with an abiding commitment to socio-economic development. The second Regional Rural Bank in Himachal Pradesh, as PGB, sponsored by State Bank of India, came into existence in 1985. With the venture of central and state Government under RRBs Act, 1976. The main objective of Bank's establishment is to cater to the credit needs of small and marginal farmers, landless labourers, rural artisans and weaker sections of society at their door step as to help them to raise their socio-economic status.

Objectives of the Study

To analyse the performance of the Himachal Gramin Bank and Parvatiya Gramin Bank on the basis of Investment, Loan and advances and Dispensation of Credit.

To examine the comparative resource mobilisation performance of the Himachal Gramin Bank and Parvatiya Gramin Bank.

To evaluate the non-performing assets of the Himachal Gramin Bank and Parvatiya Gramin Bank.

Materials and Methods

The study is primarily based on the secondary data which is collected from: a) The annual reports and final accounts of Himachal Gramin Bank and Parvatiya Gramin Bank for the year 2000 to 2009. b) Personal discussion with the management committee of the banks for gathering relevant information. Simple percentage, standard deviation, coefficient of variation, compound growth rate, t-test and mean have been used for the analysis of the collected data.

Results and Discussion

Investment

A core group may be formed by the RRBs to constantly update new avenues of investment, monitor it and obtain up to date information on the subject. The bank may consider introducing investment port-folio service to guide the bank and help to invest in profitable area. It is noted that the investments of the HGB have soared from Rs. 24728.89 lacs to Rs. 60539.89 lacs during the period 1999-00 to 2008-09, registering a significant elevation at the rate of 9.37 percent compounded annually. In the case of the PGB, it has shown a mixed trend and an average of the investments is worked out to the tune of Rs. 7021.397 lacs for the entire study period, registering a compound growth rate of 1.80 percent per annum. The covariance value of the HGB is 24.01 percent, has observed higher as compared to PGB 11.60 percent. It indicates that fluctuation in the investments of the HGB is more as compared to the PGB. Further, the calculated t-value has been found significant at 1 percent level of significance, which also supports the above analysis.

Thus, it is clear from the above analysis that the investments position of Himachal Gramin Bank is much better than the Parvatiya Gramin Bank throughout the period under study.

Loan and Advances

Credit is an essential component of growth of any banking institution. This is more true of those banking institutions, which have been created to meet the special credit requirements of a particular group of people in a community. The advance portfolio of the RRBs differ from that of the commercial banks in many respects. The lending activities of the RRBs are diverted towards priority sectors, especially, for the neglected and weaker sections of the society. The RRBs in Himachal Pradesh have introduced a large number of schemes for providing finance to the rural poor. The schemes include crop loans, loans for minor irrigation, land development, agricultural allied activities like dairy farming, goat rearing, piggery, fishery, loans to small and village industries, retail trade, self employment, consumption loans, housing loans, etc.

Table 2 reveals that the outstanding loans in the HGB went up from Rs. 8047.99 lacs in 1999-2000 to Rs. 35302.33 lacs in 2008-09, registering a highly significant growth rate of 15.94 percent. In the case of the PGB, the total outstanding advances have increased continuously during the period under study i.e. from Rs. 1578.36 lacs in 1999-2000 to Rs. 10537.95 lacs in 2008-09, registering a marked growth rate of 20.91 percent compounded annually. The co-efficient of variation of the HGB is less than that of the PGB. It depicts that the outstanding loans are more inconsistent with that of Parvatiya Gramin Bank. Further, tvalue indicates that there existed a significant difference in the outstanding advances of both the banks. Thus, the above analysis reveals that the Himachal Gramin Bank and Parvatiya Gramin Bank have achieved a remarkable progress in credit expansion during the study period.

