A Study of Scheduled Commercial Banks

IJARED 2(2) 116-158 © The Author(s) 2014 [email protected] www.emeacollege.ac.in ISSN:2348-3342

Performance Evaluation of Commercial Banks in Kerala Using Credit-Deposit Ratio: A Study of Scheduled Commercial Banks

Abdurazaque. P. M. Department of Economics , EMEA College of Arts and Science, Kondotti, Kerala

Abstract: Financial efficiency is the yardstick for the measurement of the performance of banks in the banking sector both in the present and future. A well developed banking system is a necessary pre-condition for economic development of a modern economy. Besides providing financial assistance to economic growth, banks can also influence the direction in which these resources are to be channelized. Banks are playing a major role in the mobilization capital in a county. In order to optimize credit flow and to ensure higher efficiency of credit creation, a monetary tool, called Credit-Deposit (C- D) Ratio was introduced by RBI. Commercial banks have achieved noteworthy prominence in the financial intermediation process in Kerala since the nationalization of banks.. This study attempts to examine the performance of commercial banks in the state by focusing on Credit-Deposit Ratio

Keywords: Commercial Banks, Credit Deposit Ratio, Priority Sector Lending

A well developed banking system is a necessary pre-condition for economic development of a modern economy. Besides providing financial assistance to economic growth, banks can also influence the direction in which these resources are to be channelized. Banks are playing a major role in the mobilization capital in a county. It plays a pivotal role in the development of the economy of any nation. Proper banking facilities are necessary for the development of a nation. It promotes development in all sectors like agriculture, industry, trade, commerce and transport etc. Banking institutions mobilize savings and use them for productive purposes. It is the life-blood of economic progress. International Journal for Advanced Research in Emerging Disciplines (IJARED)

In a modern economy banks are to be considered not only as dealers in money but also as the leaders in development. They are not only the store houses of country’s wealth but also the reservoirs of resource necessary for economic development. it is the growth of commercial banks in 18th and 19th centuries that facilitated the occurrence of industrial revolution in Europe. Similarly, the economic development in modern developing economies like India largely depend on the growth of sound banking system

Banks are backbone to economic development through the financial services provided by them. The efficient and effective performance of the banking industry over time is an index of financial stability. Banks play an important role in the mobilization and allocation of resources in an economy. The sound financial position of a bank is the guarantee not only to its depositors but equally important for the whole economy of the nation.

Deposits and Credits are inflow and outflow, respectively, of funds of the banks. Bank credit (in the form of loans and advances) has a dynamic role to play in the regions and sectors, such as self- employed production units, small farmers and small-scale enterprises, as their growth and survival depends on external finance. The credit is deployed by commercial banks based on the deposits mobilized from the public after making allowances for statutory requirements prescribed by RBI from time to-time. Sustained efforts have been made by commercial banks to induce people to keep a part of their savings as bank deposits. Deposits mobilized by the banks are utilized for: (i) loans and advances, (ii) investments in government and other approved securities in fulfillment of the liquidity stipulations, and (iii) investment in commercial papers, shares, debentures, etc. up to a stipulated

119 International Journal for Advanced Research in Emerging Disciplines (IJARED) ceiling. Commercial Banks enjoys a special privilege of credit creation by multiple expansions of deposits.

The banking system in India consists of two main sectors- the organized sector and the unorganized sector. The organized sector is composed of the Reserve Bank of India the commercial banks. The commercial banks are of two types namely, the scheduled banks and non-scheduled banks. Scheduled banks are those banks whose name appears in the second schedule of the Reserve Bank of India act 1934. Non-scheduled banks are those banks whose name is not included in the second schedule of the RBI Act 1934. The scheduled banks are of two types nationalized and non-nationalized. It also includes the new generation banks, foreign banks and the co-operative banks. The unorganized sector comprises of indigenous bankers and local money lenders. Besides these two sectors there are also some institutions in the Indian banding system such as post office savings bank , the industrial finance corporations, state finance corporation et. The reserve bank of India is the leader of the Indian banking system.

Commercial Banks

The term commercial bank refers to all those institutions, which accept deposits repayable on demand and lend money for short periods for genuine commercial and industrial purposes. They are the oldest banking institutions in the organized sector of the Indian money market and cater to needs of trade, commerce, industry, agriculture, small business and ever other sectors. With a wide network of branches throughout the country commercial banks command a major share in the total banking operations. Most of these banks were established as joint stock companies with share holding by private individuals, but in the second half of the 20th century all the big banks have been nationalized and

120 International Journal for Advanced Research in Emerging Disciplines (IJARED) presently 27 banks constitute the strong public sector in the commercial banking in India. Besides the public sector commercial banks a large number of private sector commercial banks including the new generation banks and a large number of foreign commercial banks are also operating in India.

Banking Sector in Kerala

Adequate and affordable capital is critical for development of an economy. Kerala boasts of a well-developed banking infrastructure. Commercial, Nationalized, Co-operative banks and a large number of Gramin banks have sprung up within the state. Although, Kerala has only 1per cent of the total land area, it has 4 per cent of bank branches. This indicates that people of the state are highly financially literate. Kerala has largest number of bank branches among the semi urban areas in the country.

At the end of March, 2013 Kerala had total of 5207 bank branches which shows and increase of 424 branches compared to March 2012. Despite Kerala’s small size, this is on par with large states like Bihar, Punjab and Rajasthan, as on March ,2013 , banks in Kerala including commercial banks and co-operative banks disbursed Rs. 171712 Cr. as advances .

Deposit mobilization is an inevitable activity of all banks for augmenting credit flow to the development and priority sectors of the state. Overall Bank deposits in Kerala increased by 16.77 per cent from Rs. 200572 crores in March, 2012 to to Rs.234217 Cr. in March,2013. Scheduled Commercial Banks in Kerala accounted for 3.32 per cent of deposits of the country.

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Non Resident Indian Deposits

The large scale migration of Malayalees to Gulf region and the remittances send by them has played a significant role in the economic development of the state. Kerala is one of the states in India attracting largest amount of NRI remittance. As per State Level Banking Committee data the total NRI deposits in banks in Kerala as on March 2013 was Rs. 75882 Cr marked a growth of 36.6 percent on March 2013 over the same period of previous year. The private sector banks have mobilized major chunk of the NRI deposits followed by the State Bank of Travancore.

Credit Deposit Ratio (CDR)

In order to optimize credit flow and to ensure higher efficiency of credit creation, a monetary tool, called Credit-Deposit (C-D) ratio was introduced by RBI. The tool is also sometimes referred to as Loan-to-Deposit ratio, as it reflects total advances as a proportion of total deposits and thus measures the spread between outflow and inflow (thereby indicating efficiency of credit creation). Credit-Deposit ratio of Commercial Banks has many-folds significance. Primarily, it is a measure of the utilization of resources by the banking system. The ratio is an important tool of monetary management; magnitude of the ratio shows management’s aggressiveness to improve income by higher lending operations. In a way, performance of banking industry may be gauged through value of the ratio, since it reflects as to how the funds are utilized by the banks to generate their revenue and increase the market share. In fact, the actual or possible level of C-D ratio might be one of the significant factors which the Reserve Bank of India could take into account in formulating measures of general credit control. Credit-Deposit ratio is proportion of loan created by banks from deposits it receives, in

122 International Journal for Advanced Research in Emerging Disciplines (IJARED) other words its capacity of banks to lend. High ratio indicates banks are generating more credit from its deposits and vice-versa. The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources.

