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Introduction to Indian banking industry

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Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became theBank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form theImperial Bank of India, which, upon India’s independence, became the State Bank of India in 1955. Role of Banks:

Banks play a positive role in economic development of a country as repositories of community’s savings and as purveyors of credit. Indian Banking has aided the economic development during the last fifty years in an effective way. The banking sector has shown a remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its efforts at deposit mobilization and has taken a number of measures in the recent past for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development. The activities of commercial banking have growth in multi-directional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner.

In a way, commercial banks have emerged as key financial agencies for rapid economic development. By pooling the savings together, banks can make available funds to specialized institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term-lending institutions in the fields of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilized by them, to that extent relieving them of the responsibility of directly approaching the saver. This intermediation role of banks is particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond. Mobilization of resources forms an integral part of the development process in India. In this process of mobilization, banks are at a great advantage, chiefly because of their network of branches in the country. And banks have to place considerable reliance on the mobilization of deposits from the public to finance development programmes.

Further, deposit mobalization by banks in India acquired greater significance in their new role in economic development. Commercial banks provide short-term and medium-term financial assistance. The short-term credit facilities are granted for working capital requirements. The medium-term loans are for the acquisition of land, construction of factory premises and purchase of machinery and equipment. These loans are generally granted for periods ranging from five to seven years. They also establish letters of credit on behalf of their clients favouring suppliers of raw materials/machinery (both Indian and foreign) which extend the banker’s assurance for payment and thus help their delivery. Certain transaction, particularly those in contracts of sale of Government Departments, may require guarantees being issued in lieu of security earnest money deposits for release of advance money, supply of raw materials for processing, full payment of bills on the assurance of the performance etc. Commercial banks issue such guarantees also.

Merchants in Calcutta established the Union Bank in 1839, but it failed in 1840 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company’s debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to app, particularly in Calcutta, in the 1860s. The Comptoir d’Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958.

The next was the Punjab National Bank, established inLahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, “In respect of banking it seems we are behind the times.

We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments.” The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as “Cradle of Indian Banking”. During the First World War (1914–1918) through the end of the Second World War (1939–1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table

YearsNumber of banks
that failedAuthorised capital
(Rs. Lakhs)Paid-up Capital
(Rs. Lakhs)

To study the various development banks operating in India To give glance at the working of development banks To find out the role of development banks in Indian financial system To check the contribution of development banks in economic growth

The researcher can gather primary data, secondary data or both. Secondary data are data that were collected for another purpose and already exist somewhere. Primary data are data specially gathered for a specific purpose or for a specific research project. Since the study is based on already existing facts and figures, so all the sources of data are secondary SECONDARY DATA The main source of information for the study was Weakly magazines RBI bulletin Information available in form of articles Information available on internet

Development bank plays a very important role in economic development of our
country There basic objective is to assist the development in country which perform by proving every kind of help possible i.e. financial, advisory, technological etc. It also helps in showing the various schemes that banks have and their whole procedure to provide the assistance to people In this study four major development banks in India are taken into research work i.e. IDBI, IFCI, SIDBI, and NABARD. All the schemes, assistances and programs are studied and highligted. Every bank differs from his objective with each other so as the assistance provided by the Every bank has separate guidelines and management to take care of activities which are performing and work areas are also different, although their main motive is same which the development of country through balanced economic growth. LIMITATIONS OF STUDY

Although lots of care and efforts are made to ensure the fault free study but still there remains certain limitations which possibly may occur such as Lack of time acted as constraint in study Lack of development banks in near by areas also acts as constraint as it’s not possible to get the real exposure. Researcher limitations in knowledge are also the limitations of study. The study is based on secondary data so any kind of discrepancy in that will cause same in the study

Research methodology is a way to solve the research problem systematically. It includes the methods required for systematic analysis and logical interpretation of empirical evidence. So, it covers the scope/population of the study, sample size, selection of sample, source of data collection, tools and techniques used for the analysis, interpretation and presentation of data and limitations of study. 3.1 Objectives of the Study are: –

1. To examine the role of merchant banking in promoting capital market in India. 2. To study the rules and regulations of SEBI for merchant bankers as issue managers.
3. To evaluate the performance of the merchant bankers.
4. To study the marketing aspects of the merchant bankers relating to the issue. 5. To study the effectiveness of pricing of the ‘issues’ (as
determined by issuing company and the merchant banker).

