PROBLEMS AND PROSPECTS OF

REGIONAL RURAL BANKS IN PUNJAB IN

THE POST REFORMS ERA

A THESIS

Submitted to the

FACULTY OF BUSINESS MANAGEMENT AND COMMERCE

PANJAB UNIVERSITY, CHANDIGARH

for the degree of

DOCTOR OF PHILOSOPHY

December 2007

ANSHU KATARIA

UNIVERSITY BUSINESS SCHOOL

PANJAB UNIVERSITY
CHANDIGARH
 ACKNOWLEDGEMENTS

It gives me a great pleasure to express my gratitude to

my respected supervisor Professor A. K. Vashisht, University
Business School, Panjab University, Chandigarh for guiding me
throughout the present study. His suggestions have been
extremely helpful in surmounting the problems that I faced
during the present study. Without his kind, ungrudging and
prompt help, this study would not have been completed.

I am indebted to Dr. Sanjay Kaushik, my co-supervisor,

Reader, University Business School, Panjab University,
Chandigarh under whose able guidance this study has been
completed.

I am beholden to Professor S. C. Vaidya, Chairman,

University Business School, Panjab University, Chandigarh for
creating congenial environment for research. I owe my
gratitude to Prof. S.P. Singh Former Chairman and Dean,
University Business School and Prof. K. K. Mangla also Former
Chairman and Dean, University Business School for
encouraging me for my research work. I am grateful to Prof. K.
K. Uppal (Retd.), Prof. Satish Kapoor, Prof. A. K. Saihjpal, Prof
D.K. Gupta, Prof. Meenakashi Malhotra, Prof. S. K. Chadda and
all other faculty members of the University Business School for
guiding me at all stages during these four years of research.

I wish to acknowledge my gratitude to the senior officials

of NABARD and RBI Chandigarh who helped me a lot in data
collection for the present study. Thanks are also due to the
senior officials of different Regional Rural Banks in Punjab for
allowing me to collect data from their branches. I am also
thankful to the customers of RRBs for providing information. I
thank all those researchers whose published work has helped
me to find out the research gap and undertake this study.

I acknowledge with thanks the support provided by Mr. S.

S. Bedi, Librarian, University Business School, Panjab
University, Chandigarh for the library. My heartiest thanks are
also due to administrative staff of the University Business
School, Panjab University, Chandigarh for their kind
cooperation.
 I am grateful to my parents Prof. D.C. Kataria & Mrs. Rajni
Kataria who has inspired me to complete this study
successfully. I am indebted to my sisters Puja & sakshi and my
in-laws, Rajan, Renu, & Meenu for constant inspiration and
encouragement and continuous moral support to complete my
work.

Finally, deepest debt is due to my wife Dr Parveen Kataria

(Gold Medalist, UBS) whose constant inspiration,
encouragement and help provided me with the strength,
without which I would not have completed my work. I will be
failing in my duty if I do not pledge a tone for the neglect that
my sweet son Master Aryan had at my hands with such
patience, forbearance and good cheer.

Chandigarh
December 27, 2007
(Anshu Kataria)

TABLE OF CONTENTS

Chapter Chapters Page No.

No.
1 INTRODUCTION 1-24
1.0 Introduction 1
1.1 Regional Rural Banks 2
1.2 Regional Rural Banks in Punjab 11
1.3 RRBs and Economic Reforms 14
1.4 More Recent Measures 19
2 RESEARCH DESIGN 25-64
2.0 Introduction 25
2.1 Review of Literature 25
2.2 Need and significance of the study 46
2.3 Scope of the Present Study 46
2.4 Objectives of the study 47
2.5 Research Methodology 48
2.5.1 Sample Selection 48
2.5.2 Data Collection 48
2.5.3 Analysis of Data 49
2.6 Limitations of the Study 59
3 OPERATIONAL AND FUNCTIONAL 65-198
PERFORMANCE OF RRBS
3.0 Introduction 65
 3.1 Analysis of Performance of RRBs
(From the Year 1991 to 2005) 65
3.1.1 Operational Performance 65-153
3.1.1. Branch Expansion 66
1 Deposit Mobilization 67
3.1.1. Borrowings 94
2 Credit Disbursement 97
3.1.1. Assets Classification 129
3 Volume of Business 146
3.1.1. Recovery performance 149
4 Comparison of Operational Indicators in Pre and Post
3.1.15 Reforms Period 151
3.1.1. Functional Performance 154-181
6 Deposits per branch 154
3.1.1. Loans & Advances per branch 157
7 Deposits per account 160
3.1.18 Loans & Advances per account 164
Credit deposit ratio 167
3.1.2 Incremental credit deposit ratio 171
3.1.2. Volume of business per employee 174
1 Volume of business per branch 178
3.1.2. Analysis of Performance of RRBs for the year 2006
2 (After merger of three RRBs) 181
3.1.2. Conclusion 190
3
3.1.2.
4
3.1.2.
5
3.1.2.
6
3.1.2.
7
3.1.2.
8
3.2

3.3

4 TRENDS IN PROFITS AND PROFITABILITY OF 199-305

RRBS
4.0 Introduction 199
4.1 Structure of Income 200-226
4.1.1 Interest and discount income 200
4.1.2 Commission, exchange and brokerage 214
4.1.3 Miscellaneous Income 217
 4.1.4 Total Income 220
4.2 Structure of Expenditure 227-253
4.2.1 Interest paid on deposits, borrowings etc. 227
4.2.2 Salaries 241
4.2.3 Other Operating Expenses 244
4.2.4 Total Expenditure 247
4.3 Trends in Net Profits/ Losses 254
4.4 Comparison of Income and Expenditure in Pre and Post
Reforms Period 257
4.5 Trends in Productivity and Profitability 258
4.6 Profitability Position of RRBs in the Year 2006 297
4.7 Conclusion 299
5 EVALUATION OF THE PERFORMANCE OF 307-404
RRBS FROM THE VIEW POINT OF
BENEFICIARIES
5.0 Introduction 307
5.1 Analysis of Survey of Sample Beneficiaries 307
5.1.1 Socio Economic Profile of the Beneficiaries 309
5.1.2 Awareness Level of the Beneficiaries 320
5.1.3 Purpose of Loan, Number of Times and Part of the Year
for Availing the Bank Credit 329
5.1.4 Filling of Application Form 334
5.1.5 Sanction and Disbursement of Loans 339
5.1.6 Repayment of Loan 352
5.1.7 Impact of Loan on Income 358
5.1.8 Problems in Rescheduling and Prepayment of Loan 361
5.1.9 Position of Assets Acquired from Amount of Loan 384
5.1.10 Help of the Bank in running the project 389
5.1.11 Opinion of Beneficiaries Regarding the Services
Provided by RRBs 392
5.1.12 Conclusion 401
6 EVALUATION OF BANKS PERFORMANCE 405-492
FROM THE VIEWPOINT OF EMPLOYEES
6.0 Introduction 405
6.1 Analysis of Survey of Sample Employees 405
6.1.1 Profile of the Sample Bank Employees 407
6.1.2 Opinions about the Adequacy/Inadequacy of
Infrastructural available in the District 410
6.1.3 Contribution of Bank in Development 416
6.1.4 Sanction and Disbursement of Loans 427
6.1.5 Supervision of Loan 449
6.1.6 Leakage and Misutilization 457
6.1.7 Recovery of the Loan Amount 470
6.1.8 Opinions with regard to various aspects of Regional
Rural Banks 476
6.1.9 Difficulties Encountered by the Bank Employees 480
 6.2 Conclusion 485
7 SUMMARY AND CONCLUSION 493-533
7.0 Brief Review 493
7.1 Regional Rural Banks in Punjab 495
7.2 Findings of the Study 497
7.2.1 Operating and Functional Performance of RRBs (1991-
2005) 497
7.2.2 Profitability Position of RRBs (1991-2005 508
7.2.3 Trends in Productivity and Profitability 513
7.2.4 Analysis of RRBs after merger (2005-06) 516
7.2.5 Perception of Beneficiaries of Regional Rural Banks 518
7.2.6 Perception of Bank Employees about Regional Rural
Banks 523
7.3 Suggestions 530
7.4 Areas for Further Research 533
APPENDIX 535-551
I Questionnaire for the Customers of Regional Rural 535
Banks
II Questionnaire for the Bank Officials of Regional Rural 543
Banks
BIBLIOGRAPHY 553-575

Brief Review:
The RRBs were set up mainly in the unbanked and under banked regions of the
country. An important aspect of the location policy was that the RRBs would cover a
compact area of not more than two or three districts where the weaker sections of the
population are predominant. During the seventies and the eighties, the maximum number
of RRBs was thus opened in those regions in the country that had the largest number of
backward districts. Recovery performance of several of these RRBs was unsatisfactory in
many of these states. Yet in the liberalized banking era, these banks had to become
competitive, improve their profitability and conform to prudential regulations of asset
classification and provisioning norms. At a time when most of the RRBs were escaping
credit activities because of chronically incurring losses. However, despite the banks
desisting from loan operations, these were not been able to turnaround from a loss-
making to a profit making banks.
In the year 1989 for the first time, the conceptualization of the entire structure of
Regional Rural Banks was challenged by the Agricultural Credit Review Committee,
which argued that the weaknesses of RRBs were widespread in the system and non-
viability was built into it, and the only option was to merge the RRBs with the sponsor
banks. At the time such a policy move was politically unthinkable, so the Reserve Bank
and the Government of India had not paid any heed to the Committee report. With the
liberalization of the financial system, the RRBs came under the scanner once again, but
this time in a policy regime that was too willing to let the market principles rule. The
Committee on Financial Systems, 1991 known as Narasimham Committee stressed the
poor financial health of the RRBs.
In order to impart viability to the operations of RRBs, the Narasimham
Committee suggested that the RRBs should be permitted to engage in all types of banking
business and should not be forced to restrict their operations to the target groups. This
recommendation marked a major turning point in the functioning of RRBs. The
suggestion of mergers of the RRBs with their sponsor bank was put in a modified form
that the sponsor banks might decide whether to retain the identities of sponsored RRBs or
to merge them with rural subsidiaries of commercial banks.
In the subsequent years, reforms of the RRBs largely followed the same format as
that of the commercial banks. Since the early 1990s, there was a complete freeze on
recruitment of new staff in the RRBs. As a part of comprehensive restructuring
programme, recapitalization of the RRBs was initiated in the year 1994-95, a process
which continued till 1999-2000 and covered 187 RRBs. Simultaneously, prudential norms
on income-recognition, asset classification and provisioning for loan-losses following
customary banking benchmarks were introduced. From 1996-97, there has been a
tendency to allow greater role and larger operational responsibilities to sponsor banks in
the management of RRBs.
With the initiation of reforms in the early 1990s, the Indian banking sector saw a
shift in approach. New measures were undertaken to induce efficiency and competition
into the system. The impact of this was seen in the subsequent policy decisions of the
government and the Reserve Bank of India (RBI), which had a significant impact on
RRBs. The important policy landmarks during this period included:
Asset quality classification and provisioning norms for RRBs (1995–96);
Rationalization of the remuneration structure for RRB staff that were brought at
par with other commercial bank officers;
Guidelines on staffing, as part of the efficiency norms for RRBs; and
Relaxation on limits set for lending to the ‘priority sector’.
These policies were formulated with the objective of improving the viability of
the operating structure of RRBs for delivering financial services in rural areas. Through
these changes, RRBs were geared to treat their advances with more caution than in the
past and repayment performance became a crucial operating parameter. RRBs were
allowed to relocate, merge or close down loss-making branches. Relocations or mergers
were undertaken mostly from relatively inaccessible rural areas to more vibrant semi-
urban locations. Licensing norms for opening new branches were relaxed. The impact of
these measures was augmented through fresh infusions of public capital into the RRBs
during the late 1990s, to make up for the accumulated losses of the past. This has resulted
in the revival of the financial health of most of the RRBs during the late 1990s.