It is the ratio of how much a bank lends out of the deposits it has mobilized. Credit Deposit ratio is an important criterion to measure the performance of the working of a bank. It is the ratio of total deposits to total credit provided by the bank. In early 2000, Credit Deposit Ratio (CDR) of the Public Sector Banks in Kerala was very low. During this period, banks were reluctant to disburse loans for education, housing, self employment etc for fear of growing Non-Performing Asset (NPA) in the Banking Sector. In view of effective interventions by the Central and State Governments, bank managements were forced to extend loans to needy groups relaxing their policies. As per RBI data , the total credit of Public sector Banks in Kerala grew by 16 per cent as on March 2013 to Rs.121700 Cr., while aggregate deposits went up to14 per cent during the same period reflecting an increase in CD ratio from 80.52 in March 2012 to 82.03 in March 2013. The C-D ratio of Tamilnadu, Maharashtra and Andhra Pradesh are above 100, indicating that banks in Kerala have idle funds for which there is inadequate demand or banks are reluctant to lend credit. CD ratio in Kerala has been increasing over the last three years. Though low, Kerala’s CD ratio is greater than All India average.

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Figure No.1. Credit Deposit Ratio (2009-2013) 100 80 2011 2012 2013, 82.03 2010 60 2009 40 20 CD Ratio

Credit Deposit Ratio Credit 0 2008 2009 2010 2011 2012 2013 2014 Year

Statement of the Problem

The present study is mainly focused on examining the role of commercial banks in promoting economic and social development in Malappuram district. It is proposed in this study to evaluate the performance efficiency of commercial banks by assigning various parameters like deposit mobilization, credit expansion, priority sector lending, credit-deposit ratio, profitability, the impact of non- performing assets on profitability etc. The main focus of the present study is examining the credit-deposit ratio of commercial banks in Malappuram district. Commercial banks are passing through a critical phase since the launching of New Economic Policy back in 1991. It envisaged the opening of all spheres of economic activities, especially, banking and insurance sectors to the global players.

124 International Journal for Advanced Research in Emerging Disciplines (IJARED) of deposits and deployment of funds in the different sectors of the economy, especially agriculture and small scale industries. They achieved this progress in a highly protected and regulated market with regard to interest rates, allocation of funds, competition and expansion of branches. The natural result was deterioration in customer service, lack of innovative products, reluctance in introducing new technology, high interest rates etc. In this context, reforms were introduced in the banking sector on the basis of the recommendations of Narasimham Committee I and II. In this background, here an attempt is made to assess the performance of commercial banks in Kerala.

Objectives of the Study

1. To examine the performance of commercial banks in Kerala after the economic reforms

2. To evaluate the performance efficiency of commercial banks in attracting deposits and lending credit

3. To evaluate the Credit- Deposit ratio in order to ascertain the deposit lending pattern in the state

4. To assess the role played by commercial bank in the development of the state and district.

Review of Literature and Methodology

This part of the paper deals with the review of literature and related studies available on the topic. With a view to lay down an adequate foundation for the present investigation, a brief review of the recent literature has been made. The impact of Credit- Deposit ratio on bank profitability is not a widely studied topic. However some of the relevant studies on financial performance of banks as well as Credit -Deposit ratio and its implications are

125 International Journal for Advanced Research in Emerging Disciplines (IJARED) discussed in this section. This is mainly aimed at understanding the concept associated the study in detail and to find out the existing research gaps, so as to ensure that we are not ‘re-inventing the wheel’.

Ommen (1976) studied in detail the origin and development of banking sector in Kerala. He explains the origin of banking in Kerala among Christian Community in Tiruvalla in Travancore and Trichur in Cochin. The Christian centers developed banking and commercial agriculture in those days. The early institutions were of unit banking type. The banks were located mostly in villages receiving deposits from small savers and lending credit to small peasants and traders. Advances were unsecured on secured by land.

Preetha Menon (1977) has conducted a study with the objectives of assessing the performance of the Kerala based scheduled banks during 1989-1996. The study was based on secondary data. The analysis has revealed a fall in the credit deposit ratio in Kerala during the period. The objective of the study was to scrutinize long term refinance to the state of Kerala and to examine the working of the rural infra structure found in Kerala. The rate of growth in refinance disbursement in Kerala is relatively higher than that of all India level. The performance of Kerala was better than other south Indian states in the building up of rural infra structure development fund.

Das and Maiti (1998) analyzed the movement of Credit-Deposit ratio of commercial banks in West Bengal and compared these ratios with those for a few other states. As per their findings, C-D ratio displayed a downward trend for every state. Further, there existed a considerable variation in the ratio, not only across the districts but across the different regions of a given state as well. In

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West Bengal, in particular, the C-D ratio remained below the all- India average.

Kishore Sharma (2000) studied in detail the Credit Deposit Ratio of Commercial Bank in Kerala. He examined the pattern and trend in the behavior of credit-deposit ratio (CD) of commercial banks in Kerala. He has identified the major determinants of Credit- Deposit ratio in the state. Deposits increased faster than advances since 1992. The non-resident component of deposit also increased. The Credit Deposit ratio declined in Kerala during 1990s.

Arya (2001) studied the role commercial banks in providing priority sector credit in Kerala. The study revealed the fact that trade and service sector received more than half of the priority sector credit. The share of commercial banks in priority sector credit disbursement is less than that of co-operative sector.

Devika ( 2002) has made a comparative analysis of the performance of the Kerala based banks. The study was conducted with the objective of comparing the Kerala based public, private and co-operative banks comparing their relative efficiency and examining their role in agricultural financing. The researcher has found the declining trend of C D ratio in Kerala. The profits of Kerala based banks are low due to non-performing assets. The banks which have come to the forefront are basically agricultural financiers. Hence agricultural finance as such does not affect performance as generally believed.

Pushpangathan’s (2003) analysis brings out the fact that commercial banks have not played any significant role in the intermediation of the huge surplus generated by foreign remittance forth growth observed in Kerala in 1990s. The Credit Deposit ratio was low during the period. The source of credit for

127 International Journal for Advanced Research in Emerging Disciplines (IJARED) the growth of the service sector has come either from informal sector or from own fund.

Narayana (2003) looked into the emerging inequalities in credit deployment in Kerala. Kerala is a land of small scale industries. This is one reason for the low credit absorption capacity of Kerala. The construction, food manufacturing and processing industries report low amount of credit per account. He has categorically denied any possibility of negative attitude by banks.