6. To make appropriate recommendations to merchant bankers for improving their performance
3.2 Scope/Population of the Study
In order to examine the role of merchant bankers in the management of public issues in India, a period of twelve years from 1997-98 to 2008-09 has been taken. During this period, a total of 685 public issues (618 equity issues and 67 debt issues) and 330 rights issues have been floated. All these have been considered for evaluation of performance of merchant bankers. Similarly, a number of merchant bankers stood registered with SEBI at different points of time during the period under review. All these merchant bankers form the universe of the present study. Major thrust of the study has been on the performance evaluation of merchant bankers in the management of public issues.

3.3 Sample Size
All the SEBI registered merchant bankers were not involved in the issue management activities during the period under review. So the sample of merchant 64 bankers consists of those, who were associated with public issue management activities in any capacity during the period.

Similarly, for the analysis of pricing of public issues, 234 initial public offerings (IPOs) of equity shares listed with National Stock Exchange (NSE) during the period from 1997-98 to 2006-07 have been taken into consideration. Further public offerings (FPOs) of equity shares have been excluded for measuring the return to the investors as the shares are already listed on the stock exchange and the determination of issue price of FPOs by merchant bankers is largely influenced by the market prices prevailing at the time of issue.

Majority of previous studies on pricing performance of IPOs have been based on the BSE prices. In the present study, NSE has been selected for the measurement of return to the investors from IPOs as it has emerged as the dominant stock exchange in the country.

3.4 Collection of Data
The present study is based on secondary data. Data have been collected from the offer documents/ Red Herring Prospectuses of the issuer companies, BSE official Directories, SEBI Annual Reports, SEBI Bulletins, Handbook of Statistics on the Indian Securities Market of SEBI, Annual Reports of RBI, Reports on Currency & Finance, RBI Handbook of Statistics on Indian economy, Prime Directories, Economic Survey and NSE’s Indian Securities markets- A Review etc. A good amount of data has also been collected from different journals like Capital Market Review, SEBI Bulletin, Dalal Street, Chartered Financial Analyst, Portfolio Organiser, Economic & Political Weekly, Economic Survey, Chartered Accountant and Finance India etc. Various financial newspapers, press notes, publications of various merchant bankers have also been consulted. Besides this, the websites of SEBI, NSE, BSE, RBI and a number of other agencies has been searched for getting the latest data and information related to the study. 3.5 Tools and Techniques used for Analysis and Presentation

In the present study, statistical tools such as average, percentage, rate of return, standard deviation, coefficient of variation and simple regression analysis have been employed for the analysis of data and to draw meaningful conclusion therefrom. A number of analytical tables and charts have been constructed for the effective 65 presentation of the results of analysis. Various tools and techniques used in the study have been discussed below:

3.5.1 Performance Evaluation in Management of Public Issues
The performance of individual Indian and foreign based merchant bankers, who acted as lead managers to the public and rights issues have been analysed with respect to number of issues handled, amount raised, percentage of total amount raised during the period under review.

Generally a single merchant banker has been appointed as lead manager to the issue. However, multiple lead managers/ book runners lead managers having equal role in the issue management activities have also been appointed in a number of large issues. In order to avoid duplication in such cases, the amount raised has been apportioned equally to all lead managers and the number of that particular issue has been assigned to the first lead manager in the list of such lead managers. 3.5.2 Performance of Merchant Bankers in Underwriting of Public Issues

Under this part of the study, pattern of underwriting of public issues has been analysed. The offer documents of companies stated the actual amount underwritten by different merchant bankers in a particular issue. Year wise total amount and percentage of this amount to total amount underwritten has been found for individual merchant bankers in the category of Indian and foreign based merchant bankers. The merchant bankers have been ranked on the basis of total amount and proportion of total amount underwritten during the period under review.