Regional Rural Banks in Punjab:

In Punjab Regional Rural Banks came in existence in the year 1983. Shivalik
Bank and Kapurthala-Ferozpur Bank were established on March 30, 1983. Faridkot
Bathinda Bank was established on March 22, 1986. Malwa Bank and Gurdaspur-Amritsar
Bank were established on February 27, 1986. These five Regional Rural Banks served till
the year 2005. After that three RRBs, namely: Kapurthala-Ferozpur Bank, Gurdaspur-
Amritsar Bank and Shivalik Bank were merged to form a new bank i.e. Punjab Gramin
Bank on 13.09.2005. The total number of branches in Punjab in the year 2006 was 211
spread over 16 districts. Punjab Gramin Bank covered 8 districts with 148 branches;
Faridkot Bank covered 5 districts with 22 branches and Malwa Bank covered 3 districts
with 41 branches in the year 2006.
Regional rural banks in Punjab were established to overcome the deficiencies of
the rural credit system consisting of rural branches of commercial and cooperative banks.
The economic reforms initiated in 1992 had affected all the segments of the economy and
regional rural banks were no exception. The previous concessional approach towards the
regional rural banks was not supposed to continue in the future.
The regional rural banks found themselves in all together different condition. The
changed conditions had led to manner in which banking services were to be provided.
This had also given birth to new opportunities and challenges. There was no study, which
had analyzed the problems of regional rural banks in the state of Punjab in the post
reforms period. Therefore there was a need to appraise the performance of regional rural
banks in Punjab by identifying their problems and suggesting suitable measures.

The Objectives of the present study were as follows:

1) To study the magnitude and direction of operations of regional rural banks in
Punjab;
2) To evaluate the financial and operational performance of the regional rural banks in
Punjab;
3) To identify the problems and prospects of regional rural banks in Punjab;
4) To evaluate the performance of the RRBs from the point of view of the
beneficiaries; and
5) To evaluate the employee’s rating regarding the banks performance.

The present study endeavored to present the picture of the performance of the
Regional Rural Banks in Punjab by evaluating their performance in post reforms era. The
study covered all the five regional rural banks in Punjab. The study covered the period
from the year ending 31st March 1991 to the year ending 31st March 2006. From the year
ending 1991 to 2005, comparative performance analysis of all the five Regional Rural
Banks in Punjab was made. In the year 2005-06 the three RRBs of Punjab were merged
into a new Bank named as Punjab Gramin Bank. Therefore for the year 2005-06 financial
and operational performance of the three banks was analyzed separately.
The study was based on both primary as well as secondary data. The primary data
were collected through designed questionnaire as well as by conducting personal
interviews of the officials of the various Regional Rural Banks and the beneficiaries. In
the present study purposive sampling was used in the present study and a total sample
size of 350 beneficiaries (70 beneficiaries from each bank) and 100 employees (20
employees from each bank) was taken for the study.
The financial and operational information of the various Regional Rural Banks in
Punjab was studied and analysed by collecting information through the secondary data
i.e. from the annual reports published by the banks, RBI publications and the annual
reports published by NABARD.
Both financial and statistical tools were used in consonance with the objectives of
the study. In the financial analytical tools, the trend analysis, structural change analysis
and financial ratio analysis were used. In statistical analysis arithmetic mean, standard
deviation, ‘Z’ scores, chi square test; analysis of variance (ANOVA) and post hoc test
were used.

Findings of the Study:

In consonance with the objectives of the study, the analysis and interpretation was
discussed in four parts. The first part of the analysis evaluated the operational and
financial performance of the RRBs since economic reforms. The second part elaborated
the profitability position of the RRBs in the post economic reforms era. The evaluation of
the performance of the RRBs from the point of view of the beneficiaries was done in the
third part of the study. In the fourth part of the analysis the employee’s rating regarding
the banks performance was analyzed.

Operating and Functional Performance of RRBs (1991-2005)

(I) Operating Performance of RRBs (1991-2005)
(a) Deposit Mobilisation:
The main objective of any bank is to mobilize the savings of the people so as to
finance the investment requirements of the society. The analysis concluded that
although there was not any significant increase in the number of branches of the
Regional Rural banks in Punjab in the post reforms era, but there was a considerable
success in both deposit mobilization and credit creation. The saving deposits, current
deposits and term deposits increased by 14 times, 7 times and 13 times respectively
from the year 1990-91 to 2004-05. As a result the total deposits increased by 13
times. Gurdaspur-Amritsar Bank recorded the highest contribution of total deposits to
grand deposits for all the five RRBs in all the years under study, whereas Faridkot-
Bathinda Bank had the lowest contribution.
Gurdaspur-Amritsar Bank recorded the highest percentage of saving deposits in all
the years; highest percentage of current deposits in maximum number of years; and
highest percentage of term deposits in all the years except in the first two years under
study. On the other hand Faridkot-Bathinda Bank had the lowest percentage of
saving deposits in all the years except in two years; lowest percentage of current
deposits in maximum number of years; and lowest percentage of term deposits in all
the years except the years ending 1996 and 1997.
Gurdaspur-Amritsar Bank recorded the highest exponential growth rate in total
deposits; current deposits and term deposits. Gurdaspur-Amritsar Bank recorded the
greater exponential growth rate than the state average for all categories of deposits.
Malwa Bank recorded the highest exponential growth rate in saving deposits.
Faridkot Bathinda Bank had the lowest exponential growth rate in total deposits and
term deposits.
The total number of deposits accounts doubled from the year 1991 to 2005.
Gurdaspur-Amritsar Bank showed the highest number of total deposit accounts in all
the years; highest number of current accounts for maximum number of years; highest
number of saving accounts for almost all the years and highest number of term
deposit accounts from the year ending 1997 to 2005. Faridkot-Bathinda Bank showed
the least number of total deposit accounts and term accounts for all the years; least
number of current accounts for maximum number of years; and least number of
saving accounts for maximum number of years.
 Malwa Bank showed the highest exponential growth rate in total deposit accounts and
in saving deposits accounts, whereas Faridkot Bank showed the highest exponential
growth rate in current deposits; and Gurdaspur-Amritsar Bank in term deposits.
The analysis of the coefficient of concentration of all the five banks indicated that
there was not much concentration of deposits in just one channel of the three
categories. The deposits were spread in at least two categories during all the years.
The coefficient for all the Regional Rural Banks except for Shivalik Bank ranged
between 23% and 36%. The concentration of deposits was highest in the year 1996-
97 (35.85%). Shivalik Kshetriya Bank showed very less concentration of deposits,
varying from 0.83% to 7.67%.
The decomposition measure for deposits in various years was negligible which
indicated that although some changes took place in the composition of deposits yet
these were inconsequential and nugatory. Maximum structural changes took place in
case of Malwa Bank in 1992 over 1991 (0.2374) followed by Kapurthala-Ferozpur
Bank in 2005 over 2004 (0.0638). Shivalik Bank depicted least decomposition in
deposits. The decomposition measure of Faridkot-Bathinda Bank was more than the
industry average in almost all the years except the years 1992, 2000 and 2005. Malwa
Bank had decomposition measure more than the industry average in the years 1992
and 1994; Kapurthala-Ferozpur Bank from the year 1992 to 1995, 1997, 2002, 2004
and 2005 and Gurdaspur-Amritsar Bank in the years 1993, 1996, 2000 and 2001. It
signified that there were significant changes in the composition of deposits of this
bank during these periods.
On the whole it can be said that the total deposits increased over a period of time
since the inception of economic reforms.

(b) Borrowings:

It was observed that the total borrowing of all the five banks were more than
double in the year 2004-05 in comparison to the year 1990-91. Malwa Bank had the
highest percentage of borrowings in the maximum number of years, whereas Faridkot-
Bathinda Bank had the lowest percentage of borrowings in the maximum number of
years. Faridkot-Bathinda Bank recorded the highest exponential growth rate and
Kapurthala-Ferozpur Bank depicted a negative growth rate (-3.32%).

(c) Credit Deployment:

Regional Rural Banks were established with the purpose of financing to the weaker
section of the society, particularly to small and marginal farmers; agricultural
labourers; artisans, small entrepreneurs and persons of small means engaged in
trade, commerce or industry or other productive activities. The analysis of loans and
advances by the RRBs in Punjab revealed that the amount of loans increased
approximately 10 times from the year 1990-91 to 2004-05. Gurdaspur-Amritsar Bank
showed the highest contribution to the total loans & advances in almost all the years,
while Faridkot-Bathinda Bank showed the lowest contribution in all the years under
study. Malwa Bank recorded the highest exponential growth rate in loans & advances
(20.9%) over 1991. Overall exponential growth rate over 1991 was 17%.
Malwa Bank granted maximum amount of loans and advances to agriculture sector
from the year 1996 to 2001; Kapurthala-Ferozpur Bank from year 2002 to 2005 and
Gurdaspur-Amritsar Bank from the year 1991 to 1995. Malwa Bank granted
maximum amount of loans and advances to non-agriculture sector in the years 1997
to 1999; Kapurthala-Ferozpur Bank in the years 1992 to 1995 and Gurdaspur-
Amritsar Bank in the year 1996 and in the years 2000 to 2005.
Shivalik Bank started giving crop loans, loans for small roads and water transport
from the year 1997-98. For the year ending 2005, the bank distributed the maximum
amount (55.93%) in the form of crop loans. Very marginal amount (0.17%) was
distributed for small roads and water transport. Exponential growth rate was highest
for the crop loans. It was negative for small roads and water transport and for retail
trade / small business / professional & self employed.
Faridkot-Bathinda Bank started giving loans for other priority areas from the year
1997-98. For the year ending 2005, the bank distributed the maximum amount
(72.67%) for agriculture and allied purposes. Minimum amount (3.96%) was
distributed for small-scale industries. The exponential growth rate for loans was
highest for agriculture and allied purposes (19.8%). It was negative for loans for other
priority sectors.
Malwa Bank started giving loans for indirect agriculture from the year 1995-96 and
Kissan Credit Card scheme in the year 2000. For the year ending 2005 out of total
amount disbursed, the bank distributed the maximum amount (45.51%) in the form of
agriculture cash credit. Minimum amount (0.66%) was distributed for indirect
agriculture. Exponential growth rate was highest for disbursements in the form of
demand loans / overdrafts / DDs. It was negative for indirect agriculture (-7.94%).
Kapurthala-Ferozpur Bank started giving staff loans & conveyance /consumer/
housing loans and transport loans in the year 1995. For the year ending 2005 out of
total amount of loans and advances, the bank distributed 76.57% for crop loan &
KCC and negligible amount was distributed for transport sector. Exponential growth
rate was highest for staff loans & conveyance /consumer/ housing loans. It was
negative for loans for RA/VCTI, FM/agriculture implements, allied activities and
transport sector.
Gurdaspur-Amritsar Bank showed continuous increase in the disbursement of loans &
advances over the years under study. For the year ending 2005 out of the total amount
of loans and advances, the bank distributed 72.67% for agriculture and allied
purposes. Negligible proportion (0.29%) was distributed for transport sector.
Exponential growth rate was highest for agriculture and allied purposes and it was
negative for transport sector.
The analysis further reveals that the amount of loans increased approximately 10
times from the year 1990-91 to 2004-05, but there was a slight decrease in the number
of beneficiaries. The number of beneficiaries decreased by approximately 20%. For
the year ending 2005 Malwa Bank showed the highest number of beneficiaries and
Faridkot-Bathinda Bank showed the lowest number of beneficiaries. The exponential
growth rate for all the banks was either negative or very less.
The coefficient of concentration of loans and advances for all the Regional Rural
Banks ranged between 12% and 64%, thus indicating less concentration in fewer
channels. The concentration of loans and advances was highest in the year 2003-04
 (64.08%) for Kapurthala-Ferozpur Bank and lowest for Gurdaspur-Amritsar Bank in
the year 1993-94 (13.2%).
Maximum structural changes took place in case of Malwa Bank in the year 2003 over
2002 (0.1579) followed by Gurdaspur-Amritsar Bank in the year 1996 over 1995
(0.1184). It was negative in the year 1998 over 1997 (-0.0765) for Shivalik Bank and
for Faridkot Bank (-0.0494). For Gurdaspur-Amritsar Bank it was negative in the year
2003 over 2002 and 2004 over 2003. For the year ending 2005 the decomposition in
loans and advances was highest for Malwa Bank and was least for Gurdaspur-
Amritsar Bank. It was observed that the decomposition measure of Kapurthala-
Ferozpur Bank was more than the industry average in maximum number of years i.e.
from the year 1992 to 1998 and from 2000 to 2002. Malwa Bank had decomposition
measure more than the industry average in the year 1998 and from 2001 to 2005;
Shivalik Bank in the years 1999 and 2004 and Gurdaspur-Amritsar Bank in the years
1993, from 1997 to 1998 and in 2002. It signified that there were significant changes
in the composition of deposits of this bank during these periods.
On the whole it can be concluded that the credit disbursements of all RRBs
increased over a period of time since the inception of economic reforms. All the RRBs
distributed maximum proportion of loans to the agriculture sector.

(d) Assets Classification:

It was observed from the analysis that there was 4 times increase in total assets; 10
times increase in the standard assets and 6 times increase in sub-standard assets of all
the five banks from the year 1996-97 to 2004-05. The doubtful assets showed a
decrease by 31% in the year 2005 as compared to the year 1997 and the loss assets
increased marginally by 16%.
Gurdaspur-Amritsar Bank recorded the highest exponential growth rate for total
assets (24.80%), standard assets (35.60%) and loss assets (13.10%); Kapurthala-
Ferozpur Bank for sub-standard assets (33.50%) and Malwa Bank for doubtful assets
(21.90%).
Maximum structural changes took place in case of Kapurthala-Ferozpur Bank in 2001
over 2000 (0.0.39817) followed by Gurdaspur-Amritsar Bank in 2000 over 1999
 (0.035292), again Kapurthala-Ferozpur Bank in 2000 over 1999 (0.025147) and
Faridkot-Bathinda Bank in 2000 over 1999 (0.23375). It was observed that the
decomposition measure of Kapurthala-Ferozpur Bank was more than the industry
average from the year 1998 to 2002. Shivalik Bank had decomposition measure more
than the industry average in the year 1998, 1999 and 2004; Faridkot-Bathinda Bank in
the year 2000 and from 2002 to 2004 and Gurdaspur-Amritsar Bank in the years 2000
and 2001. It signified that there were significant changes in the composition of
deposits of this bank during these periods.

(e) Volume of Business:

Volume of business is another indicator, which highlights the movement in the

quantum of business done by a bank. In the present study the volume of business was
measured as total asset side or total of liabilities side less contra items. Contra Items were
taken as those items, which appear on both sides of the balance sheet. It was observed
that the total volume of business of all the RRBs grew by 12 times in the year 2004-05 as
compared to the year 1990-91. Gurdaspur-Amritsar Bank had the highest percentage and
Faridkot-Bathinda Bank had the lowest percentage for volume of business in all the years
under study. Gurdaspur-Amritsar Bank recorded the highest exponential growth rate
(22%) and it was lowest in Kapurthala-Ferozpur Bank (18%). Overall exponential growth
rate was 20.4%.

(f) Recovery Performance:

The average recovery rate of all the five Regional Rural Banks showed a decreasing
trend during first three years of study. After that it had improved. The overall
recovery rate improved from 64.16% in 1990-91 to 93.04% in 2004-05. The average
recovery rate of all the banks for all the years was 72.81%.
Malwa Gramin Bank showed the highest average recovery rate as well as the highest
recovery percentage in all the years under study. Its recovery percentage was above
90% in all the years, whereas the Kapurthala-Ferozpur Bank had the lowest average
recovery rate 61.84%. Gurdaspur-Amritsar Bank had the lowest recovery percentage
 from the year 1991 to 1995; Kapurthala-Ferozpur Bank from the year 1996 to 2001;
Faridkot-Bathinda Bank for the years 2002, 2003 and 2005 and Shivalik Bank had the
lowest recovery percentage for the year 2004.

(g) Comparison of Operational Indicators in Pre and Post Reforms Period

The exponential growth rate in saving deposits was higher in pre reforms period in
comparison to post reforms period, which showed that the saving deposits increased
at a faster rate immediately after economic reforms and later on the increase was
comparatively less.
The exponential growth rate in case of term deposits was high in pre reforms period
and it was very low in post reforms period. Whereas the current deposits showed a
higher exponential growth rate in the post reforms era. Both these changes may be
attributed to the increased business activities in the State.
The exponential growth rate in total deposits was higher in pre reforms in comparison
to post reforms period which shows that the total deposits increased at a faster rate
immediately after economic reforms and later on the increase was comparatively less.
It may be because the new private sector banks were opened in the State and had
attracted the customers to open their accounts in their banks.
The exponential growth rate in case of total loans and advances was higher in post
reforms period. This may be due to the introduction of more schemes for advancing
of money in the later years of study. The analysis further explains that in case of
individual bank, the exponential growth rate of loans and advances for Faridkot-
Bathinda Bank and Malwa Bank had declined in the post reforms period. It may be
because of change in the land use in these districts.
In the post reforms period, the overall exponential growth of loans and advances to
agricultural sector grew at higher rate (27.2%) as compared to non-agriculture sector
(10.4%). The higher growth rate of RRB’s in case of loans and advances had
witnessed that they were performing better in this sector for which they were opened.
Although the Regional Rural banks had started granting loans to non-agriculture
sector and they showed their existence. Loans and advances to agricultural sector for
 all the individual banks also showed exponentially higher growth rate in the post
reforms period except in Malwa bank. For individual banks, the loans and advances
to non-agriculture sector also showed growth at lower rate in post reforms period
except in Shivalik Bank and Kapurthala-Ferozpur bank. The analysis showed that the
RRBs in Punjab were achieving their objective of advancing loans to agriculture
sector.
The exponential growth rate in case of borrowings was high in pre reforms period
(9%) and it was very low in post reforms period (0.8%). This was because of two
banks: Malwa bank and Kapurthala-Ferozpur bank. Malwa bank recorded very low
amount of borrowings in the year 2002 and 2003 and Kapurthala-Ferozpur bank in
the year 2004 and 2005. To conclude it may be attributed that these banks were
relying on their deposits more rather than borrowing. This shows their self
dependency for meeting out the requirements of the borrowers.

(II) Functional Performance of RRBs (1991-2005)

(i) Deposits per Branch: There was a phenomenal increase in deposits per branch for
all the five banks taken together as well as individually. Overall deposits per branch
increased by 13 times in the year 2005 as compared to the year 1991. Gurdaspur-
Amritsar Bank and Shivalik Bank recorded the highest exponential growth rate
(21.6% each). The analysis on the basis of ‘Z’ scores depicts that, the performance of
Shivalik Bank was ranked at top followed by Gurdaspur-Amritsar Bank. In the year
wise performance of all the RRBs, the calculated value of ‘Z’ score values were found
to be negative from the year 1991 to 1999 with slight improvement. The performance
of deposits per Branch of all these banks improved consistently from the year 2000 to
2005. The values of standard deviation were increasing from year to year which
depicted fluctuations in the data of deposits per branch.
(ii) Loans & Advances per Branch: The amount of loans & advances per branch for
all the five banks taken together increased by 10 times in 2004-05 as compared to the
year 1991. The highest exponential growth rate (20.90%) was observed in Malwa
Bank and it was lowest in Kapurthala-Ferozpur Bank (13.7%). The overall
exponential growth rate was 16.8%. The inter bank ‘Z’ score revealed that the
 performance of Gurdaspur-Amritsar Bank was observed at top followed by Malwa
Bank and Faridkot-Bathinda Bank. The year wise analysis if ‘Z’ score of all the
RRBs, has depicted negative ‘Z’ score from the year 1991 to 2000, but has shown an
improvement in the loans and advances per branch from the year to year.
(iii) Deposits per Account: The deposits per account for all the banks showed an
increasing trend over all the years under study except in Faridkot bank for three years
and Malwa Bank for one year. The amount of deposits per account for all the five
banks taken together increased by 7 times during the year 2004-05 as compared to
1991. Malwa Bank recorded the highest deposits per account from the years 1991 to
1994 and from 1998 to 2001; Faridkot-Bathinda Bank from the years 1995 to 1997;
Shivalik Bank for 2001-02 and Kapurthala-Ferozpur Bank for the years 2003 to 2005.
Kapurthala-Ferozpur Bank recorded the highest exponential growth rate (18.10%)
and the Faridkot-Bathinda Bank showed the lowest deposits per account (9.30%). The
inter bank calculated value of ‘Z’ score revealed that the Malwa Bank raked at the top
followed by Kapurthala-Ferozpur Bank. The year wise analysis if ‘Z’ scores of all the
RRBs, was found negative from the year 1991 to 1998 with an improvement in their
deposits per account. The analysis further depicts that there was a considerable
improvement in deposits per account from the year 1999 to 2004.
(iv) Loans & Advances per Account: The loans & advances per account for all the
banks depicted an increasing trend over all the years under study except Shivalik bank for
the year 2000, Malwa Bank for 1998 and Kapurthala-Ferozpur Bank for the year 1994 &
1996. The amount of loans & advances per account for all the five banks taken together
increased by 13 times in the year 2004-05 as compared to 1991. Kapurthala-Ferozpur
Bank recorded the highest exponential growth rate (25.60%) and Malwa Bank the lowest
(16.80%). The overall exponential growth rate was 20.9%. The performance of
Kapurthala-Ferozpur Bank was at top followed by Faridkot-Bathinda Bank on the basis
of inter-bank ‘Z’ score. The year wise analysis of ‘Z’ scores of all the RRBs was found
negative from the year 1991 to 1998 with an improvement in the loans and advances per
account.