Report of the Committee of Financial Sector Plan for North- Eastern Region (NER), 2006, identified three basic issues in the NER: (i) low CD ratio, (ii) non-availability of hassle-free credit, and (iii) complexity of procedures for opening of bank accounts. The C- D ratio of the NER as a whole (as also of the individual States) was far below the national average, which was a matter of concern. To improve the C-D ratio in the region, the banks might like to consider funding of certain major infrastructure projects, particularly in the areas of toll roads, toll bridges, power plants, industrial park, SEZs, urban water supply scheme, etc.

Bodla and Verma (2007) found that C-D ratio, non interest income, spread, NPA as a percentage of net advances, provisions and contingencies, operating expenses, business per employee and profit per employee are the major determinants of profitability of banking in India.

Ahmad (2009) carried out a comparative study to evaluate performance of Indian banking by using parameters like credit to deposit ratio, cash to deposit ratio, investment to deposit, and secured advances to total advances of nationalized banks, foreign banks, other scheduled commercial banks and RRBs.

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Kulshrestha (2009) highlighted performance of Urban Co- operative Banks (UCB) at district-level in U.P. in terms of deposits and advances. As per his findings, C-D ratio of UCB has gone up during the study period, possibly due to more and more advances to priority sector and weaker sections.

Ahmed (2010) examined the factors influencing priority sector lending by commercial Banks. For this purpose, the author used regression analysis, considering percentage of overdue in priority sector, interest rate, performance of the banks measures with C-D ratio, branch expansion of banks, volume of business, etc., as independent variables. Of these, two of the variables, viz., mounting overdue and C-D ratio happened to be the most prominent factors affecting deployment of bank credit to priority sector. According to

Hooda (2011), there existed a significant difference between the performances of Scheduled Commercial Banks (SCBs) on three financial indicators: (i) Cash-Deposit Ratio, (ii) Investment-Deposit Ratio, and (iii) Credit- Deposit Ratio. The study revealed the presence of a significant but indirect relationship between C-D ratio of SCBs and that of State Co-operative Banks (SCBs). By using different ratios (like total advances to total assets, borrowing to deposits, total advances to total deposits and investments to deposits),

Prajapati (2011) made an attempt to identify the impact of financial sector reforms on profitability and productivity of public sector and private sector banks.

Siraj and Pillai (2011) examined that vulnerability to financial crisis force banks to reduce their Credit-Deposit ratio. The authors observed that C-D ratio had an increasing trend for SBI and its

129 International Journal for Advanced Research in Emerging Disciplines (IJARED) associate’s banks, but a declining trend for nationalized banks, other scheduled commercial banks and foreign banks.

Similarly, Kaur, R. (2012), conducted study on “Performance evaluation of Indian banking system: A comparative study of public sector and private sector banks. “In this study author attempted for comparative of public sector and private sector banks .The time period of study was from 2009-2011. The study found that the overall performance of public sector banks was better than private sector banks over the period of study. The performance evaluation had many parameters like growth in C-D ratio, net worth, deposits, advances, total assets etc

Through Credit-Deposit ratio, Shiral shetti (2012) attempted to measure the efficiency of banks in rendering services to customers. The author stressed that in order to remain highly competitive in the present environment, banking organization should fully concentrate towards the improvement of C-D ratio. All out efforts to grant credit and ensure their recovery should be made to maintain the highest C-D ratio, which is considered to be one of the most important factors to judge banking performance.

Evidently, the reviewed studies point towards Credit-Deposit ratio having been used as an important indicator of the profitability and activity of commercial banks in a given area. Nevertheless, there have been inter-bank and inter-state disparities in the ratio, thereby providing a justification in favor of carrying out the present investigation.

130 International Journal for Advanced Research in Emerging Disciplines (IJARED) and allocation of resources in an economy. The sound financial position of a bank is the guarantee not only to its depositors but equally important for the whole economy of the nation. Deposits and Credits are inflow and outflow, respectively, of funds of the banks. In order to optimize credit flow and to ensure higher efficiency of credit creation, a monetary tool, called Credit-Deposit (C-D) ratio was introduced by RBI. Credit-Deposit ratio is proportion of loan created by banks from deposits it receives, in other words its capacity of banks to lend. High ratio indicates banks are generating more credit from its deposits and vice-versa. The outcome of this ratio reflects the ability of the bank to make optimal use of the available resources.

Methods and Tools of Data Collection

The present study is primarily based on secondary data. The secondary data have been collected from audited annual financial statements like Profit and Loss Accounts, Balance Sheets, Auditors Reports, the Reserve Bank of India and other Commercial Bank Bulletins, Publications of the Indian Bank Association, Mumbai and the National Institute of Banks Management, Pune, bulletins of the, State Planning Board, Periodicals, Websites etc. The Hindu, Times of India, Economic Survey (Various Issues), Economic Review (Various Issues), Yojana, etc. are used for reference.

Techniques and Tools for Data Analysis

On the basis of data collected, the performance of commercial banks analysed by using different statistical techniques. The objectively collected data have been suitably classified and arranged in tables, charts and graphs in appropriate chapters. The following are the important techniques used for analysis of data.

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Growth Rates and Co-efficient: The growth rate and annual average growth rates are the most commonly used technique to understand the trend of a variable. With this it is possible to compare the variability of two or more than two series. The growth rate of years is defined as ratio of the difference of the value of the current year and the previous year to the previous year expressed in percentage. The average of the growth rates fro may years from the annual average growth rate.

Growth rate = (Current year value – Previous year value)*100/ Previous year value

Co-efficient of Variation (CV): The coefficient of variation (CV) is the most commonly used technique to compare two variables. This is another method to compare the variability of two or more than two series of their relative variation. The series for which the coefficient of variation greater is said to be more variable or conversely less consistent,/less uniform/ less stable or less homogenous. The formula for calculating coefficient of variation is Co-efficient of Variation = Standard Deviation* 100/ Arithmetic Mean

Trend Analysis

When there is time series data which is increasing or decreasing over period time, it can suitably fitted in semi-long trend, y= abx or linear trend y = ax + b whichever is appropriate. The usual method of least square is used to fit the trend.

Performance of Commercial Banks in Kerala

The financial system performs a crucial role in economic development of any nation through saving investment process called capital formation. A high rate of capital formation is an

132 International Journal for Advanced Research in Emerging Disciplines (IJARED) essential condition for rapid economic development. The process of capital formation depends upon the factors like increase in saving, mobilization of saving and proper investment. The Indian financial system refers to the borrowing and lending of funds, consists of two parts, the Indian money market and the Indian capital market.

The Indian money market is the market in which short-term funds are borrowed and lent. The capital market in Indian on the other hand is the market for medium –term and long-term funds. Indian money market is classified into organized sector and the unorganized sector. The organized sector of the money market consists of commercial banks in India which includes private sector and public sector banks and also foreign banks. The unorganized sector consists of indigenous bankers including the non-banking financial companies (NBFCs).