Rights issues have not been considered for this purpose as only a few of the rights issues have been found to have underwritten during the period of study. 3.5.3 Rate of Return Analysis
Performance of individual lead managers on the basis of average return obtained by investors (difference of issue price and market price) from NSE listed IPOs at six points of time, that is, return on first trading day (listing day), after one week, one month, three months, six months and twelve months from the first trading day has been measured with the help of following steps:

(a) Number of IPOs managed by individual merchant bankers
Total number of NSE listed IPOs managed by individual merchant banker during the period under review has been assigned to that merchant bankers, whether 66 they have managed it individually or jointly with other merchant bankers. Merchant bankers acting as lead managers(s)/Book runner lead manager(s) only have been considered for this analysis.

(b) Return from individual IPO
The simple return from individual IPO of equity share has been found out at six intervals of time as stated above with the help of the following formula: Simple return = (closing market price on return date – issue price)
× 100 Issue Price

Share prices of NSE at the return date have been taken for this purpose. When a return date happens to be a holiday or no trading day at NSE, then share prices of the next available date have been taken for finding out the return. Closing market price on the stated day has been taken for this purpose.

(c) Average return of IPOs managed by individual merchant bankers Separate positive and negative average returns of IPOs managed by individual merchant bankers have been calculated at different intervals of time. This average has been measured with the following formula:

Sum of (+ve)/ (-ve) annual return ÷ No. of IPOs showing (+ve)/ (-ve) return Further, average annual return has been calculated at each point of time for the respective lead manager (merchant banker). Then total average annual return from IPOs managed by individual merchant banker has been measured by dividing the total of average returns for the period under review at each time interval by the number of years, individual merchant banker participated as lead manager in sample IPOs. (d) Average Market Return from NSE IPOs

For this purpose, first of all annual average return from total NSE listed IPOs have been calculated for each time intervals, that is, return on first trading day (listing day), after one week, one month, three months, six months and twelve months from the first trading day. Then total average return is calculated by aggregating the average annual return at each point of time and dividing it by the number of years of study i.e. ten. This has been shown in the annexure.67

(e) Average annual index return (based on NIFTY)
Average annual index return for each financial year during the period under review (based on NIFTY) for the purpose of comparative analysis has been calculated as follows:
(Index at the close of the year – Index in the opening of the year) ×100
Opening Index
(f) Simple linear regression Analysis
Regression is the determination of a statistical relationship between two or more variables. A simple linear regression is confined to two variables only. In this type of regression analysis, the value of one variable is estimated on the basis of the value of another variable. In the present study, this analysis is used to measure the impact of average annual index return and average annual market return of IPOs on the average annual returns of IPOs managed by individual merchant bankers. The regression equation takes the form of:-

Y = bo + bi X
Where Y represents average annual return from IPOs managed by individual merchant bankers (dependent variable), ‘X’ the average annual index return and annual market return of IPOs (independent variable), ‘bo’ is the intercept and ‘bi’ is the regression co-efficient of independent variable in the regression model. 3.5.4 Analysis of Investors’ response to the Public Issue

Year wise and lead manager wise subscription ratio (number of times issue subscribed) have been analysed separately by retail investors and by all categories of investors with the help of following statistical tools:

(a) Arithmetic Mean
It is the most common measure of central tendency and may be defined as the value which is obtained by dividing the sum of the values of various given items in a series by the total number of items.