Dispensation of Credit

The credit dispensation of both the banks has shown an upward trend during the period under study. During 1999-00, the HGB and PGB have disbursed an amount of Rs. 5475.27 and Rs. 908.21 lacs respectively,

which has spiralled to the tune of Rs. 24417.32 and Rs. 5181.44 lacs during 2008-09. The compound growth rate of both the banks has gone to 16.13 percent and 19.02 percent respectively. The co-efficient of variation of HGB has noted 57 percent as compared to the PGB 59.77 percent. The variance in the growth of the HGB has been lesser as compared to the PGB. Further, t-value depicts that there existed a significant difference in the credit dispensation of both the banks.

Thus, it has been observed from the above inferences that both the RRBs have achieved a tremendous growth in terms of dispensation credit during the years under study. The basic reason behind such like in disbursement has been identified as introduction of non-target financing in the banks.

Resource Mobilization

Resource mobilization is one of the important aspects. In banks, the major compounds of resource are owned funds, borrowings and deposits. The combination of all such resources is known as total funds. Table 4 reveals that resource mobilization of the HGB and the PGB have shown an increasing trend. It also depicts that the owned funds and deposits have shown rising trend whereas borrowings show a mixed trend.

As is evident from Table 4, the total resources of the HGB have risen up from Rs. 38371.81 lacs in 1999-2000 to Rs. 104196.26 lacs in 2008-09, which indicates a tremendous increase of 171.54 percent and a compound growth rate of 11.82 percent has also been recorded during this period. Whereas for the PGB it has increased to the tune of Rs. 7645.94 lacs to Rs. 19018.63 lacs during 1999-00 to 2008-09, indicating an increase of 148.74 percent and a compound growth rate of 8.56 percent. The co-efficient of covariance of the PGB is 25.69 percent as compared to the HGB at 30.25 percent. The variance growth of PGB is lesser as compared to the HGB. Thus, it is noted from the table that the deposit mobilization has been found to be a major contributor in the total resources of these RRBs.

Non-Performing Assets

Non-Performing Assets (NPAs) reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset. The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholders' value. The issue of Non Performing Assets has been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry and trade.

It is depicted from Table 5 that the ratio of the NPAs to total assets for the HGB and the PGB has been showing mixed trend throughout the study period. The ratio of NPAs to total assets for the HGB has been found maximum and minimum 9.05 percent in 2001-02 and 3 percent in 2006-07 respectively, indicating a compound growth rate of 3.29 percent. Whereas, for the PGB it has ranged from 13.18 percent to 2.88 percent during the whole study period, registering a compound growth rate -11.95 percent. The mean score of the ratio has been worked out 5.709 percent for the HGB and 7.963 for the PGB respectively. The co-efficient of variation of the HGB is less than that of PGB. It reveals that the NPAs to total advances ratio are more inconsistent with that of the PGB.

Thus, it can be inferred from the above analysis that the PGB are more conservative as compared to the HGB with regard to NPAs' management. Because, NPAs to total assets ratio for the PGB has decreased during the last few years of the study. This may be due to better management of NPAs by the bank and the use of better methods of loan recovery.

Conclusion

The investment position of the HGB is much better than the PGB during the study both the banks have made a commendable progress in the credit expansion during the period under study. The compound growth rate has been noted to the tune of 15.94 and 20.19 percent of the HGBand the PGB respectively. The compound growth rate of the HGB and the PGB in terms of dispensation of the credit has been noted to the tune of 16.13 percent and 19.02 percent respectively. The t-value depicts that there existed a significant difference in the credit dispensation of both the banks. It is observed that both the RRBs have made remarkable progress in attaining its objective of the rural credit. The total resources of both the banks have followed an upward trend of growth and maintained it throughout the period under study. The compound growth rate of the HGB and the PGB has been revealed as 11.82 percent and 8.56 percent respectively. The deposit mobilization has been found to be the major contributor in the total resources of these RRBs. The borrowings, which include borrowings from the NABARD, sponsor bank and IDBI/SIDBI, have also played a considerable role in the resource mobilization of both the banks. The PGB has been found to be more conservative in comparison to the HGB with regard to NPAs management, because the NPAs to the total assets ratio for the PGB has decreased during the last few years of the study. This may be due to better management of the NPAs by the bank and the use of better methods of loan recovery.