The Composition of Indian Banking System

The organized banking system in India can be broadly divided two categories - commercial banks and co-operative banks while commercial banks including (Public sector banks, Private sector banks, foreign banks and Regional rural banks) account for an overwhelming share of the banking business, co-operative banks also play an important role. The RBI is the supreme monetary and banking authority in the count and has the responsibility to control the banking system in the country. RBI was established on April 11, 1935. It is the main pillar of Indian economy. The RBI uses monetary policy to create a financial stability in India and is charged with regulating the country’s currency and credit systems. The primary function of this establishment is to regulate the issuing of bank notes to ensure secure monetary stability in India. RBI is called the leader of banks.

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Under the Reserve Bank of India Act, 1934, banks were classified as scheduled banks and non-scheduled banks. The scheduled banks are those which are entered in the second schedule of RBI Act. All commercial banks – Indian and foreign, regional rural banks and State co-operative banks- are scheduled banks. Scheduled commercial banks are mainly concerned with a managing withdrawals and deposits as well as supplying short- term and long terms loans to individuals and also to business establishments.

Scheduled commercial banks are by far the most widespread banking institutions in India. And also provides a major products and services in India. A scheduled commercial banks run on commercial lines, for profits of the organization. Scheduled commercial bank is a different type of bank that is a provides a most services such as accepting a deposits, making business loans and also offering basic investment products. Scheduled commercial bank is a public sector bank it’s can be refer to the bank or a division of a bank that is deals with deposits and loans from corporations or large business.

Development of Banking Industry in India and Kerala

The Indian banking system had gone through a series of crises and consequent bank failures and thus its growth was quiet slow during the first half of the 20th century. But after independence, the Indian banking system has recorded rapid progress. This was due to planned economic growth, increase in money supply, growth of banking habit, control and guidance by the Reserve bank of India and above all, nationalization of banks in July 1969. In 1950-51, there were 430 commercial banks but the number banks declined rapidly due to RBI’s policy of mergers and

134 International Journal for Advanced Research in Emerging Disciplines (IJARED) amalgamations of small banks with big banks as a measure of strengthening the banking system.

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Nationalization of Banks

The nationalization of 14 major banks with deposits of Rs. 50 Crores or more in July 1969 as a historic and momentous event in the history of India. Nationalization was resorted on the ground that the commercial banking system did not play its proper role in the planned development of the nation. It was controlled by a coterie of industrialists and business magnates who had used bank funds to build up private industrial empires. Small industrial and business units were continuously and consistently ignored and starved of funds, even though the government policy was to encourage small, tiny and cottage and village industries. Agricultural credit was never seriously considered by banks. Bank funds were used to support anti-social and illegal activities against the interest of the general public. It was for these reasons that the government took over 14 top commercial banks in July 1969. In 1980 again the government took over another 6 commercial banks.

Growth Analysis of Banks

A comparison of performance efficiency in terms of branch expansion, deposit mobilization and deployment of funds of banks gives a clear picture regarding their performance from nationalization. For this purpose parameters such as Branch Expansion, Total Deposits, NRE Deposits, Domestic Deposits, Total Advances, Priority Sector Advances, Non-Priority Sector Advances, Agriculture Loans, Other Priority Sector Loans, Housing Loans, and last Credit Deposit Ratio of commercial banks in India and Kerala are critically analyzed and compared. Annual Growth rates are calculated for analyzing the growth pattern of various parameters. Wherever necessary, results of trend analysis are shown separately in graphical form.

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Commercial banks have achieved noteworthy prominence in the financial intermediation process in Kerala since the nationalization of banks. They have achieved significant progress in branch expansion, especially in rural and semi-urban areas, mobilization of deposits and deployment of funds in the different sectors of the economy, especially agriculture and small scale industries. They achieved this progress in a highly protected and regulated market with regard to interest rates, allocation of funds, competition and expansion of branches. The natural result was deterioration in customer service, lack of innovative products, reluctance in introducing new technology, high interest rates etc. In this context, reforms were introduced in the banking sector on the basis of the recommendations of Narasimham Committee I and II.

Kerala has a long history of development of banking and finance as it was evolved in tune with the development of the state as a major trading centre, even before India’s independence. The state’s external connections, export/import and migration at a later period, necessitated the development of financial institutions. The liquidation of the Travancore National and Quilon Bank in 1938 and the failure of Palai Central Bank Ltd in 1960 were the two major events in the development of commercial banking in Kerala.

Kerala has been blessed with the right blend of environment for banking development since historical times. The Travancore Banking Enquiry Committee Report, 1930, mentioned the existence of two types of indigenous bankers in Kerala. The first type was the “Hundi Merchants” who accepted deposits and lent money. The other type was “Money Lenders” who lent money only.

As in other parts of the country, both formal and informal financial institutions co-exist in Kerala. Along with formal financial institutions like commercial banks, all India financial institutions,

137 International Journal for Advanced Research in Emerging Disciplines (IJARED) co-operative and non-banking financial companies, there is also a wide network of informal agencies like money lenders , chit funds, etc., that are engaged in deposit taking and lending activities. Commercial banks play a lead role in the state’s financial sector. Two major distinguishing features of the working of commercial banks in Kerala are (a) success in deposit mobilization, especially non-resident deposit and (b) apparent lower disbursement of credit. Hence, the focus of discussions on commercial banks in Kerala is centered on lower credit-deposit ratio (CDR).

It is argued that since the state has not been investor-friendly and has not implemented economic reform measures, banks have not been able to expand credit-deployment. Recently, however, attempts are being made to convey that the state is not averse to private capital and economic reform measures will be implemented in tandem with the polices of the central government and the neighboring states. In the context of economic liberalization measures and the implementation of the five-year plan, it is an appropriate time to analyze the development of commercial banking in Kerala and discuss various issues relating to credit deployment. The present study specifically attempts to (a) review the progress of commercial banking in Kerala, (b) analyze the trends in CDR and also examine inter-district and bank-group-wise variations, (c) assess the level of deployment of credit and (d) explore the reasons for the low level of credit deployment and offer some suggestions.

Branch Expansion

Rapid economic development presupposes rapid expansion of commercial banks. Initially the banks were conservative and opened branches mainly in metropolitan cities and other major cities. Branch expansion gained momentum after the

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nationalization of major commercial banks and the introduction the Lead bank Scheme.

At the time of independence there were 32 banks in Kerala. They went up to 130 by the end of 1955. In 1947 itself 7 banks were established. But many banks either went into liquidation or were merged with other banks or absorbed by other banks established in Kerala or outside Kerala. This brought down the total member of banks in Kerala to 28 on the eve of the nationalization of major Indian banks. After nationalization many banks, established outside the state of Kerala, opened innumerable offices in the state along with banks established in Kerala. As the co-operative movement was very strong in Kerala, many co-operative banks were also started in the state. The presence of a strong non- banking sector in the form of finance corporations, private financial institutions, chit funds, and private money lenders is also a special feature of Kerala.