(v) CD Ratio: The CD ratio showed the decline almost in all the years under study. It
could be assigned to a lower rate of growth in credit deployment as compared to
 deposit mobilization. Malwa Bank showed the highest average CD ratio (62.68%)
and the Shivalik Bank lowest (37.68%). Overall average of all the five RRBs taken
together was 48.86%. The ‘Z’ scores values revealed that the performance of Malwa
Bank was ranked at top followed by Faridkot-Bathinda Bank. In the year wise
performance of all the RRBs, the calculated value of ‘Z’ score values depicted a
declining trend.
(vi) Incremental CD Ratio: No constant trend was revealed in ICDR. The average of
ICDR Ratio of all the banks for all the years taken together was 45.31%. Gurdaspur-
Amritsar Bank occupied the top rank in average incremental CD ratio (85.84%) and
Kapurthala-Ferozpur Bank showed the lowest percentage (31.06%). The inter bank ‘Z’
scores revealed that the performance of Gurdaspur-Amritsar Bank was at top followed by
Faridkot-Bathinda Bank and Malwa Bank respectively. The year wise calculated values
of ‘Z’ score of all the RRBs were found to be negative from the year 1991 to 1998 and in
the years 2000 and 2002. The banks showed improvement in the ICDR ratio only in three
years of the study i.e. from the year 2002-03 to 2004-05.

(vii) Volume of Business per Employee: The ratio grew by 13 times in the year
2004-05 as compared to 1991. All the banks showed almost a continuous increase in
this ratio in all the years under study except for one to two years in Faridkot, Malwa
and Kapurthala Banks. Gurdaspur-Amritsar Bank recorded the highest exponential
growth rate in volume of business per employee (22.5%) over 1991 and Faridkot-
Bathinda Bank lowest (18.20%). The overall exponential growth rate was 21.1%. It
was observed from the ‘Z’ score that the performance of Shivalik Bank was at top
followed by Malwa Bank. The year wise calculated values of ‘Z’ score of all the
RRBs were found to be negative from the year 1991 to 1999 but showed
improvement in the volume of business per employee. From the year 2000 to 2005
the banks showed an improvement as their ‘Z’ scores were positive.
(viii) Volume of Business per Branch: The volume of business per branch showed
growth by 12 times in 2004-05 as compared to the year 1991. All the banks had
witnessed almost a continuous increase in the volume of business per branch in all the
years except in Faridkot-Bathinda Bank in the year ended 1998 & 2004, Malwa Bank in
2002 and Kapurthala-Ferozpur Bank in the year 1998. Gurdaspur-Amritsar Bank and
Shivalik Bank recorded the highest exponential growth rate in (22.5% each) and Malwa
Bank the lowest (3.10%). The banks, which showed a lower exponential growth rate in
the volume of business per branch than the state average, were Faridkot-Bathinda Bank,
Malwa Bank and Kapurthala-Ferozpur Bank. On the basis of ‘Z’ score, it was observed
that the performance of Shivalik Bank was at top followed by Gurdaspur-Amritsar Bank.
The year wise calculated values of ‘Z’ score of all the RRBs were found to be negative
from the year 1991 to 1999 but showed improvement in the volume of business per
branch. From the year 2000 to 2005 the banks showed an improvement as their Z scores
were positive.

Statistically there was no significant difference among the five regional rural
banks on the basis of deposits per branch; loans & advances per branch; deposits per
account; loans & advances per account; incremental credit deposit ratio; volume of
business per employee and volume of business per branch. But significant difference was
found among the five banks on the basis of CD ratio. The Shivalik Bank was significantly
different from Faridkot-Bathinda Bank, Malwa Bank and Kapurthala-Ferozpur Bank in
terms of CD ratio. Malwa Bank was also significantly different from Gurdaspur-Amritsar
Bank. The mean differences of different banks represented that the Faridkot-Bathinda
Bank was better than Shivalik Bank; Malwa Bank was better than Shivalik Bank;
Gurdaspur-Amritsar Bank was better than Shivalik Bank; and Malwa Bank was better
than Gurdaspur-Amritsar Bank.

(III)Profitability Position of RRBs (1991-2005):

The analysis of the behaviour of the income and expenses of Regional Rural
Banks in Punjab in post reforms era has helped in examining the emerging trends in these
banks and to determine the extent to which these banks are able to influence the volume
of profits. The analysis of productivity and profitability ratios has helped in examining
the trends in productivity and profitability. The analysis has lead to the following
conclusions:

(A) Structure of Income:

(i) Total Incomes: Total income of all the Regional Rural Banks showed a rising trend in
all the years under study. Gurdaspur-Amritsar Bank recorded the highest exponential
growth rate (22.80%) and the Faridkot-Bathinda Bank the lowest (i.e.18.20%). Overall
exponential growth rate was 20.3%. Interest and Discount Income was the main source of
income of the Regional Rural Banks in Punjab. This accounted for 86.82% to 96.67% of
the total income of the banks during the time period under study. The contribution of
income from commission, exchange and brokerage to total income was almost negligible.
It ranged from 0.28% to 1.93% and the contribution of miscellaneous income ranged
from 2.36% to 12.19% of the total income.

(ii) Interest and Discount Income: It increased by 10 times in 2004-05 as compared to

the year 1991. Gurdaspur-Amritsar Bank showed the highest percentage, whereas it was
lowest in Faridkot-Bathinda Bank in almost all the years under study. Gurdaspur-
Amritsar Bank recorded the highest exponential growth rate (21.9%) and the Shivalik
Bank recorded the lowest (18%). Overall exponential growth rate was 19.9%.

Shivalik Bank showed the highest income from interest on balances with RBI & other
inter-bank funds till the year 1997. After the year 1997, the income on investments
got the highest share. Income from interest / Discount on Advances/Bills was having
the lowest share in all the years under study.
The income from interest / discount on advances/bills for Faridkot-Bathinda Bank
showed the highest percentage in the years 1991, 1992, 1999 to 2001 and from 2003
to 2005. The income from investment was highest in other years. The interest on
balances with RBI & other inter-bank funds was lowest in all the years.
The income from interest on balances with RBI & other inter-bank funds for Malwa
Bank showed the highest percentage till the year ending 1995. After that the income
from interest/discount on advances/bills was highest in almost in all other years. The
income on investment was lowest in all the years under the study.
Kapurthala-Ferozpur Bank showed the highest income from Income from
interest/discount on Advances/Bills from the year 1992 to 1996. The income from
interest on balances with RBI & other inter-bank funds was highest in 1991 and from
1997 to 2000. After this the income on investments got the highest share.
 For Gurdaspur-Amritsar Bank, the income from investment showed the highest
percentage in most of the years. The income from interest / discount on advances/bills
was highest in 1991, 1992 and from 1994 to 1996. In other years the income from
interest on balances with RBI & other inter-bank funds was highest
(iii) Income from Commission, Exchange & Brokerage: The percentage of this
income was very erratic in all the years. It ranged from 0.28% to 1.93% only. For the year
ending 2005 the contribution of Gurdaspur-Amritsar Bank to this income was highest
(i.e. 34.62%) followed by Kapurthala-Ferozpur Bank (28.98%), Malwa Bank (26.27%)
and Shivalik Bank (8.17%). The Faridkot-Bathinda Bank showed the lowest contribution
(2.96%) for the year 2004-05.

(iv) Miscellaneous Income: The percentage of miscellaneous income to total income

was also low in all the years. It ranged from 2.36% to 12.19%. For the year ending 2005
the contribution of Shivalik Bank was highest (i.e. 31.25%) and the Malwa Bank was the
lowest (4.77%).

The decomposition measures for most of the years were negligible which
indicated that though some changes took place in the composition of income yet these
were inconsequential. Maximum structural changes took place in case of Faridkot-
Bathinda Bank in 2005 over 2004 (0.50903) followed by Malwa Bank in 2004 over 2003
(0.10423). It was observed that the decomposition measure of Faridkot Bathinda Bank
was more than the industry average from the year 1994 to 1998 and in 2005. Malwa Bank
had decomposition measure more than the industry average in the years 1995, 1997, 1999
and 2004; Shivalik Bank in the years 1993 and 2001; Kapurthala-Ferozpur Bank in the
years 1992, 1994, 1997, 1998, 2002 and 2003 and Gurdaspur-Amritsar Bank in the years
2000 and 2001. It signified that there were significant changes in the composition of
deposits of this bank during these periods.

(B) Structure of Expenses:

(i) Total Expenses: Total expenses showed a rising trend in almost all the years except in
two to three years in all the banks under study. Total expenses increased by 6 times in the
year 2004-05 as compared to 1991. Gurdaspur-Amritsar Bank recorded the highest
exponential growth rate of total expenses (17.10%) and it was lowest in Kapurthala-
Ferozpur Bank (13.40%). Overall exponential growth rate was 15%. Interest paid on
deposits and borrowings formed the major part of the total expenses in all the years under
study. This accounted for 58.68% to 74.68% of the total expenses. Salaries and
allowances accounted for 14.48% to 30.69%. Other operating expenses constituted the
residual portion.

(ii) Interest Paid on Deposits and Borrowings: It increased by 7 times during 2004-05
as compared to the year 1991. Gurdaspur-Amritsar Bank accounted for the highest share
(ranging from 22% to 32%) and Faridkot Bathinda Bank had the lowest share (6% to
21%) of interest payment almost in all the years under study. Gurdaspur-Amritsar Bank
recorded the highest exponential growth rate (18.5%) and Kapurthala-Ferozpur Bank had
the lowest (15%). Overall exponential growth rate was 16.5%.