References

A.R. Patel, (2001): "Rural Credit System-Need for Restructuring", Kurukshetra Vol. 49, No. 4, pp. 16-21.

A.R. Patel,(2003): "Integrated Development of Rural Economy-Role of Rural Financial Institution", Kurukshetra, Vol. 50, No. 4, pp. 12-15.

Ajit Singh, (1985): Rural Development and Banking in India-Theory and Practice, Deep and Deep Publications, New Delhi, 1985.

Annual Report of Himachal Gramin Bank, 2008-09.

Annual Report of Parvatiya Gramin Bank, 2008-09.

B.B. Tondan, Jaywant Singh and Amardeep,(1990): "Regional Rural Banks", in B.L. Mathur (ed.), Indian Banking in Rural Development, RBSA Publication, Jaipur.

C. Krishnan, (2001): Role of Rural Banks in the Rural Development, Printwell Publishers, Jaipur, pp 76-79.

Gurmeet Singh, (2009): "Microfinance-An Innovation in Rural Credit System", Kurukshetra, Vol. 57, No. 4, pp. 3-6.

K.S. Ramola and K.S. Negi, (1991): "Regional Rural Banks and Rural Development-A Case Study", Yojana, Vol. XXXV, No. 12, pp. 23-25.

Kulwant Singh Pathania and Rajneesh Kumar Sharma, (2009): "Management of over dues in Cooperative Banks of Himachal Pradesh" International Journal of Business, pp. 131-134.

M.S. Bapna,(1989): Regional Rural Banks in Rajasthan, Himalaya Publishing House, New Delhi, p. 99.

Minna Kumar, (1996): "Bank Operating in the Rural Area", Financial Express, Vol. XXI, No. 375, p. 8.

N.C. Joshi,(1983): "Rural Development Through Banks", The Journal of Indian Institute of Banker, Vol. 54, No. 1.

N.K. Thingalaya,(2005): "Rural Financing-Compatibility of Regional Rural Banks", The Journal of Indian Institute of Banking and Finance, Vol. 75, No. 4, p. 30.

P. Ramappa, (1999): "Performance of Regional Rural Banks-with Special Reference to the Rayalaseema Region of Andhra Pradesh", Finance India, Vol. XIII, No. 4, pp. 1268-1271.

S.C. Gupta, (1987): Development Banking for Rural Development, Deep and Deep Publication, New Delhi.

Sunil Kumar, (1990): Regional Rural Banks and Rural Development, Deep and Deep Publication, New Delhi, p. 47.

Valsamma Antony, (2005): "Regional Rural Banks as Champions of Rural Credit", Kurukshetra, Vol. 53, No. 3.
Table 1: Investments of RRBs (Rs. in Lacs)

Year HGB PGB

1999-00 24728.89 5472.11
2000-01 31775.79 6532.1
2001-02 35924.36 7626.1
2002-03 39396.98 7353.56
2003-04 43789.60 8069.1
2004-05 43390.65 8160.9
2005-06 45045.52 7055.9
2006-07 48366.65 6795.52
2007-08 51584.18 6606.83
2008-09 60539.89 6541.85
Mean 42454.251 7021.397
S.D. 10192.489 814.172
C.V. 24.01 11.60
C.G.R. 9.37 1.80
t-value 11.156 *

Significant at 1 percent. Source: Annual Reports of HGB and PGB

Table 2: Loans and Advances of RRBs (Rs. in Lacs)