X (Arithmetic Mean) = X1 + X2 + X3 + ……..Xn
N Where
X1, X2 …………Xn = Value of items
N = total number of items 68 This method has been used to measure the year wise and merchant banker wise subscription ratio of public issues of equity by retail investors and by all categories of investors. Subsciption ratio has been calculated as
follows: Annual Subscription Ratio = Sum of number of times oversubscription of all public issues in a year ÷ Number of Public Issues in

a year.
Subscription ratio of public issues managed by individual merchant banker has been calculated as:
Sum of times of subscription of all public issues managed by individual merchant banker ÷ No. of public issues managed by particular merchant banker. (b) Standard Deviation
Standard deviation is the commonly used measure of dispersion. It is defined as the square root of the average of squares of deviations, when such deviations for the values of individual items in a series are obtained from the arithmetic mean. It is calculated as under:

 = the standard deviation
 = each value in the population
 = the mean of the values
N = the number of values (the population)
This method has been used to measure the dispersion in the subscription (scatterness in the level) of public issues. It has been calculated on yearly basis separately for subscription level of retail investors and for all categories of investors. Similarly standard deviation and co-efficient of variation of subscription level of public issues managed by individual merchant bankers during the period under review has also been calculated for retail investors and for all categories of investors.69 (c) Co-efficient of Variation

Coefficient of variation is a relative meausure of dispersion and is often used for comparing the similar measures of other series. It is calculated as follows: Co-efficient of Variation = Standard deviation × 100 Arithmetic Mean The standard deviation alongwith relative measure like co-efficient of variation is regarded as a very satisfactory measure of the scatteredness of a series. It has been used to measure the year wise and merchant wise scatterness in the subscription of public issues during the period under review. A high degree of standard deviation and coefficient of variation in the subscription ratio of public issues indicates that wide variation in the subscription of different public issues in a year and also by different public issues managed by individual merchant bankers. 3.6 Presentation of Data

In the present study, the data has been presented in the following ways: (a) Tabular Form
Simple as well as two way frequency tables along with percentage and average have been prepared to analyse the data relating to the primary market and performance of merchant bankers in the management of public issues. (b) Bar Charts

Bar charts have been constructed to present the number of issues floated, amount raised through public issues and the average return obtained by investors through different merchant bankers( lead managers) at different points of time covered by the study

(c ) Pie Chart
Pie charts have been prepared to show the amount of public issues underwritten by various categories of underwriters and by Indian and foreign based merchant bankers, percentage of amount of equity issues managed by Indian and foreign based merchant bankers etc.

3.7 Chapter Scheme
The present study is an endeavour to evaluate the role of merchant banks as ‘issue manager’ in India. The analysis and evaluation is based on secondary data. The present study has been divided into eight chapters.70

Chapter one is introductory in nature and discusses the origin and growth of merchant banking in India especially after 1997. It further provides the overview of primary market in India with special reference to the period
from 1997-98 to 2008-09. The reviews of the selected studies in India and abroad covering various aspects of primary market and the role of merchant bankers in primary market has been covered in the second chapter.

Chapter three entitled ‘Research Methodology’ explains the scope of the study, data collection and statistical tools for analysis and limitations of study. Chapter four evaluates the performance of merchant bankers with respect to management of public and rights issues.

Performance of merchant bankers with respect to underwriting activities of Indian and foreign based merchant banker has been covered in the fifth chapter. Chapter six examines the pricing mechanism of public issues by merchant bankers. It evaluates the performance of different lead managers with respect to determination of issue price of IPOs listed at National Stock Exchange. Average return from IPOs earned by investors from IPOs managed by Individual merchant bankers have also been analysed at different points of time in the chapter. Management aspect of merchant bankers relating to marketing aspects of public issues and investors’ response to public issues in India has been explained in chapter seventh.

Chapter eight entitled ‘Findings and Suggestions’ summarises the findings of the study. An attempt has been made to draw the conclusions from the present study and suggest measures to improve the working of merchant bankers with respect to issue management activities.

3.8 Limitations of the Study
The followings are the limitations of the present study:
1. The study is based on secondary data. So, the limitations of secondary data may also creep in and have an impact on the present study also. 2. Merchant bankers perform a variety of functions. The present study is limited to the role of merchant bankers in the management of public issue only. 3. The study covers the public issues of equity and debt in India. Private Placement and Euro issues have not been covered by the study. 4. All the figures have been taken at current prices. The impact of price level accounting has not been taken care of.