The performance of banking industry in Kerala in comparison with All India is given in the Table given below.

Table. No. 1

Growth of Commercial Banks in India and Kerala since Nationalization (1969-1991)

June 1969 June 1979 March 1991 Sl. No Indicators India Kerala India Kerala India Kerala 1 No. of Comm. Bank Branches 8262 601 30202 2060 60220 2839 2 Total Deposits (In Crores) 4646 152 28684 1119 201199 7857 3 Total Credit (In Crores) 3599 99 19822 737 121865 4638 4 Deposit per Brach (In Lakhs) 58 28 95 54 334 277 5 Credit per Branch (In Lakhs) 44 18 66 36 202 163 6 Population per Branch ('000s) 64 35 21 12 14 10 7 Percapita Deposit (Rs) 88 74 447 444 2360 2653 8 Percapita Credit (Rs) 68 48 309 292 1379 1548 9 Credit-Deposit Ratio ( %) 77.4 65.1 69.1 65.9 60.5 59 10 Credit to Prio.Sector (In Cr.) 504 NA 6422 NA 44752 2012 11 Prio.Sect. Cr/ Total Credit (%) 14 NA 32.4 NA 39.2 43 12 Number of Rural offices 1443 118 14355 824 35206 814 Source:1. RBI Bulletin, Various Issues, 2. SLBC Report, Thiruvananthapuram

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Table 11 shows the growth of commercial banks in India and Kerala from nationalization to the implementation of economic reforms in the economy especially in banking sector. There was steady increase in the number of branches, total deposit, total credit, deposit per branch, credit per branch, per capita deposit and per capita credit in India and Kerala during this period. The total deposit and total credit in Kerala Banks comes 3.9 percentages and 3.8 percentages of all India levels respectively. The growth in Kerala was more rapid. But the credit deposit ratio in Kerala was lower than all India ratios, and both the figures show a decreasing trend during this period. Another noteworthy feature is that though deposit per branch and credit per branch in Kerala were lower than all India level, per capita deposit and per capita credit in Kerala overcame all India figures especially during the last years.

Table.No.2

Growth of Commercial Banks in India and Kerala since Liberalization (1969-2006)

March 1992 March 1997 March 2006 Sl.No. Indicators India Kerala India Kerala India Kerala 1 No. of Comm. Bank Branches 60608 2851 63456 3108 68681 3610 2 Total Deposits (In Crores) 237566 9670 505599 23353 2109049 77677 3 Total Credit (In Crores) 31520 5003 278401 10565 1507077 51918 4 Deposit per Brach (In Lakhs) 392 339 796 751 3047 2252 5 Credit per Branch (In Lakhs) 217 175 438 511 2209 1383 6 Population per Branch ('000s) 14 10 15 10 15 9 7 Percapita Deposit (Rs) 2739 378 5323 7540 19130 23323 8 Percapita Credit (Rs) 1516 1670 2931 3447 13869 14390 9 Credit-Deposit Ratio ( %) 55.4 51.7 55.1 45.2 70.1 66.8 10 Credit to Prio.Sector (In Cr.) 47318 2150 93807 4544 510175 27763 11 Prio. Sect. Cr/ Total Credit (%) 36 43 33.7 43 35.3 53.5 12 Number of Rural offices 35254 716 32934 672 30436 566 Source: Source:1. RBI Bulletin, Various Issues, 2. SLBC Report, Thiruvananthapuram

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As per Table 2, all the indicators have shown an upward trend during the post-liberalization period. But the growth was more acute in Kerala during this period except total off take of credit. Kerala’s share in percentage terms reveals this. As a result, Kerala’s CD ratio was lower than all India ratio throughout the period. Even the all India CD Ratio was the lowest during this period, indicating low off take of loans. The trend changed and resulted in higher CD ratios in March 2006, both in Kerala and India. Per capita deposit and per capita credit in Kerala were higher than the all India figures for the same during the post- liberalization period. Remarkable improvement was recorded in the proportion of priority sector lending since the reforms in Kerala.

The growth story repeated in 2007 also. In March, 2007 CD Ratio of commercial banks in Kerala increased to 70.09 percent and then slightly decreased to 69.66 percent by September, 2007. Population wise CD Ratios are 83.79 percent, 60.87 percent and 70.30 percent, respectively, in Urban, Semi-urban and Rural branches in September 2007. Total deposits increased to Rs.91697 Crores and total advances to Rs.64273 Crores by March 2007. Similarly, number of branches increased to 3743 by March 2007 and to 3787 by September 2007. Kerala’s number of ATMs is also a record. The State has close to 1600 ATMs, which is very high compared to other states.

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Table No.3 Major State-wise Distribution of Scheduled Commercial Bank Branches -March 2013 Semi Sl.No. State Rural Urban Metropolitan Total % Urban 1. Andhra Pradesh 3044 2219 3474 1682 10419 8.48 2. Assam 835 463 384 0 1682 1.37 3. Bihar 2673 1216 939 334 5162 4.20 4. Gujarath 1910 1493 2398 1586 7387 6.01 5. Hariyana 1096 816 1381 190 3483 2.83 6. Karnataka 2564 1658 3139 3139 10500 8.54 7. Kerala 370 3597 1240 0 5207 4.24 8. Madhya Pradesh 1936 1374 1593 638 5541 4.51 9. Maharashtra 2519 2066 5189 3694 13468 10.96 10. Odisha 1878 874 695 0 3447 2.8 11. Panjab 1662 1487 1476 610 5235 4.26 12. Rajasthan 2096 1537 1556 504 5693 4.63 13. Tamilnadu 2173 2629 3028 1240 9070 7.38 14. Uttar Pradesh 5858 2647 4121 1851 14477 11.78 15. West Bengal 2629 910 2631 1438 7608 6.19 Total 33243 24986 33244 16906 108379 88.19

All India 38451 27822 38374 18247 122894 100.00

Source: Quarterly Statistics by Reserve Bank of India – March 2013

Table 3 shows the major state wise distribution of Scheduled commercial bank branches. The table shows that Uttar Pradesh is in the top of the list with highest number of scheduled commercial bank branches. Out of total 122894 bank branches all over India, Uttar Pradesh have 14477 bank branches which comes about 11.78 percentage of total branches. The state Assam comes last in the list with 1682 bank branches (1.37 %). Kerala state occupies 4th position in the list with 52074 bank branches. This comes about 4.24 percent of total banks branches in India. The table also shows that the number of bank branches all over India is increased to 122894 from previous year.

Deposit Mobiliztion

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Expansion of bank deposits has been an important feature in recent years. Planned economic development, deficit financing and increase in currency issue have led to increase in bank deposits. At the same time, banks have contributed greatly to the development of banking habit among people through sustained publicity, extensive branch banking and relatively prompt service to the customers. Bank nationalization gave a great fillip to deposit mobilization, due partly to the expansion of a network of bank branches and partly to the incentives given to savers. The trend of increase in deposits of scheduled commercial banks in major Indian states is given in the following table.