All the Regional Rural Banks in Punjab showed the highest payment of
interest on deposits in all the years under study. For Shivalik Bank these accounted for
84% to 97%. Residual portion of payment was interest on borrowing and on other
sources. The payment of interest on deposits varied from 75% to 94% for Faridkot-
Bathinda Bank; from 72.81% to 95.02% for Malwa Bank; from 67% to 99% for
Kapurthala-Ferozpur Bank and from 76.76% to 94.39% for Gurdaspur-Amritsar Bank in
all the years.

(iii) Salaries: The expenditure on salaries increased by 7 times in the year 2004-05 as
compared to 1991. Gurdaspur-Amritsar Bank accounted for the highest share of
expenditure on salaries (ranging from 26% to 37%) and Faridkot Bathinda Bank had the
lowest share (2% to 11%) of total salaries almost in all the years under study. Malwa
Bank had the highest exponential growth rate (22.60%) and the Kapurthala-Ferozpur
Bank had the lowest rate (12.60%). For the year ending 2005 Gurdaspur-Amritsar Bank
showed the highest proportion of salaries to total salaries (i.e. 31.69%) and these were
lowest (9.48%) in Faridkot-Bathinda Bank.

(iv) Other Operating Expenses: These increased by 5 times in the year 2005 as
compared to 1991. Gurdaspur-Amritsar Bank had the highest exponential growth rate
(14.60%) and the Malwa Bank had the lowest rate (1.60%). For the year ending 2005 the
contribution of Gurdaspur-Amritsar Bank to total operating expenses was highest (i.e.
38.94%) and the Malwa Bank had the lowest contribution (10.81%).

(v) Net Profit/Net Loss: In the first five years, there were overall net losses in the RRBs
(i.e. from 1991 to 1995). Only Faridkot-Bathinda Bank showed net profits for all the
years. Shivalik Bank showed net losses for the years 1994 &1995, Malwa Bank from the
year 1992 to 1995, Kapurthala-Ferozpur Bank from 1992 to 1997 and Gurdaspur-
Amritsar Bank from 1991 to 1997. Net profits of all the RRBs taken together increased
by 189 times from the year 1996 to 2005. Gurdaspur-Amritsar Bank had the highest
percentage of net profits of all banks taken together and the Faridkot-Bathinda Bank had
the lowest in the later years of the study.

The decomposition measures for most of the years were negligible thus indicated
that though some changes took place in the composition of expenses yet these were
inconsequential. Maximum structural changes took place in case of Faridkot-Bathinda
Bank in 1993 over 1992 (0.227784) followed by Malwa Bank in 1994 over 1993
(0.122987). It was observed that the decomposition measure of Faridkot-Bathinda Bank
was highest in the most of the years under study. It was more than the industry average in
the year 1993, 1995, from 1997 to 1999, 2002, 2003 and 2005. Malwa Bank had
decomposition measure more than the industry average in the years 1992, 1994, 1995 and
from 2001 to 2003; Shivalik Bank in the years 1992, 1996, 1998, 2000, 2001, 2004 and
2005; Kapurthala-Ferozpur Bank in the years 1996 and 2004 and Gurdaspur-Amritsar
Bank in the years 1992, 2001 and from 2003 to 2005. It signified that there were
significant changes in the composition of deposits of this bank during these periods.

(C) Comparison of Income and Expenditure in Pre and Post Reforms Period:

The total income of the five Regional Rural banks in Punjab grew at exponentially
higher rate in pre reforms period. Interest income and income from commission and
brokerage also showed the declining trend. The less exponential growth rate in
interest income in the post reforms period may be because of the decline in interest
rates by the RBI. The low income from commission and brokerage may be due to the
shifting of clients to those banks which are having more branches in the state or in
 other parts of the country. The miscellaneous income recorded higher exponential
growth rate in post reforms period.
The total expenses of the five Regional Rural banks in Punjab grew at exponentially
higher rate in pre reforms period. Interest paid and salaries also showed the same
trend, while other operating expenses recorded higher exponential growth rate in post
reforms period. The low growth rate in expenses in the post reforms period is good
for the RRBs in Punjab. These banks were running under losses in the pre reforms
period and this was observed that now the banks have witnessed profits in the post
reforms period.

(iv) Trends in Productivity and Profitability:

The movements of total income ratio and total expenses ratio were very much
unpredictable. But in all the years’ total income ratio was more than total expenses ratio.
Faridkot- Bathinda Bank indicated highest total income ratio for maximum number of
years and Kapurthala-Ferozpur Bank had the highest total expenses ratio for maximum
number of years. Kapurthala-Ferozpur Bank and Gurdaspur-Amritsar Bank indicated
lowest total income ratio for six years each. Faridkot Bank and Malwa Bank indicated
lowest total expenses ratio for five years each.

Interest earned ratio was more than interest paid ratio for all the banks in all the years
under study except for Kapurthala-Ferozpur Bank in the year ended 1991. These two
ratios were highest in case of Shivalik Bank for the years 1991 & 1992, Faridkot-
Bathinda Bank from 1997 to 2001 & 2004 and Malwa Bank for the years 1996 &
2002. Kapurthala-Ferozpur Bank indicated lowest interest earned ratio for maximum
number of years and Gurdaspur-Amritsar Bank indicated lowest interest paid ratio for
maximum number of years.
Other income ratio was very low in all the years. For the year ending 2005
Kapurthala-Ferozpur Bank recorded the highest other income ratio (1.73%) and the
Malwa Bank had the lowest ratio (0.44%).
Manpower expenses ratio and other operating expenses ratio showed very erratic
behaviour. Overall manpower expenses ratio and other operating expenses were
 1.23% and 0.51% respectively for the year 2004-05. For the year 2004-05, Faridkot-
Bathinda Bank recorded highest manpower expenses ratio (1.50%) and other
operating ratio (0.72%). These ratios were lowest ratio for Shivalik Bank (1.08% and
0.475 respectively).
The manpower expenses productivity ratio was negative in the first five years of the
study due to net losses. After that it showed almost an increasing trend. For the year
ended 2005 Shivalik Bank indicated the highest ratio (326.24%) and the Faridkot-
Bathinda Bank had the lowest ratio (121.01%).
The ratio of spread to volume of business did not show any regular trend. All the
banks showed positive ratio in all the years except Kapurthala-Ferozpur Bank, which
showed negative ratio for the year 1990-91. For the year ended 2005 Gurdaspur-
Amritsar Bank indicated the highest ratio (4.25%). Shivalik Bank showed
exceptionally low ratio in the last two years in comparison to other years.
The trend of incremental advances to manpower expenses ratio and incremental
deposits to manpower expenses was also very irregular. But incremental deposits to
manpower expenses ratio was more than incremental advances to manpower expenses
ratio in all the years. For the year ended 2005 Gurdaspur-Amritsar Bank indicated the
highest incremental advances to manpower expenses ratio (9.38 times) and Shivalik
Bank showed the lowest ratio (4.52 times). For the year ended 2005 Kapurthala-
Ferozpur Bank indicated the highest incremental deposits to manpower expenses ratio
(11.58 times) and Faridkot-Bathinda Bank had the lowest ratio (4.80%).
The ratio of net profits to volume of business was negative in the first five years of
the study due to net losses. After that it was positive and improved over a period of
time. Shivalik Bank showed negative ratio for the years 1994 & 1995, Malwa Bank
from the year 1992 to 1995, Kapurthala-Ferozpur Bank from 1992 to 1997 and
Gurdaspur-Amritsar Bank from 1991 to 1997. For the year ending 2005 the ratio of
Shivalik Bank was highest (4.53%) and the Faridkot-Bathinda Bank showed the
lowest contribution for the year 2004-05 (1.82%).
Statistically there was no significant difference among the five regional rural banks on the
basis of interest paid ratio; other expenses ratio; total expenses ratio; manpower expenses
productivity ratio; spread to volume of business ratio and incremental deposits to
manpower expenses ratio.

But statistically significant difference was found among the five banks on the basis of
interest earned ratio; other income ratio; total income ratio; manpower expenses ratio;
incremental advances to manpower ratio and net profits to volume to business ratio.

Shivalik Bank was significantly different from Kapurthala-Ferozpur Bank and

Faridkot-Bathinda Bank was different from Kapurthala-Ferozpur Bank in terms of
interest earned ratio. The mean differences of different banks represented that the
Shivalik Bank was better than Kapurthala-Ferozpur Bank and Faridkot-Bathinda Bank
was also better than Kapurthala-Ferozpur Bank.

Although there was significant difference among the five regional rural banks in
Punjab on the basis of non-interest income, but on the basis of multiple comparisons of
banks through Post Hoc Testing no significant difference was found among the different
banks.

Faridkot-Bathinda Bank was significantly different from Kapurthala-Ferozpur

Bank and Gurdaspur-Amritsar Bank in terms of total income ratio. The mean differences
of different banks represented that the Faridkot-Bathinda Bank was better than
Kapurthala-Ferozpur Bank and Gurdaspur-Amritsar Bank.

Malwa Bank was significantly different from Kapurthala-Ferozpur Bank and

Gurdaspur-Amritsar Bank in terms of manpower expenses ratio. The mean differences of
different banks represented that the Kapurthala-Ferozpur Bank was better than Malwa
Bank; and Gurdaspur-Amritsar Bank was better than Malwa Bank.

Shivalik Bank was significantly different from Malwa Bank and Malwa Bank was
different from Kapurthala-Ferozpur Bank in terms of incremental advances to manpower
ratio. The mean differences of different banks represented that the Malwa Bank was
better than Shivalik Bank; and Malwa Bank was also better than Kapurthala-Ferozpur
Bank.
 Malwa Bank was significantly different from Kapurthala-Ferozpur Bank in terms
of net profit to volume to business ratio. The mean differences represented that the
Malwa Bank was better than Kapurthala-Ferozpur Bank.