The banking system is an integral part of any economy. It is one of the many institutions that impinges on the economy and affect its performance. Economists have expressed a variety of opinions on the effectiveness of the banking systems in promoting or facilitating economic development. As an economic institution, the bank is expected to be more directly and more positively related to the performance of the economy than most non-economic institutions. Banks are considered to be the mart of the world, the nerve centre of economies and finance of a nation and the barometer of its economic perspective. They are not merely dealers in money but are in fact dealers in development. Banks are important agencies for the generation of savings of the community. They are also the main agents of credit. They divert and employ the funds to make possible fuller utilisation of the resources of a nation. They Cameron Rondo , Banking and Economic Development- Some Lessons of History, Oxford University Press , New York, 1972, p.7. Sharma B.P. The Role of Banks in India’s Developing Economy, S.Chand & Co ., New Delhi , 1974, transfer funds from regions where it is available in plenty to where it can be efficiently utilised : the distribution of funds between regions pave the way for the balanced development of the different regions . They are thus catalytic agents that create opportunities for the development of the resources to speed up the tempo of economic development. In the Indian financial system , commercial banks are the major mobilisers and disbursers of financial resources.

They have an all pervasive role in the growth of a developing country like India . The role of banks in accelerating the economic development of a country like India has been increasingly recognised following the nationalisation of fourteen major commercial banks in July 1969 and six more banks in April 1980 . With nationalisation , the concept of banking has undergone significant changes. Banks are no longer viewed as mere lending institutions. They are to serve the society in a much bigger way with a socio-economic development oriented. They are specially called upon to use their resources to attain social upliftment and speedier economic development. 3 Thomas Zacharias , ‘ Nationalised Banks : A Decades Evaluation of Performance’, Facts For You. (June 1995), To achieve the varied objectives of nationalisation, the nationalised banks have introduced innovative schemes in the mobilisation of resources as well as its disbursement . Nationalisation resulted in a comprehensive programme of branch expansion , innovations in mobilisation of savings , lending to priority sectors and weaker sections of the society and so on. The horizon of commercial banking in India that enlarged with nationalisation has further widened with the implementation of the Banking Sector Reforms in the year 1992-93 . Banks are now increasingly identifying themselves with national problems and thereby trying to bring about social and economic transformation in the country. However some disturbing trends have Emerged towards the end of the eighties and at the dawn of the nineties . Against the achievement in a few areas of business. the overall business performance as well as financial performance of the banks are not encouraging. Even the market share of the deposits of nationalised banks showed a decelerating trend.

The market share of the total deposits of the nationalised banks which was 63 .30 percent of the total deposits of the banking sector in India as on 31st December 1984 has come down to 62.75 percent by 31st March 1991 and decelerated further to 57.10 percent as on 31st March 1994.5 On the basis of the maior recommendations of the NarasimbamCommittee on Financial System (1991), the Government of India introduced certain Banking Sector Reforms from the fiscal year 1992-93. These reform measures, especially the capital adequacy standards and prudential accounting have in particular changed the entire complexion and character of Indian banking almost overnight. It has brought to light the alarmingly low capital base , high andgrowing non-performing assets and relatively low profitability 5 Indian Banks Association, Financial Analysis of Banks 1984,1990-91 and 1993-94, Indian Banks Association, Bombay.5 position of the nationalised banks. The capital of the nationalised banks is inadequate in relation to the risk assets and the off-balance sheet liabilities. Non-performing assets (NPA) which do not create any real income to the banks are eroding enormously their profitability. Non-performing assets of the nationalised banks were estimated by the Finance Ministry, Government of India to be Rs. 22,08,900 lakhs6 and Rs.23,74,115 lakhs7 as on 31st March 1993 and 31st March 1994 respectively. An increase in non-performing assets is detrimentaj not only to profitability, but also to the deployment of funds for productive purposes.