Table. No. 4 Major State Wise Deposits in Scheduled Commercial Banks During -2012-2013 (In Crores) Sl.No. State 2012 2013 AGR (2012-13) 1. Andhra Pradesh 346800 398497 14.91 2. Assam 67454 77729 15.23 3. Bihar 141307 165208 16.91 4. Gujarat 306113 361053 17.95 5. Haryana 146702 169911 15.82 6. Karnataka 411724 464439 12.8 7. Kerala 200572 234217 16.77 8. Madhya Pradesh 168952 200820 18.86 9. Maharashtra 1593694 1785043 12.01 10. Odisha 125420 143977 14.8 11. Punjab 174432 200680 15.05 12. Rajasthan 151983 177139 16.55 13. Tamilnadu 401182 446577 11.32 14. Uttar Pradesh 434731 515015 18.47 15. West Bengal 378078 438344 15.94 Total 5049144 5778849 14.45

All India 6174147 7051331 14.21

Source: Quarterly Statistics by Reserve Bank of India – March 2013

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It is clear from the Table 4 that the deposits in scheduled commercial banks shown an upward trend during the period of 2012 to 2013. The total deposits in scheduled commercial banks in Indian increased by 14 percentages within one year that is from 6174147 Crores to 7051331 Crores. The highest percentage growth during 2012-13 is recorded in Madhya Pradesh with 18.86 percentage growth during the financial year. The state Kerala recorded a good performance during the analysis period with a growth of 16.77 percent increase within one year.

Causes for Rapid Deposit Growth

There are many factors which have influenced deposit mobilization and deposit multiplication in India especially after bank nationalizations: a. Rapid Branch Expansion: Banking services have almost been taken to the door of the people both in rural and urban areas which encouraged the lower and middle income groups to save and deposit their savings with banks through various innovative saving schemes. b. Increase in the Amount of Cash with the Banking System: Due to government’s policy of deficit financing and creation new money, the larger the cash reserves with the banking system, the larger the credit they can give and larger the deposit they can multiply. c. The Ratio of Cash Reserves to Deposits: The smaller the cash- reserve ratio, the greater is the scope for lending by banks – multiplication loans least to multiplication of deposits. Since 1992, with the implementation Narasimham Committee

144 International Journal for Advanced Research in Emerging Disciplines (IJARED) recommendations both CRR and SLR were gradually reduced by RBI and this has increased the cash reserves with banking system and accordingly stimulated bank credit and expanded bank deposits still further. d. Favorable Business Conditions in the Country: Due to the effects of planning all sectors of the economy were expanding. Expansion of these sectors was helped by the expansion of bank funds. Commercial banks too have adopted an aggressive policy of attracting the savings of the households and deposits of NRIs and lending to the corporate sector. e. High Interest Rates: The monetary authorities have continually raised the rates of interest on bank deposits and this has encouraged expansion of bank deposits.

In recent years, however, commercial banks have been facing stiff completion from mutual funds, housing banks, leasing and investment companies. etc. which offer higher interest rates and have tried to mobilize the savings of the households. Actually, this competition from financial institutions for the savings of the households is really hotting up but the commercial banks can be expected to maintain the growth rate in the years to come since the interest rates are being decontrolled and liberalized.

The following figure shows the growth of total deposits in scheduled commercial banks in India and Kerala which is showing an increasing trend at both level.

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Figure No.2 Growth of Deposits in Scheduled Commercial Banks in India and Kerala (2012-2013) 8000000

6000000 7051331 6174147 4000000 Kerala

2000000 India

0 2012 2013

Expansion of Bank Credit

With increase in bank deposits, there has been continued expansion of bank credit reflecting the rapid expansion of industrial and agricultural output. The banks are also meeting the credit requirements of industry, trade and agriculture on a much larger scale than before. Just as banks deposits expanded, bank credit too has expanded tremendously particularly since, June 1969.

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Table. No. 5 Major State Wise Advances by Scheduled Commercial Banks During -2012-2013 (In Crores) AGR Sl.No. State 2012 2013 (2012-13) 1. Andhra Pradesh 382699 438106 14.48 2. Assam 25171 28575 13.52 3. Bihar 41151 43735 6.28 4. Gujarat 213447 260641 22.11 5. Haryana 149789 129273 -13.70 6. Karnataka 291235 331540 13.84 7. Kerala 151525 171712 13.32 8. Madhya Pradesh 96572 115776 19.89 9. Maharashtra 1387826 1576489 13.59 10. Odisha 58845 66325 12.71 11. Punjab 142352 162550 14.19 12. Rajasthan 136996 163267 19.18 13. Tamilnadu 466031 549244 17.86 14. Uttar Pradesh 191447 224708 17.37 15. West Bengal 237699 269933 13.56 Total 3972785 4531874 14.07

All India 4821527 5506495 14.21

Source: Quarterly Statistics by Reserve Bank of India – March 2012 and 2013

The Table 5 shows the major state wise total advances of scheduled commercial banks for all purposes. The banking sector in total provided an amount of Rs.5506495 Crores rupees in different states for different purposes. The total advances shown an increase of about 14.21 percentage growth from the value of Rs. 4821527 Crores in March 2012. The state Gujarat ranks top in the list by lending an amount of Rupees 260641 Crores in total in 2013. . This comes about 22.1 percent of total advances by the banking sector in India in 2012-13 financial year. The state Madhya Pradesh ranks second in the list. The state Hariyana shows a negative growth in advances in the same financial year. The share of Kerala state in total advances comes about Rs.171712 Crores which is 13.32 percentages higher than that of Kerala in the previous year.

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Many factors are contributed for the fast growth of bank advances. The important among them are the

 Rise in lendable resources of commercial banks as a result of large reduction reserve requirements like CRR and SLR,

 Release of impounded cash balances under incremental cash reserve ratio (ICRR),

 Sharp increase in food credit mainly due to increased food procurement operations,

 Increased demand for credit from public sector undertakings and the large increase in export credit and fall in the rate of interest due to RBI’s cheap money policy – lead to rapid expansion in bank lending for industry, for housing, buying of cars etc.