(IV) Analysis of RRBs after merger (2005-06)

On 13.09.2005 three RRBs, namely: Kapurthala-Ferozpur Bank; Gurdaspur-Amritsar
Bank and Shivalik Bank, were merged into new bank ‘Punjab Gramin Bank’. Punjab
Gramin Bank has been established with the sole and anxious objective to meet the
credit needs of the rural area with the view to uplift the rural poor by dispersion of
credit to make them self reliant and offer opportunity for safe deployment of their
savings and using the same for national development. The bank has its head office at
Kapurthala and has network of 148 branches and 3 extension counters spread in 8
districts of Punjab state.
For the year ending 2006 total staff of 739 was employed in the Regional Rural
Banks in Punjab. Punjab Gramin Bank had total staff of 541 persons, Faridkot Bank
had 80 persons and Malwa Bank had 118 staff members.
Punjab Gramin Bank had the highest amount in saving deposits (81.26%), current
deposits (78.47%) as well as term deposits (71.77%) in the year 2005-06 followed by
Malwa Bank and then Faridkot-Bathinda Bank.
Total borrowings of Punjab Gramin Bank were 50.27%; of Malwa Bank were 29.14%
and of Faridkot-Bathinda Bank were 20.59% of the total borrowings of all the three
banks taken together.
Punjab Gramin Bank had the highest amount in granting of loans and advances in the
year 2005-06. It granted 67.4% of the total loans and advances of all the three banks
taken together. While Malwa Bank contributed 23.63% and Faridkot-Bathinda
Kshetriya Gramin Bank contributed only 9.97% of total loans and advances. Out of
the total credit disbursements of Punjab Gramin Bank, the maximum loans were in
the form of KCC (67.52%). Faridkot-Bathinda Bank and Malwa bank distributed
maximum loans to agriculture sector (76.38% and 55.86% respectively).
Punjab Gramin Bank had the highest amount in all categories of assets. Faridkot-
Bathinda Bank had lowest amount in standard assets and loss assets and Malwa Bank
had lowest amount in sub standard assets and doubtful assets.
Punjab Gramin Bank had the highest amount in volume of business (75.90%)
followed by Malwa Bank (16.47%) and Faridkot-Bathinda Bank (7.63%). During the
year ending 2006, the recovery performance of Faridkot-Bathinda Bank was 90% and
of Malwa Bank was 95.02%.
Punjab Gramin Bank had the maximum amount of deposits per branch and Faridkot-
Bathinda had minimum amount of deposits per branch for saving deposits, current
deposits and term deposits. Punjab Gramin Bank had the maximum amount and the
Faridkot-Bathinda Bank had minimum amount of loans and advances per branch.
Punjab Gramin Bank had the maximum amount of deposits per account for saving
deposits, current deposits and term deposits. Malwa Bank had the minimum term
deposits per account. Faridkot-Bathinda Bank had minimum amount of deposits per
account for saving deposits and current deposits.
Faridkot-Bathinda Bank showed the highest CD ratio and the Punjab Gramin Bank
the lowest. Faridkot-Bathinda Bank showed the highest ICDR and Punjab Gramin
Bank the lowest. Punjab Gramin Bank showed the maximum volume of business and
the Faridkot-Bathinda Bank the lowest. Punjab Gramin Bank showed the maximum
volume of business per branch and Faridkot-Bathinda Bank the lowest.
Punjab Gramin Bank had the maximum income under all heads. It had 62.89% in
income from interest; 66.18% income from commission, exchange & brokerage and
66.61% as miscellaneous income of the total income of all the three banks taken
together in the respective category. Faridkot-Bathinda Bank had lowest income from
commission, exchange & brokerage (2.54%) and Malwa Bank had lowest
miscellaneous income (4.66%).
Punjab Gramin Bank had the maximum expenditure under all heads. It had 62.86% in
interest paid on deposits and borrowings; 61.76% in salaries and 68.20% in other
operating expenses of the total expenditure of all the three banks taken together in the
respective category. Faridkot-Bathinda Bank had minimum expenditure in all the
categories. It had 12.47% in interest paid on deposits and borrowings; 14.97% in
 salaries and 11.48% in other operating expenses of the total expenditure of all the
three banks taken together in the respective category.

(V) Perception of Beneficiaries of Regional Rural Banks:

A survey of beneficiaries was conducted to study their perception about the Regional
Rural Banks. It was observed that the maximum number of respondents had belonged
to higher age group. Comparatively lesser number of respondents belonged to
younger class. In all the banks, males constituted the highest proportion of the total
respondents. This male-female ratio couldn’t be attributed to chance alone. It depicted
the male dominance in the society, especially in the rural areas where still the male
member of the family is considered the bread winner.
The analysis depicted that 58% of respondents belonged to the joint families. More
than 50% respondents from all the banks had 4 to 6 members in the family, whereas
46% of the respondents had only one earning member in the family. This shows that
in the rural Punjab dependents on agriculture is still more.
From the occupation point of view 37% of the total respondents had agriculture and
diary farming as their main occupation; 29% had retail business; 14% belonged to
service class; 4% were labourers and 18% respondents were in other occupations.
47% of the total respondents had annual family income from rupees one lac to two
lac; 20% respondents had income more than rupees two lac, while 33% had income
less than rupees one lacs. The occupational distribution also signified the dependence
of respondents on agriculture.
In the study the positive correlation was found between earning members and
economic condition; between economic condition and income; between age and
income and between age and economic condition, which was significant at 5% level
of significance. The negative correlation was observed between family members and
income, but the value of correlation was insignificant.
Maximum number of respondents availed the credit only once. More than 50% of
respondents had heard about development programmes of the RRBs but only 30% of
the respondents had knowledge about these programmes. Maximum number of the
sample respondents availed the loan in the months of April to June and very few
beneficiaries availed during the months of January to March. Maximum number of
the sample respondents (37.14%) took the bank credit for agriculture and allied
activities. Statistically there was no significant differences, among different Regional
Rural Banks under study, as far as the inclination for the purpose of loans were
sought.
Maximum number of respondents was of the opinion that the application form was
cumbersome, while few said that it was easy. 50% filled the application forms
themselves; 48% of the respondents took help from the bank officials and rest took
help from commission agents, friends and relatives. The most commonly encountered
difficulty stated by the respondents was the language and the length of the application
form. Respondents also faced difficulty due to irrelevant and technical information
asked in the application form. Merely 6% of the total respondents did not face any
difficulty.
The analysis observed that 12% respondents got the loan sanctioned in less than 15
days; 41% respondents got sanctioned loan in 15 -30 days; and 47% in more than 30
days from the submission of the application. Statistically the inter-bank difference in
relation to the time taken in sanctioning loans was insignificant.
Further only 50% of the respondents were sanctioned 100% loan, therefore they were
totally satisfied. Rest of the borrowers got loan amount less than that applied for and
few out of them expressed their dissatisfaction. 41% of beneficiaries who were
granted loan less than 100% of the loan applied for, met the gap requirements by
borrowing the amount from money lenders; 34% borrowed from friends or relatives
and rest 25% filled the gap from own resources. This depicted that still the money
lenders and relatives play a significant role in meeting the requirements.
38% of the total borrowers had to visit the bank from 2-4 times; 35.86% from 4 to 6
times; 20.57% visited only once, while 6.57% visited more than 6 times before they
got the loan confirmed. But most of the beneficiaries were found satisfied for
sanctioning the loan in time.
37% of the total sample borrowers got help from member of panchayat/MC; 26%
from revenue officials; 19% from political leaders; 10% from non government
organisations and 8% from gram sewak for seeking loan from the banks. Most of the
beneficiaries take the help from their village persons in getting loan, may be because
of their shyness, illiterate or less knowledge about the bank formalities etc.
52% of the total respondents expressed that disbursement of loan was delayed by 15
days due to the inspection schedule of the bank. There was a delay of more than 15
days in disbursement of loan in case of 48% of the respondents. 53% of the total
respondents expressed that it was delayed by 15 days due to getting Girdawari from
the Patwari and the delay was more than 15 days in disbursement of loan in case of
47% of the respondents. The calculated value of chi-square was less than its
corresponding table value, which implied that there was homogeneity in the delay
caused in the disbursement of loan due to inspection schedule and Girdawari from
Patwari and the delay in disbursement was independent of the concerned banks. This
shows that it may be due to the bank’s requirements for distribution of loans and
delay may not on the part of the bank.
Maximum percentage of the total respondents (47.43%) were paying the installment
monthly; 26.57% were paying half yearly; 15.43% quarterly; 6.57% annually and
repayment was linked to crop in case of 4%. The analysis clearly depicts that about
50% of the beneficiaries believe in repaying their loans monthly and want to decrease
their burden.
77% of the total respondents expressed the view that repayment schedule was related
to income generated for the purpose for which loans were taken, 19% said that it was
somewhat related, while 4% said that it was not related at all. The analysis clearly
signified the satisfaction of the beneficiaries with the repayment schedule regarding
the repayment of loans.
71% of the respondents expressed the view that they were always paying the
installments on scheduled time, 26% said that sometimes the repayment was delayed,
while 3% said that they never paid the installments on scheduled time. Statistically
there was significant difference amongst the banks regarding the regular payment of
loan installments. Therefore it can be concluded that the extent of regularity in
repayments depended upon the banks in question.
21% of the respondents expressed the view that it was delayed due to less income
earned; 18% gave the reason that the losses were due to accidental reasons; 16% for
market fluctuations; 29% respondents gave personal reasons for irregular or non
payment of installment; and 16% losses due to natural calamities. This analysis
clearly expressed that about three fourth of the beneficiaries were repaying their loans
in time.
The loans also uplifted the economic conditions of the beneficiaries as about 80% of
the total respondents had an increase in their income from main occupation after
getting the loan amount and about 45% of the beneficiaries were of the view that their
income from subsidiary occupation increased after getting the loan amount.
Regarding the rescheduling of the repayment of loans, opinion was sought from the
beneficiaries and it was observed that 23% of the total respondents agreed that the
extra charges were taken by the bank for rescheduling the payment of loans; 34%
agreed that they had to meet too many officials; 43% agreed that they had to make
unnecessary visits; 28% said that they had to submit large number of documents; 18%
agreed that the bank demands for reschedule; 25% agreed regarding the callous
attitude of the officials; 43% agreed regarding the delay in taking the decision on the
part of bank officials and 33% agreed with unnecessary enquiries by the bank. In
overall we may conclude from the analysis that the beneficiaries face problems in the
rescheduling of the repayment of loans.
With regard to the problems faced by the loanees in pre payment of loan amount, It
was observed that 26% of the total respondents agreed with the statement that there
was penalty for pre payment of loan amount; 24% with multiple window system;
36% with procedural formalities for the prepayment of the loan; 15% for demand by
bank officials; 23% with callous attitude of the officials; 32% with the delay in taking
decision for pre payment of loan amount and 25% with unnecessary enquiries at the
time of pre payment of loan amount. It is very interesting to observe that the banks
make unnecessarily attitude for the prepayment of loans by the loanees.
It was observed in the analysis that almost all the beneficiaries acquired the assets for
which loans were taken. Further the assets existed fully in case of 73% of the total
beneficiaries. Statistically, the inter-bank differences in respect of the existence of
acquired assets were not significant. Out of 27% of the respondents, 94 respondents
stated that they disposed off the asset either partially or fully. The respondents gave
 the various reasons for disposing off the asset as: 36.14% due to domestic needs of
the family; 16.87% to pay the old debt; 16.27% due to illness; 12.05% for starting
new business; 10.84% for marriage and other functions and 7.83% due to litigation.
38.3% had disposed off the assets within one to two years; 28.72% within six months
to one year; 20.21% within two to five years and 11.70% in less than six months from
the acquiring of the asset. This depicted that about one third of the loanees disposed
off the assets which they acquired out of the bank loan.
For the facilities given by the bank for running the project, 51% of total respondents
said that banks helped them in taking decisions; 43.71% said that the bank was
providing information about the new developments; 40.29% of the loanees viewed
that banks made arrangements for tie up with the suppliers/sellers and 30% viewed
that bank gave them training. 70.86% of total respondents viewed that follow up
action of the bank helped them in running the project smoothly.
67% of the total respondents agreed with the view point that the bank was meant for
people with low income. 67% of the respondents agreed to the statement that the
people around the beneficiaries were aware about the existence of the bank and the
services provided by the bank. 62% of the respondents agreed to the statement that
the entire process for submission of loan application to getting of loan was
cumbersome. 24% of the total respondents agreed to the statement that the language
and questions in the performa of loan application were simple. 81% of the total
respondents agreed to the statement that the staff of the bank was very cooperative.
91% of the respondents expressed their satisfaction regarding the services provided
by the bank.