The observations of the Estimates Committee of the Lok Sabha on Customer Services and Security System in the nationalised banks (1989-71st Report) hold good even now: ‘the quality of the loan portfolio , the end use of credit and the rate of recycling of funds continue to constitute an area of concern.8 The poor state of affairs of the nationalised banks could be well understood from the fact that the twenty . The Estimates Committee of the Lok Sabha, 71st Report on Customer Services and Security System in Nationalised Banks, The Hindu, April 2, 1989, nationalised banks showed an aggregate net loss of Rs.3,64,292 lakhs and Rs . 3,44,664 lakhs during 1992 – 93 and 1993-94 respectively . All these banks have in fact showed negative profits during the year 1992-93. According to the classification of the Reserve Bank of India, seven of the nationalised banks – Bank of Baroda, Canara Bank , Corporation Bank , Oriental Bank of Commerce, Punjab National Bank, Union Bank of India and Vijaya Bank belonged to the list of Category A Banks during 1993-94 : they reported net profits . The banks which reported operating profits but net loss during the period and belonged to the list of Category B Banks consisted of the following six banks – Allahabad Bank , Bank of India, Dena Bank , Indian Bank , Indian Overseas Bank and Syndicate Bank. The banks which reported net loss as well as operating loss during the year 1993-94 were Andhra Bank , Bank of Maharashtra , Central Bank of India , Punjab and Sind Bank, U Co Bank and United Bank of India : they belonged to the list of Category C Banks. The average net profit of the twenty nationalized banks during the years 1984, 1989-90, 1992-93 and 1993-94 reveal a negative rate of growth.

The poor growth in net profits is further aggravated through increased growth in net losses.7 Like profitability, productivity of the banks too shows deceleration: productivity and profitability are closely inter-related. Not only capital adequacy, quality of assets, productivity and profitability, but also growth, social banking and customer service are areas of concern where a wide difference in performance exists among the nationalised banks. The business indicators of the banks have failed to attain substantial growth. The rise in bank charges, the long waiting at counters, the unhelpful attitude of the bank staff, the inordinate delay in the collection of outstation cheques, discounting bills, the failure to comply with the genuine instructions of the customers, the non-availability of necessary forms and so on continue to trouble the customer. The casual mpnner in which the employees deal with the public is a clear indication of the fall in general efficiency. Social banking had imposed substantial financial and managerial burden on the banking sector and the economy. In the name of helping the under-privileged, the banks have been helping the privileged classes : over the last few years there was gross-subsidisation instead of cross-subsidisation.

Patel I.G., ‘Inaugural Address, Bank Economists Conference’, in N.K.Thingalaya (ed), On Bankers and Economists’, Macmillan India Ltd., Bombay, 1980, Though nationalization has aimed at professional management, it has actually brought the banks to a dismal state of affairs , for, the post nationalisation period witnessed the replacement of ‘professional bent’ by ‘political bent’. 10 With this background, the actual performance of our nationalized banks and the problems if any they face are to be evaluated through a scientific study. Syndicate Bank , once regarded as a model bank by the Reserve Bank of India and other sister banks in the country, is chosen for a case study . With its rootsn in the rural soil, it has earned a name and fame for itself as the ‘ small man’s big bank’. It has performed tremendously well during the pre-nationalisation and early post-nationalisation periods. But in recent years , along with many other nationalised banks, there is deceleration in its performance .To obtain a clear picture, it is worthwhile to have a close look at the performance effectiveness of Syndicate Bank , which will further reflect the state of affairs in the rest of the nationalised banks in the country.

1.2 Objectives of the Study
The important objectives of the present study are, 1) To examine the growth and development of banking industry in India 2) To examine the extent of achievement of Syndicate Bank in relation to: a. Capital adequacy, quality of assets and profitability b. Social banking and growth c. Productivity and customer service 3) To make a comparative analysis of the performance effectiveness of Syndicate Bank in relation to the rest of the nationalised banks. 4) To put forward concrete suggestions and recommendations to make the performance of Syndicate Bank and other nationalised banks effective and efficient. 1.3 Scope of the study