Credit Deposit Ratio – Interstate Comparison

Table No.6. MAJOR STATE WISE CREDIT-DEPOSIT RATIO OF SCHEDULED COMMERCIAL BANKS (2012-1013) 2012 March 2013 March Sl. No. State Deposits Advances CD Ratio Deposits Advances CD Ratio 1 Andhra Pradesh 346800 382699 110.35 398497 438106 109.94 2 Assam 67454 25171 37.32 77729 28575 36.76 3 Bihar 141307 41151 29.12 165208 43735 26.47 4 Gujarat 306113 213447 69.73 361053 260641 72.19 5 Haryana 146702 149789 102.10 169911 129273 76.08 6 Karnataka 411724 291235 70.74 464439 331540 71.39 7 Kerala 200572 151525 75.55 234217 171712 73.31 8 Madhya Pradesh 168952 96572 57.16 200820 115776 57.65 9 Maharashtra 1593694 1387826 87.08 1785043 1576489 88.32 10 Odisha 125420 58845 46.92 143977 66325 46.07 11 Punjab 174432 142352 81.61 200680 162550 81.00 12 Rajasthan 151983 136996 90.14 177139 163267 92.17 13 Tamil Nadu 401182 466031 116.16 446577 549244 122.99 14 Uttar Pradesh 434731 191447 44.04 515015 224708 43.63 15 West Bengal 378078 237699 62.87 438344 269933 61.58 Total 5049144 3972785 78.68 5778849 4531874 78.42 All India 6174147 4821527 78.09 7051331 5506495 78.09 Source: Economic Survey 2013, RBI Bulletin, Various issues

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Table 6 shows an interstate comparison of Credit Deposit ratio of all scheduled commercial banks for the years 2012 and 2013. The state Tamil Nadu ranks first in CD ratio in both years followed by Andhra Pradesh. The CD ratio of scheduled commercial banks in Kerala declined from 75.51 to 73.31.

Year wise Deposit Mobilization of Banks in Kerala

As per State Level Banking Committee data, the total bank deposits (includes Public Sector Banks and Private Sector Banks) in Kerala as on March 2013 is Rs.229148 Crores. Out of this, Rs.162958 Crores is domestic deposit and Rs.66190 Crores is NRI deposit. The growth rate in total deposit is 15.99 per cent as compared to 2012 and the growth rate of NRI deposit is 3.6 per cent as compared to 2012. Domestic deposit constitutes 71 per cent of total deposits of the State. The major share of deposit comes from domestic deposit. (Table No. 7).

Table No. 7 Growth of Bank Deposits in Kerala (Rs. in Crores) Year Total Deposit Domestic Deposit NRI Deposit 2010 143404 106518 36886 2011 161562 123872 37690 2012 197557 149103 48454 2013 229148 162958 66190 Source: SLBC, Thiruvananthapuram

Deposits in Scheduled Commercial Banks in Kerala

As per Reserve Bank of India data, the total bank deposits in scheduled commercial banks in Kerala in 2013 March was Rs. 234217 Crores as compared to Rs. 200572 in 2012.

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District-wise Analysis of Credit-Deposit Ratio in Kerala

Table .8 District wise distribution of branches, Deposits, Credit and CD Ratio of Scheduled Commercial Banks - Kerala, March 2013. (Rs. In crores) Sl.No. District All Scheduled Commercial Banks No of Deposits Credit CD Ratio Branches 1. Thiruvananthapuram 599 38096 27159 71.3 2. Kollam 317 14503 10364 71.5 3. Pathanamthitta 348 19833 6164 31.1 4. Alapuzha 323 13478 7845 58.2 5. Kottayam 427 17440 11465 65.7 6. Idukki 148 2717 3440 126.6 7. Ernakulum 818 51169 51112 99.9 8. Thrissur 573 27133 17128 63.1 9. Palakkad 341 10660 7793 73.1 10. Malappuram 366 10080 6815 67.6 11. Kozhikode 351 12299 10249 83.3 12. Waynad 130 1514 1944 128.4 13. Kannur 318 11526 6877 59.7 14. Kasargod 175 3738 3326 89.0 TOTAL 5207 234186 171681 73.3 The Table 8 shows the district wise distribution of number of total bank branches, aggregate deposits total credit disbursed by banking sector and district wise Credit and Deposit ratio. The district-wise analysis of banking statistics reveals that Ernakulum has the highest number of branches (818) followed by Thiruvananthapuram (599) and Thrissur (573). The lowest number of branches is in Wayanad (130). In Kerala CD ratio of Wayanad (128.4 per cent) and Idukki (126.6 per cent) remain high. Among the districts Pathanamthitta is at the bottom with CD ratio of 31.1 per cent (Table 8.). In Kerala, the share of deposits is more in Ernakulum district. District-wise distribution of deposits and

150 International Journal for Advanced Research in Emerging Disciplines (IJARED) credits of scheduled commercial banks in Kerala as on March 2017 is shown in Figure 3.3.

Figure No. 3 District wise Deposit and Credit

60000 50000 40000 30000 20000 10000 0 Deposits … … Credit Idukki Kollam Kannur Thrissur Waynad Palakkad Alapuzha Kasargod Kottayam Kozhikode Ernakulum Pathanamt Thiruvanan Malappuram

Sector Wise Credit Disbursement in Kerala

Table. No.9 Banking Group wise Performance under Agriculture Advances –March 2013 (In Crores) % of Bank Group Agricultural Total Agricultural Advances Advances Advances to Total State Bank 13694 55398 24.72 Group Nationalized 19091 59686 31.99 Banks Regional Rural 3688 7561 48.78 Banks Private Sector 8582 52442 16.36 Banks Grand Total 45055 175087 25.73 Source : Compiled from SLBC Meeting Minutes 2013

Nationalized banks has contributed the highest quantum in agricultural advances (Rs.1901 Crores) followed by State bank

151 International Journal for Advanced Research in Emerging Disciplines (IJARED) group (Rs.13964 crores). Regional Rural banks provide 48.78 percent of their total advances to agricultural sector. Private sector banks have the least share for agricultural advances (16.36%) in their total advances.

Table. No. 10 Bank Wise Performance in the Disbursement to Primary Sector March 2013 - (In Crores) Sl.No. Banks Disbursement 1. State Bank of Travancore 5181 2. Canara Bank 4767 3. State Bank of India 2513 4. Federal Bank 2314 5. Regional Rural Banks 3373 6. Co-operative Banks 8556 Source : Compiled from SLBC Meeting Minutes 2013 Bank wise performance (Table.10) in the disbursement to primary sector shows that the co-operative sector is the leading bank in disbursing credit to primary sector.

Table. No. 11 Growth of Outstanding Agricultural Advances - March 2009-2013- (In Crores) Sl. Period Total Variation from % of No. Agricultural Previous Year Variation Advances 1. March 2009 15959 32 0.20 2. March 2010 21786 5827 36.51 3. March 2011 27439 5650 25.93 4. March 2012 36209 8770 31.96 5. March 2013 45055 8846 24.43 Source : Compiled from SLBC Meeting Minutes 2013

The outstanding advances to agricultural sector for commercial banks in the state have increased through years. The outstanding credit to primary sector is Rs.45055 crores in march 2013 which shows a 24.43 percent higher than previous year. The advances

152 International Journal for Advanced Research in Emerging Disciplines (IJARED) outstanding in the state are well above the mandatory norm fixed by the government.

Review of Disbursements to Secondary Sector

Under secondary sector, which includes MSE, the state had achieved the target for first time since March 2006. The state has disbursed Rs.3675.22 crores in the current financial year. The private sector banks accounted for 31.03 percent of disbursements followed by co-operatives 22.3 % and State bank group 2.74%.