(VI) Perception of Bank Employees about Regional Rural Banks:

Out of the total composition of the RRBs employees, it was observed that 80% were
male and 20% were female. Further the analysis revealed that 13% of the sample
employees were managers, 42% were officers, 9% were accountants and 36% were
clerk cum cashiers. 33% of the sample employees had experience of less than 10
years, 42% from 10-20 years and 25% had more than 20 years of experience.
Majority of the bank employees were of the view that the transport facilities and
educational facilities were reasonable and communication facilities were good. The
majority of the bank employees emphasized that the power supply, medical facilities,
marketing facilities and R & D facilities were very poor and very few considered
these as good or excellent.
Majority of employees agreed with the statement that Regional Rural Banks
contributed in state development by improving the standard of living of the people;
by increasing per capita income of the state; in making the people self sufficient; in
providing employment to many people; in improving the infrastructural facilities and
in owing business without money.
Maximum number of employees agreed that Regional Rural Banks provided
sufficient loans in the district; improved the customer base in the district; improved
standard of living of the people of the district and provided investment opportunities.
Maximum number of employees disagreed that Regional Rural Banks were focusing
only on small farmers and these were providing insurance service.
Regarding the various criterion for determining the suitability of a project and for
sanctioning the loan amount, the majority of bank employees (i.e. more than 70%)
were of the view that in all cases they gave more consideration on security of loan;
potential incremental income; capability of client and creditworthiness of the client.
50% to 57% of the employees were of the view that they also consider in some cases
the supporting, marketing & infrastructural facilities available as well as the
technical feasibility of the project for determining the suitability of a project and for
sanctioning the loan amount. Hence, it may be concluded that in overall they
consider all the points for loan project depending upon the amount of loan.
Regarding the type of security and appraisal of the customers by the bank after receipt
of the application for determining the suitability of a project, maximum number of
bank employees (77% to 89%) was of the view that in all cases, minimum unit size;
unit cost, quality of assets, initial grace period and repayment period were appraised.
While others expressed that different points were appraised depending upon the
amount of the loan.
Regarding the decision about the amount to be disbursed, the maximum number of
respondents expressed that in all cases requirements of the borrowers, maximum limit
prescribed by the appropriate authority, area of land in case of crop loans and scheme
under which loan was taken were considered. While others expressed that these points
were considered depending upon the amount of the loan.
Maximum number of employees (62%) were of the view that bank generally sanction
the loan from 7 to 15 days; 30% said that loan was sanctioned in 30 days and very
few were of the view that the banks take more than 30 days to sanction the loan.
Statistically the inter-bank differences in relation to the time taken for the sanction of
the loan, was found insignificant.
Maximum number of employees (67%) expressed that bank generally disburse loan
in 7 days; 20% said that loan was disbursed in 15 days, while 13% said that loan was
disbursed in 30 days. Statistically the inter-bank differences in relation to the time
taken for the disbursement of loans were insignificant.
Maximum number of employees agreed that difficulty in disbursement of loans was
due to delay in availability of inputs, animals, machinery; due to non-availability of
draft facility with RRBs; due to lack of communication from bank to borrowers; non
availability of margin money and delay of coordination between bank and suppliers.
Statistically the inter-bank differences in relation to the various reasons given for the
difficulty in disbursement of loans were found insignificant.
Maximum number of employees agreed that the wrong identification of beneficiaries
for financial assistance was due to wrong issue of yellow card by the development
authority and due to inefficient verification of beneficiaries’ because of shortage of
the bank staff. Statistically the inter-bank differences, in relation to reasons for wrong
identification of beneficiaries were insignificant.
Regarding that how the banks supervise the loans, various statements were given to
the employees like regular payment of installment, periodical supervision/ monitoring
of the asset, no supervision because of security on loan, faith on the client, and
reliance on guarantor. Statistically the inter-bank differences in relation to the
supervision of loans were insignificant. The various responses were as follows:
o 93% of the total sample employees observed the regular payment of the installment
due to their strict supervision, while 7% said that the regular payment of the
installment was observed in selective cases only.
o 80% of the total sample employees answered that in all cases, periodical
supervision and monitoring of the asset was done, while 20% said that it was done
in selective cases only.
o Regarding the statement that no supervision of loans was required because of the
security on loans, maximum number of employees were indifferent. Negligible
(4%) of the total sample employees were of the opinion that in all cases, no
supervision was required because there was security on loan; 42% said that
supervision was not required in selective cases.
o Maximum number of bank employees (63%) were of the opinion that bank could
trust clients in selective cases only; while few employees expressed that in all cases
the bank had the faith on the client.
o 21% of the total sample employees answered that in all cases, the bank rely on the
guarantor, while 46% said that bank rely on the guarantor in selective cases only.
33% employees showed their ignorance on this point.
32% said that the supervision of the loan was done quarterly; 31% said that it was
conducted monthly. 30% employees said periodicity of supervision of the loan varied
from crop to crop, while 7% said that it was done after six months. Statistically the
inter-bank differences in relation to the frequency and periodicity of taking action for
supervision were insignificant.
Maximum number of employees agreed that the monitoring system was effective.
Statistically the inter-bank differences in relation to the existing loan monitoring
system, was insignificant.
Regarding the problems in the monitoring system, maximum number of employees
agreed that the shortage of the staff posed a problem in the monitoring system. While
maximum number of employees disagreed that corruption at various stages;
manipulation of results by the supervisor and callous attitude of the staff for
supervision posed a problem in the monitoring system.
 24% of the bank employees were of the view that said that there was
misutilization/leakage, while 76% said that there was no misutilization/leakage.
Statistically the inter-bank differences in relation to the leakage in the amount of loan,
was insignificant.
Out of those respondents who feel that there was leakage in utilization of bank funds,
58% were of the view that the leakage was less than 20%; 38% said that it varied
from 20% to 40%, while only 4% said leakage was from 40% to 50%. This shows
that the beneficiaries did not use the amount of loan for the purpose for which it was
taken. Statistically the inter-bank differences in relation to the misutilization of loan
were insignificant.
Maximum number of employees (more than 70%) were of the opinion that borrowers
utilized the amount for the return of old debt; starting of new business; extravagant
expenditure on social ceremonies; illness; unforeseen circumstances and the domestic
needs, hence causing for the leakage or misutilization of the amount of loan. 40% to
60% of employees agreed that it is due to litigation and wrong selection of the
project. Maximum number of employees disagreed that inadequate credit was a cause
for the leakage or misutilization of the amount of loan. Statistically the inter-bank
differences in relation to the reasons for leakage or misutilization of loan were
insignificant.
Regarding the measures to check leakage or misutilization of the amount of loan the
responses were as follows:
o 41% of the sample employees said that payment on bills was directly made by the
bank fully to the supplier. 44% said that partially it was done. 4% said that
sometimes the payment on bills was directly made by the bank to seller or supplier
while 11% expressed it was never made directly by the bank to supplier.
o Maximum number of employees (86%) said that proper inspection of branch
documents was done by the bank; 7% said that partially it was done; 3% said that
the branch documents were inspected by the bank in some cases while, 4%
expressed that inspection was never done.
o Regarding the acquisition of the asset in the presence of bank employee, 40% of
bank employees agreed; 31% said that partially it was done; 11% said that in some
 cases it was followed; 7% expressed that very rarely it was followed and 11% said
that it was never done. This shows that in majority of the cases the banks take care
to acquire assets in their presence fully or partially.
o 54% of the sample employees said that random supervision of client was done by
the RRB fully; 30% said that partially it was done; 8% said that sometimes it was
done; 4% said that hardly was it done and 4% expressed that it was never done.
o Statistically the inter-bank differences in relation to the measures to check leakage
or misutilization of the amount of loan were insignificant.
53% of the total respondents said that the recovery rate was more than 80% and 47%
were of the view that it was 70% to 80%. The inter-bank differences in relation to the
rate of recovery, was insignificant.
Regarding the reasons for low recovery of loan amount from the clients the maximum
number of employees (more than 50%) agreed that the low recovery of loan amount
from the clients was because of inadequate income due to insufficient credit. 40-50%
employees agreed that it was due to non proper application of credit; unrealistic
repayment schedule; willful default by the clients and promises of writing off loan by
political parties. The inter-bank differences in relation to the reasons for low recovery
were insignificant.
61% of the total respondents said that the recovery system was excellent; 24% said
that it was good. 5% said that it was reasonable and satisfactory, whereas 10% said
that it was poor. The inter-bank difference in relation to the opinion regarding the
existing recovery system was insignificant.
The maximum number of employees expressed the opinion about branch expansion
as either good or reasonable.
84% of the total respondents gave the opinion regarding the insufficient staff as per
the requirements of their branch, while 16% said that it was adequate. Statistically the
inter-bank difference in relation to the opinion regarding the staff strength was
insignificant.
The employees were asked that whether they find the job in regional rural bank as
challenging, giving job satisfaction and whether there was potential for growth in this
job or not. 76% of the total respondents said that the job was challenging; 64% said
 that it was giving them satisfaction and only 43% said that there was potential for
growth in the job. In overall the bank employees feel satisfied in the banks.
The maximum number of employees rated their bank either reasonable or good.
Statistically the inter-bank differences in relation to the condition of bank viz a viz
other regional rural banks were insignificant.
Regarding the difficulties faced by the employees in the bank, 84% were of the view
that there was overload of work in the bank; 45% expressed the poor working
environment in the bank; 11% had problems due to long working hours; 55% were
unsatisfied with financial rewards; 12% were unhappy due to communication gap
between bank and customers; 60% were facing unhealthy competition from
commercial and cooperative banks and 39% were unhappy due to undue political
pressure.
Regarding the personal difficulties 21% of the sample employees were of the view
that they faced difficulty due to distance of the bank from their residence; 40% due to
non-availability of housing facility near branch; 7% due to non-availability of
communication facility; 44% due to non-availability of transportation facility; 38%
due to improper arrangement of food and water in the bank and 18% were unhappy
due to lack of security. The point of dissatisfaction of employees may be that the
employees were residing at their native places rather than living nearer the banks.
Regarding the difficulties faced by the bank employees with the customers, 85% said
that there was difficulty due to illiteracy of the customers; 73% faced problem
because the customers did not know anything about banking; 63% were facing
problem because customers were totally dependent on bank officials; 30% were
unhappy because customers were not paying dues at proper time; 27% were unhappy
due to unnecessary queries by the customers and 4% had problems due to behaviour
of the customers.
70% of the total sample employees responded that there was grievance cell in the
bank to handle the complaints and problems of the customers.