A close look at the performance effectiveness of Syndicate Bank since 1984 is undertaken through a case study. For a comparative analysis, the performance of all the other nationalised banks in India ( Appendix I) is also evaluated10 since 1984. A period of ten years from 1984 to 1993-94 is taken for the study. The present study is undertaken by reviewing and analysing the performance effectiveness of Syndicate Bank and other nationalised banks in India by using an Economic-Managerial-Efficiency- Evaluation Model (EMEE Model) developed by the researcher. 1.4 Significance of the Study

The performance effectiveness of the nationalized banking industry that controls more than 90 percent of the banking business in India is an issue of serious concern to the Government of India, the national and international monetary authorities such as the Reserve Bank of India, the World Bank, the International Monetary Fund and so on: it is a seriously debating topic among academicians and public at large. Though a number of studies are available on banking industry, there is dearth of a comprehensive academic study on the performance effectiveness and managerial efficiency of the nationalised banks. A review of the available literature on banking reveals that no exclusive study on the performance effectiveness of banks has so far been attempted in India. In this context the present study may fill the gap to a certain11 extent. Further, it would throw some light on the performance of Syndicate Bank and other nationalised banks on the basis of the Banking Sector Reforms introduced in the country since 1992-93, as the study also covers a period of two years since the introduction of the reform measures. 1.5 Methodology

Performance evaluation is an important pre-requisite for sustained growth and development of any institution. As in the case of any institution, the evaluation of a bank’s performance too has to be undertaken in relation to its goals and objectives. Though many studies have been undertaken in India for evaluating the performance of banks, no single or universally acceptable technique/methodology has emerged so far. Assessment of a bank’s performance is beset with many difficulties on account of its diverse objectives that influence its performance: the affairs of the nationalized bank are conducted not merely on financial or business considerations in which case it would have been easier to evolve suitable parameters and thereby evaluate its performance. The researcher, after much deliberations has attempted to convert the broad objectives of the nationalised12 banks in terms of certain specific parameters to facilitate the evaluation of their performance. This is done in the light of the objectives of nationalisation as well as on the basis of the recommendations of the Narasimham Committee on the Financial System. After observing the various performance evaluation studies and assessing the gaps/deficiencies that exist in this field, the researcher has used six broad parameters in this study to evaluate and assess the performance of Syndicate Bank and other nationalised banks so as not to overlook the various aspects of the problem. The following are the six basic parameters used in the study to evaluate the performance of the individual nationalised banks. 1. Capital adequacy and quality of assets

2. Profitability
3. Social banking
4. Growth
5. Productivity
6. Customer service
The above basic parameters are the aggregate of a number of sub-parameters. All the basic parameters and sub-parameters are important in varying degrees towards an13 evaluation of the all round performance. However, it is hard to determine the influence of each of them independently towards performance . An optimum mix of these parameters would provide a comprehensive picture. Development of a proper Model incorporating the parameters and giving due weightage to them would provide a good measure of all round performance. Such a Model would avoid the limitations of evaluating performance on separate parameters too. 1.6 Sources of Data

The data required for the study is collected from both primary and secondary sources. Data pertaining to customer service, which is mostly qualitative in nature is collected by a survey covering eight percent of the branches of the nationalised banks in Kerala using an interview schedule. The schedule consisted of twenty nine questions brought under eleven sub-headings or areas of concern to customers . Reliable secondary data is made use of in areas where primary source is not accessible. The Financial Analysis of Banks and Performance Highlights of Public Sector Banks both published by Indian Banks Association form the most important source based on which the present study is accomplished. The Annual Reports of the twenty nationalised14 banks, Reserve Bank of India publications, publications of the Indian Banks Association Bombay, Indian Institute of Bankers Bombay, National Institute of Bank Management Pune, Individual Bank’s publications-Pigmy Economic Review of the Syndicate Bank, State Bank of India Monthly Review etc . form some of the secondary sources of data for the present study. 1.7 Scheme of the Study

The first chapter starts with a brief introduction characterising the importance of banking in economic development. It is followed by statement of the research problem, objectives, scope, significance of the study, methodology and sources of data of the study. The scheme of the research report and limitation of the study are also incorporated in the introductory chapter. Chapter II. A Review of Studies on Banking