Table. No. 12 Share of various banking groups in the disbursement to Secondary sector March 2012 and 2013 - (In Crores) Growth Banking Group from Disbursement March 2012 March 2013 Previous Year State Bank Group 619.74 762.48 142.74 Nationalized 778.48 680.19 -98.29 banks Private Sector 558.38 1131.32 572.94 Banks Regional Rural 58.11 87.96 29.85 Banks Co-operatives 370.29 822.92 452.63 KFC 228.37 190.35 -38.02 STATE TOTAL 2613.37 3675.22 1061.85 Source : Compiled from SLBC Meeting Minutes 2013

The disbursements made are Rs.1131.32 crores, Rs. 822.92 crores and Rs.762.48 crores respectively by these groups of banks. The private sector banks marked highest growth of disbursement from previous year. (Table 12)

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Advances to Weaker Sections, SCs and STs

Table. No. 13 Advances to Weaker Sections , SCs and STs –March 2011-2013 (In Crores) Sl. No. Year Weaker Sections SCs STs 1. March 2011 22435 3011 553 2. March 2012 28865 2957 606 3. March 2013 34911 3284 729 Source : Compiled from SLBC Meeting Minutes 2013

It is evident from the table 13 that advances to weaker section, SCs and STs grown through years. Advances to Weaker sections grown from Rs.22435 Crores in March 2011 to Rs.34911 crores in March 2013. Advances to SCs and STs increased to Rs.3284 crores and Rs.729 crores respectively during the period.

Review of Priority Sector Advances

Table. No.14 Growth in Outstanding Advances under Subsectors of Priority Sector (2010-13) Variation from Parameter March March March March 2012 to 2013 2010 2011 2012 2013 Priority Sector 58204 71145 85606 99318 1372 Advances Agricultural 21786 27439 36209 45055 8846 Advances Weaker Section 15674 22435 28865 34911 6046 Advances SC Advances 3281 3011 2957 3284 327 ST Advances 300 553 606 729 123 Source : Compiled from SLBC Meeting Minutes 2013

The growth in outstanding advances under sub sectors of priority sector as at March 2013 is summarized in the table 14. It shows that total priority sector advances increased to Rs.9938 Crores in 2013 which shown a variation of 1372 crores from March 2012.

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Table. No.15 Performance Versus National Goals (March 2010- 2013) Goal March March March March Variation Parameter % 2010 2011 2012 2013 from 2012 to 2013 Priority Sector 40 60.01 58.32 57.34 56.72 -0.62 Advances to Total Credit Agricultural 18 22.46 22.49 24.25 25.73 1.48 Advances to Total Credit Weaker Section 10 16.16 18.39 19.33 19.94 0.61 Advances to total Credit DRI Advances 1 0.02 0.02 0.02 0.03 0.01 to Total Credit Credit Deposit 60 67.63 75.50 75.57 76.41 0.84 Ratio Source : Compiled from SLBC Meeting Minutes 2013

The achievements of the banking sector of the state under total priority sector advances, agriculture advances, weaker section advances are above the national goals.

Banking Statistics as at March 2014.

The following table gives a comparative analysis of banking statistics of the state. It shows that the sector marked an overall growth in all parameters.

Table. No.16 Banking Statistics as on March 2013 March March Variation from Parameter 2012 2013 2012 to 2013 No of Branches 4911 5279 368 Total Deposits 197557 229148 31591 Domestic Deposits 149103 162958 13855 NR Deposits 48454 66190 17736 Total Advances 149293 175087 25794 Investments 5033 5652 619 Advances + Investments 154204 180739 26535 Credit Deposit Ratio 75.57 76.41 0.84 C + I : D Ratio 78.06 78.87 0.81 Source : Compiled from SLBC Meeting Minutes 2013

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The following table gives a picture of sectoral growth of deposits over the years.

Table. No.17 Sectoral Growth of Deposits over the Years (In Crores) Type of Deposit March March March March March 2009 2010 2011 2012 2013

Domestic Deposit 93331 106518 123872 149103 162958 NR Deposit 37019 36886 37690 48454 66190 Total Deposit 130350 143404 161562 197557 229148 Share of Domestic 71.6 74.28 76.67 75.47 71.11 Deposit Source : Compiled from SLBC Meeting Minutes 2013

During the period 2012-13 the outstanding total deposit of the state reached a level of R.229148 crores in the commercial banking sector in the state. The quantum of domestic deposits increased to Rs.162958 crores from Rs.149103 cores in 2012. A significant feature in this deposits growth is that the share od domestic deposits is gradually decreasing.

The major findings of the study on the basis of analysis of data can be summarized as follows.

 The number of bank branches in Kerala is significantly increased in post reform period since its compound and annual growth rate are higher than pre-reform period

 The amount of deposit increased more rapidly in the post reform period. There existed significant difference in the growth of deposits in pre and post reform periods. This shows that the reforms improved the deposit mobilization activities commercial banks in the state.

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 The deposit per branch and credit per branch increased after reforms. Both increased many fold in the post reform years.

 The Credit Deposit ratio shown a declining trend immediately after the reforms and it slowly picked up after reforms

 The main reasons for rapid growth in deposits are rapid branch expansion, increase in the amount of cash with banking system, the ratio of cash reserves to deposits, favorable business conditions in the country and high interest rate.

 The main reason for increased advances by commercial banks is rise in lendable funds commercial banks due to reduction in reserve requirements like CRR and SLR after the economic reforms.

 Regarding number of branches the annual growth of public sector banks shown a declining trend in the post reform period and private sector banks shows an improvement.

 In deposit mobilization public sector and private sector banks shown an improvement during post reform period. Public sector banks shown a better performance in this regard comparing to private sector banks.

 Regarding the lending activities, both public sector and private sector banks improved after the implementation of reforms. Advances to different sectors shown an increasing trend.

 The main reason for a declining Credit-Deposit ratio in Kerala is the increased NRI deposits in Scheduled Banks in

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Kerala. The remittance from gulf countries comprises the major portion of NRI deposits.

 NRI deposits comprise a major component of total deposits in the district. Major share of NRI deposits attracted by public sector banks. State Bank of India attracted highest per cent of NRI deposits in the district. Among private sector banks Federal bank ranks first in mobilizing deposits.

 The Credit Deposit Ratio of public sector and private sector banks is less than national and state average which shows that banks are reluctant to advance and keeping idle fund with them.

 The low CD ratio is attributed mainly due to increased NRI deposits in the district. Malappuram district ranks first in the NRI population.

Conclusion

The present study reaches in the conclusion that the performance of Commercial banks in Kerala improved after the implementation of economic reforms. The improvement can be observed in the fields of number of bank branches, amount deposits and amount of advances by commercial banks, priority sector lending activities and Credit Deposit ratio. The major drawback is identified as the declining trend of CD ratio and the lower share of priority sector lending. Still, there is a greater scope for improvement in various services of banking sector. If the banks concentrate on these aspects, surely, they can provide the services to customers at international standard.

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