On the whole it can be said that the total deposits increased over a period of time
since the inception of economic reforms. The credit disbursements of all RRBs also
increased. All the RRBs distributed maximum proportion of loans to the agriculture
sector. It has been observed from the analysis that there was a manifold increase in total
assets and volume of business. The overall recovery rate improved from 64% in 1991 to
93% in 2005. There was a phenomenal increase in deposits per branch; loans & advances
per branch; deposits per account; loans & advances per account; volume of business per
employee and volume of business per branch for all the five banks. The CD ratio showed
decline almost in all the years under study, whereas no constant trend was revealed in
ICDR. It could be assigned to a lower rate of growth in credit deployment as compared to
deposit mobilization.
Total income and total expenses of all the Regional Rural Banks showed a rising
trend in all the years under study. In the first five years, there were overall net losses in
the RRBs. After that the net profits of all the RRBs taken together increased by 189
times.
The movements of total income ratio and total expenses ratio were very much
unpredictable, but in all the years’ total income ratio was more than total expenses ratio.
Interest earned ratio was more than interest paid ratio in all the years. Other income ratio
was very low in all the years. The manpower expenses productivity ratio was negative in
the first five years of the study due to net losses. After that it showed almost an increasing
trend. The ratio of spread to volume of business had also not shown any regular trend.
Incremental deposits to manpower expenses ratio was more than incremental advances to
manpower expenses ratio in all the years. The ratio of net profits to volume of business
was negative in the first five years of the study due to net losses. After that it was positive
and improved over a period of time.

Suggestions:
After analyzing the performance of the Regional Rural Banks in Punjab and
perception of the beneficiaries and the employees, the following measures are suggested
for improvement in the functioning of these banks:
1. The operations of the RRBs are in villages and this study shows that the
majority of the villagers are not conversant with the banking procedure.
 Therefore the bank employees should help them and educate them regarding the
banking operations and formalities.
2. There should be one liaison officer in the Regional Rural Banks. The main task
of the liaison officer should be to listen to the problems of the rural masses
about the banks and to help them in overcoming those problems.
3. Many beneficiaries face difficulty in filling the application forms. The language
of the application form as well as the loan application procedures should be
made simple so that it could be understood and followed easily.
4. Awareness level and the knowledge about the various development plans of the
RRBs is very low among the target customers. Therefore to create awareness
about these programmes, the Regional Rural Banks should organise Personal
Contact Programmes (PCP) like other public and private sector banks. It should
organize seminars, conferences etc. to disseminate information about the
existence of the bank and its services among the rural masses.
5. The efforts should be made to organise training programmes for the rural people
so that they take up additional activities which are compatible with the farming
such as poultry farming, bee keeping, piggery, diary farming etc. This is
expected to increase the credit needs of rural people and their income level.
6. Special efforts should be made to create more demand of loans and advances in
the rural areas. The developmental programmes should be designed keeping in
mind the psychology of the rural masses. RRBs should work hard for the
progressive improvement in credit deposit ratio.
7. Some beneficiaries were facing problems in the rescheduling for the pre
payment of loans. Therefore the pre-payment schedule should be rationalized
within the norms. It will be of immense help to the rural people.
8. The RRBs should adopt strict loan monitoring system to ensure timely recovery
of loans. In this study it was found in some cases that some beneficiaries have
misutilised the amount of loan for some other purpose than the purpose for
which the loan was taken and some beneficiaries disposed off the loans without
the permission of the bank. The bank should disburse the loan after proper
examination. The field officer should meet the beneficiaries regularly and
 scrutinize the asset as well as every overdue account closely. The stringent
measures should be used for the doubtful and bad accounts.
9. The infrastructural facilities especially the power supply, medical facilities,
marketing facilities, research and development facilities, communication
facilities etc. should be improved in the regional rural banks. This will help in
improving the working of these banks.
10. There should be more liquidity in the RRBs and these banks should be equipped
with all the adequate facilities like clearance facility, availability of draft, ATM
etc.
11. Wrong identification of the beneficiaries was also a major problem. The
development authority should ensure that yellow cards are issued to the
beneficiaries only after proper identification. Strict procedure should be laid
down for the proper identification.
12. Due to the small structure of RRBs, it is difficult for them to compete with
public and private sector banks. Moreover many public sector banks and other
financial institutions are also meeting the credit needs of the rural masses. To
ward off such problems, it should be made a policy that only regional rural
banks should be allowed to have their operations in rural areas.
13. Most of the customers of the rural banks are illiterate, which is a major problem
for the employees of these banks. Therefore the employees of these banks
should be recruited from the local areas, who are conversant with the local
language and are able to communicate better with the rural people.
14. The basic pay, dearness allowance and house rent allowance for the employees
of the RRBs are similar with other public sector banks, but other incentives like
CCA, medical allowances etc are not same, which create dissatisfaction among
the employees of the RRBs. Therefore the pay packages of these employees
should be made similar to the other public sector banks.
15. There is understaffing in the RRBs. The ratio of number of customers to number
of employees in RRBs is very low. Therefore more employees should be
recruited in these banks so that the customers are attended properly. Sufficient
staff will help in the proper functioning and monitoring of the banking system.
 16. The recruitment of the banks staff is done by the State Recruitment Boards.
These employees generally belong to urban areas. These employees face many
difficulties like housing, education for children etc. in rural areas. So they don’t
want to stay in villages. Therefore proper incentives should be given to these
employees so that they are motivated to work in rural areas.
17. From the Doaba Belt of Punjab Maximum people of rural areas have settled
abroad. They do not require simple loans and advances; rather they need high
tech banking facilities like money transfers etc. Therefore it has become
imperative for the RRBs to introduce all the facilities.

Areas for Further Research:

The present study focused only on Punjab State. It would be imperative to
conduct a comparative study of RRBs in different states so as to identify the factors
which govern the success or otherwise of the operations of rural banks in different
conditions.
In this study, it was found that in majority of cases the employees of Regional
Rural Banks were not satisfied. At present the major problem faced by the industry is
higher attrition rate. To retain efficient employees has become a critical issue for the
success of any enterprise. Therefore there is a need to study the HR policies of the RRBs
with a focus on identifying factors leading to the satisfaction among employees
In the present study the concentration was only on the Regional Rural Banks of
Punjab State. A comparative study of rural banks and urban banks can be conducted so as
to identify the measures which can be useful in the rural banks to improve their
performance.
In the recent past significant developments have taken place in different circles
namely political, economic and social. These changes have brought in new opportunities
and challenges for the banks. Therefore a study is needed for examining these challenges
and opportunities for the rural banking industry for making appropriate policy for their
regulation and governance.
 REFERENCES

Annual Reports:

1. Annual Report of NABARD for the year 2006-07, pp 1-2.

2. Annual reports of the Regional Rural Banks from the year 1990-91 to 2004-05
collected from head offices of the respective bank and office of NABARD.
3. Annual reports of the Regional Rural Banks from the year 1990-91 to 2005-06.

Reports of Various Committeees:

1. Interim Report of the Independent Commission on Banking and Financial Policy
available at: www.macroscan.org
2. Narasimhan Committee Report, 1991
3. Report of Agricultural Credit Review Committee (Khusro Committee 1989)
4. Report of Parliamentary Estimates Committee (2002-03)
5. Report of Sardesai Committee, 2005
6. Report of Agricultural Credit Review Committee, Reserve Bank of India,
Bombay, 1989.
7. Report of Committee on Financial Systems, 1991 (Narasimham Committee,
1991)
8. Report of Dantwala Committee, 1977.
9. Report of Kelkar Committee on Regional Rural Banks, 1986.
10. Report of Narasimhan Committee, 1991.
11. Report of Steering Committee on Regional Rural Banks, 1981.
12. Report of the Advisory Committee on Flow of Credit to Agriculture and Related
Activities from the Banking System, RBI, June 2004. (Vyas Committee, 2004)
13. Report of the Banking Commission, 1972.
14. Report of the Commission on Farmers' Welfare, (Government of Andhra Pradesh-
Chairman: Prof. Jayati Ghosh), Chapter 4 titled ‘Rural Credit’ Dec. 2004.
(Available at http://www.macroscan.org)
15. Report of the Committee to Review Arrangements for Institutional Credit for
Agriculture and Rural Development (CRAFICARD), 1981.
16. Report of Vyas Committee, 2004.
17. Reserve Bank of India (1981), "Viability of RRBs: A Study", pp. 200-204.
18. The 2nd Report of the Estimates Committee (2004-05), [Review of Action taken by
Government on the recommendations contained in the Sixteenth Report of
Estimates Committee on the Ministry of Finance and Company Affairs
(Department of Economic Affairs – Banking Division) – ‘Regional Rural Banks’,
Dec. 2004.
 19. The Estimates Committee (2002-03), ‘Regional Rural Banks’ Sixteenth Report on
the Ministry of Finance and Company Affairs, Department of Economic Affairs,
Banking Division.

Research Papers:

1. Balishter and R Singh (1989), "An Evaluation of Performance RRB in Agra

District of U.P." Financing Agriculture, pp 16-21.
2. Balishter, Kumar S and R Singh (1992), "Performance of Regional Rural Bank in
Uttar Pradesh". Agricultural Situation in India, pp 27-32.
3. Balishter, Singh Y and M Singh (1990) "Role of RRB in Upliftment of Weaker
Section - A Study in Agra District of U.P." Agricultural Situation in India, pp 345-
49.
4. Bapna, M.S. (1988), "Regional Rural Banks: Their working & Growth ", Rural
India, Vol. 51, No.9; Sept., pp.177-82.
5. Bedi S (1988), "Economic Viability of RRBs: A Case Study of Haryana", Indian
Journal of Agricultural Economics, pp 43- 421.
6. Bhattacharya P (1994), "Problems and Prospects of RRB's - A Case Study of
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