A brief review of the available literature related to the problem under investigation is given in chapter two. Chapter III. Development of Banking in India
In the third chapter an overview of the growth and development of banking in India is given. Nationalisation of banks and its objectives are outlined here. A reference to the Banking Sector Reforms introduced in India on the basis of the recommendations of the Narasimham Committee on Financial System (1991) and its impact on Indian banking, especially on the nationalised banking sector also is outlined in chapter three. Chapter IV. A Profile of Syndicate Bank

A review of the history of Syndicate Bank is carried out in chapter four. The growth and development as well as organisation and management of the Bank is outlined in this chapter. Chapter V. Performance Effectiveness of Banks: The Theoretical Approach Chapter five presents the theoretical foundation of the
study. The Model developed by the researcher for the evaluation of the performance effectiveness of nationalized banks is discussed in detail here.16 Chapter VI.

Performance Effectiveness of Syndicate Bank and other Nationalised Banks : An Analysis Chapter six outlines the analytical part of the present study- analysing the performance of Syndicate Bank and other nationalised banks based on the parameters identified in the Model. Chapter VII.

Summary, Conclusions and Recommendations A summary of the entire research study, the important conclusions of the study, as well as the recommendations are included in chapter seven. 1.8 Limitation of the Study

A comprehensive picture of the impact of Financial Sector Reforms on Syndicate Bank and other nationalised banks could not be fully revealed by the present study, for, the study could cover a period of two years only since the introduction of the reform measures ie, 1992-93 and 1993-94. Overview of Banking and Financial Institutions The Banking Sector The banking system in India is significantly different from that of other Asian nations because of the country’s unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents.

Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and rural centers. The country’s economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the “exportled growth” of other Asian economies, with emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the country’s banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive fiveyear development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. In order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centers) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system.

Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, small-scale industries, exports, and banking activities in the developed commercial centers (i.e., metro, urban, and a limited number of semi-urban centers). The banking system’s international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Governmentdominated ownership structure has reduced the conflicts of interest that private banks would face. Financial Structure

The Indian financial system comprises the following institutions: 1. Commercial banks
a. Public sector
b. Private sector
c. Foreign banks
d. Cooperative institutions
(i) Urban cooperative banks
(ii) State cooperative banks
(iii) Central cooperative banks
2. Financial institutions
a. All-India financial institutions (AIFIs)
b. State financial corporations (SFCs)
c. State industrial development corporations
3. Nonbanking financial companies (NBFCs)
4. Capital market intermediaries
About 92 percent of the country’s banking segment is under State control while the balance comprises private sector and foreign banks. The public sector commercial banks are divided into three categories.THE INDIAN BANKING SECTOR: ON THE ROAD TO PROGRESS 61 State bank group (eight banks): This consists of the State Bank of India (SBI) and Associate Banks of SBI. The Reserve Bank of India (RBI) owns the majority share of SBI and some Associate Banks of SBI. SBI has 13 head offices governed each by a board of directors under the supervision of a central board. The boards of directors and their committees hold monthly meetings while the executive committee of each central board meets every week.

Nationalized banks (19 banks): In 1969, the Government arranged the nationalization of 14 scheduled commercial banks in order to expand the branch network, followed by six more in 1980. A merger reduced the number from 20 to 19. Nationalized banks are wholly owned by the Government, although some of them have made public issues. In contrast to the state bank group, nationalized banks are centrally governed, i.e., by their respective head offices. Thus, there is only one board for each nationalized bank and meetings are less frequent (generally, once a month). The state bank group and nationalized banks are together referred to as the public sector banks (PSBs). Tables 1 and 2 provide details of public issues and post-issue shareholdings of these PSBs. Regional Rural Banks (RRBs): In 1975, the state bank group and nationalized banks were required to sponsor and set up RRBs in partnership with individual states to provide low-cost financing and credit facilities to the rural masses.Table 3 presents the relative scale of these public sector commercial banks in terms of total assets. The table clearly shows the importance of PSBs.

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