Year HGB PGB

1999-00 8047.99 1578.36
2000-01 10107.28 2034.46
2001-02 13124.28 2581.93
2002-03 16156.3 2983.69
2003-04 13738.9 3326.27
2004-05 16820.07 4209.77
2005-06 20578.98 5338.82
2006-07 25275.82 6746.73
2007-08 28977.89 8767.06
2008-09 35302.33 10537.95
Mean 18812.984 4810.504
S.D. 8698.164 3009.372
C.V. 46.23 62.56
C.G.R. 15.94 20.91
t-value 7.724 *

* Significant at 1 percent. Source: Annual Reports of HGB and PGB

Table 3: Dispensation of Credit (Rs. in Lacs)

Year HGB PGB

1999-00 5475.27 908.21
2000-01 5954.00 1196.11
2001-02 6129.00 1464.38
2002-03 7348 1533.04
2003-04 8134.48 1622.43
2004-05 10413.77 2166.33
2005-06 13209.16 2945.1
2006-07 17030.01 3342.61
2007-08 21029.19 4746.03
2008-09 24417.32 5181.44
Mean 11914.02 2510.568
S.D. 6791.331 1500.543
C.V. 57.00 59.77
C.G.R. 16.13 19.02
t-value 5.607 *

* Significant at 1 percentage. Source: Annual Reports of HGB and PGB

Table 4: Resources Mobilization (Rs. in Lacs)

Year HGB

 Owned Fund Deposits Borrowings Total

1999-00 1140.04 35429.09 1802.74 38371.87
 (-) (-) (-) (-)

2000-01 1367.49 42113.01 1696.35 45176.85
 (19.95) (18.87) (-5.90) (17.73)

2001-02 2025.51 49240.38 1165.78 52431.67
 (48.12) (16.92) (-31.28) (16.06)

2002-03 2651.74 54648.07 565.97 57865.78
 (30.92) (10.98) (-51.45) (10.36)

2003-04 3805.45 57882.74 535.57 62223.76
 (43.51) (5.92) (-5.37) (7.53)

2004-05 4259.12 60958.79 647.26 65865.17
 (11.92) (5.31) (20.85) (5.85)

2005-06 4744.84 64819.79 1102.11 70666.74
 (11.40) (6.33) (70.27) (7.29)

2006-07 5156.21 71755.02 2767.41 79678.43
 (8.67) (10.70) (151.10) (12.75)

2007-08 5572.89 80493.02 2707.76 88773.67
 (8.08) (12.18) (-2.16) (11.41)

2008-09 6190.56 93805.70 4200 104196.26
 (11.08) (16.54) (55.11) (17.37)

Mean 3691.385 61114.56 1719.95 66525.2

S.D. 1799.463 17591.87 1192.798 20125.1

C.V. 48.74 28.79 69.39 30.25

C.G.R. 21.52 10.23 22.35 11.82

t-value 6.313 * 10.968 * 4.295 * 10.438 *

Year PGB

 Owned Fund Deposits Borrowings Total

1999-00 376.56 6866.9 402.48 7645.94
 (-) (-) (-) (-)

2000-01 509.39 8256.17 448.08 9213.64
 (35.27) (20.23) (11.33) (20.5)

2001-02 723.56 9565.13 527.00 10815.69
 (42.04) (15.85) (17.61) (17.39)

2002-03 846.74 10299.69 1041.53 12187.96
 (17.02) (7.68) (97.63) (12.69)

2003-04 895.32 10612.43 1002.48 12510.23
 (5.74) (3.04) (-3.75) (2.64)

2004-05 916.3 11916.17 761.59 13594.06
 (2.34) (12.29) (-24.03) (8.66)

2005-06 926.28 12265.00 529.59 13720.87
 (1.09) (2.93) (-30.46) (0.93)

2006-07 1004.66 13236.18 389.57 14630.38
 (8.46) (7.92) (-26.44) (6.63)

2007-08 1123.52 14840.86 435.07 16399.45
 (11.83) (12.12) (11.68) (12.09)

2008-09 1302.79 17035.65 680.19 19018.63
 (15.96) (14.79) (56.34) (15.97)

Mean 862.512 11489.42 621.758 12973.69

S.D. 272.97 3046.614 242.352 3332.949

C.V. 31.65 26.52 38.98 25.69

C.G.R. 15.53 9.51 12.21 8.56

t-value 8.845 * 11.823 * 6.821 * 12.215 *

* Significant at 1 percentage Source: Annual Reports of HGB and PGB

Note: Figures in parenthesis indicate the percentages increased and
decreased over the previous year.

Table 5: Non-Performing Assets (Rs. in Lacs)

Year HGB

 percentage
 of NPAs to
 Standard Total
 Assets NPAs Total Assets

1999-00 7784.25 636.5 8420.75 6.05
 (-) (-) (-) (-)

2000-01 9875.10 635.91 10511.01 6.27
 (26.86) (-0.09) (24.82) (3.64)

2001-02 12340.42 1227.68 13568.10 9.05
 (24.97) (93.06) (29.08) (44.34)

2002-03 15580.55 969.17 16549.72 5.86
 (26.26) (-21.06) (21.98) (-35.25)

2003-04 13237.55 845.84 14083.39 6.01
 (-15.04) (-12.73) (-14.90) (2.56)

2004-05 16217.88 1106.97 17324.85 6.39
 (22.51) (30.87) (23.02) (6.33)

2005-06 20223.32 889.36 21122.68 4.26
 (24.70) (-19.66) (21.92) (-33.33)

2006-07 25040.15 783.47 25823.62 3.00
 (23.82) (-11.90) (22.26) (-29.58)

2007-08 27830.38 1826.46 29656.84 6.16
 (11.14) (133.12) (14.84) (105.38)

2008-09 34384.38 1448.79 35833.17 4.04
 (23.55) (-20.68) (20.83) (-34.42)

Mean 18251.400 1037.015 19289.41 5.709

S.D. 8518.452 377.502 8778.926 1.653

C.V. 46.67 36.4 45.51 28.95

C.G.R. 18.75 18.99 18.21 3.29

t-value 6.740 * 7.891 * 6.914 * -170.798 *

Year PGB

 percentage
 of NPAs to
 Standard Total
 Assets NPAs Total Assets

1999-00 1455.77 203.98 1659.75 12.29
 (-) (-) (-) (-)

2000-01 1858.68 262.20 2120.88 12.36
 (27.68) -28.54 (27.78) (0.57)

2001-02 2392.43 277.09 2669.52 10.38
 (28.72) (5.68) (25.87) (-16.02)

2002-03 2772.61 309.49 3082.10 10.04
 (15.89) (11.69) (15.46) (-3.28)

2003-04 2985.30 453.45 3438.75 13.18
 (7.67) (46.52) (11.57) (31.27)

2004-05 4023.70 287.65 4311.35 6.67
 (34.78) (-36.56) (25.38) (-49.39)

2005-06 5189.97 244.55 5434.52 4.50
 (28.99) (14.98) (26.05) (-32.53)

2006-07 6549.41 298.17 6847.58 4.35
 (26.19) (21.93) (26.00) (-3.33)

2007-08 8635.36 265.22 8900.58 2.98
 (31.85) (-11.05) (29.98) (-31.49)

2008-09 10369.75 307.17 10676.91 2.88
 (20.08) (15.82) (19.96) (-3.36)

Mean 4623.298 290.897 4914.194 7.963

S.D. 3023.429 65.382 3026.511 4.121

C.V. 65.4 24.48 61.59 51.75

C.G.R. 24.65 7.51 23.12 -11.95

t-value 4.736 * 9.475 * 5.035 * -66.795 *

* Significant at 1 percentage .Source: Complied from Annual
Reports of HGB and PGB

Note: Figures in parenthesis indicate the percentages increased and
decreased over the previous year
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Author:Sharma, Rajneesh Kumar; Sharma, Manoj
Publication:Political Economy Journal of India
Geographic Code:9INDI
Date:Jan 1, 2011
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