CHAPTER 5: FINDINGS, SUGGETIONS, HYPOTHESIS TESTING AND CONCLUSION

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1 Evaluation of working and performance of Regional Rural Banks of Gujarat State has been made at length with different angles in foregoing chapters. Contribution and overall progress made and key areas which need to improve for the progress of RRBs of Gujarat State have also been discussed in relative chapters in detail. It is proposed here to summarize the main findings of the study and to put forth important suggestions to make these banks more effective for development. 5.1 Findings On the basis of CAMEL Model In this model, Capital Adequacy Ratios, Asset Quality Ratios, Management Efficiency Ratios, Earnings Quality Ratios and Liquidity Ratios are found out for the post-merger period i.e., 2006 to 2012 and average ratios are derived of the study period. On the basis of average ratios ranks allotted to the RRBs. From the rank barometer of Capital Adequacy ratios, it is examined that out of the four ratios of Capital Adequacy, SGB got first position having two ratios which covered 50% of the total ratios. DGB and BGB got second position having one ratio each respectively and they covered 25 % each of the total ratios examined. Asset Quality ratios are material area to measure the dimension of financial force of the RRBs. it is found that out of the five ratios of Asset Quality, SGB got first position having four ratios which covered 80% of the total ratios. DGB got second position having one ratio which covered 20% of the total ratios. BGB does not have any ratios on first position. Management efficiency ratios are important and integral part of the model which ensures the survival and growth of a bank. Total six ratios are found out to measure the efficiency of the management of the bank. It is examined that out of the six ratios of management efficiency, DGB got first position having five ratios which covered 83.33% of the total ratios. DGB got second position having one ratio which covered 16.67% of the total ratios examined. BGB does not arrived on any ratios for first position. Earning quality shows the quality of a bank s profitability and its ability to earn consistently. To measure the performance of earnings quality seven ratios are found out. It is examined that out of the seven ratios of Earning Quality, DGB got first position having five ratios which covered 71.43% of the total ratios. BGB got second position having two ratios which covered 28.57% of the total ratios. SGB does not reached on first position in any ratios of earning quality. Liquidity is a crucial aspect for bank which represents its ability to meet its financial obligations. Total five ratios are examined to measure the liquidity position of RRBs. Out of the five ratios DGB got first position having three ratios which covered 60% of the total ratios. SGB got first position having two ratios and covered 40% of the total ratios examined. In accordance with the all parameters of CAMEL model it is summarized that out of the five parameters of the model, DGB got first position on three parameters and SGB got second position on two parameters which indicates that the performance of DGB is remarkable On the basis of Composite Ratios Besides the CAMEL Model, composite ratios are found out which classified in to eight areas like deposits, borrowings, advances, investments, loan disbursement, income, expenses and liabilities to highlight the performance of that particular area. For performance evaluation of the related area, the average ratio of the study period has taken as base. On the basis of the average ratios, the ranks are allotted to the bank. To make Overall analysis of the area, the rank based performance analysis is made. Deposit ratios shows the area in which the amount of deposit distributed as well as it also shows the cost of average deposits. From the average ratios of the study period it is revealed that SGB and BGB have got first position having two ratios each and covered 50% each of the total ratios. The performance of SGB and BGB towards deposit ratios is remarkable. Advances ratio shows the deployment of credit to priority sector, return on advances as well as the ratio of secured advances to total advances. The ratios of advances explained that out 173

2 of the three ratios of advances, DGB got first position having two ratios which covered 66.67% of the total ratios and BGB got second position having one ratio which covered 33.33% of the total radios. SGB does not have first position on any ratios of advances. It was observed that the performance of DGB was noticeable. The ratios of average working fund explained the different measures like Operating Cost to Average Working Fund Ratio, Burden to Average Working Fund Ratio, Cost of Average Working Fund, Return on Average Advances Adjusted to Cost of Average Working Fund, and Return on Investments Adjusted to Cost of Average Working Fund. With the analysis of average working fund ratios it is found that BGB and SGB has got first position having two ratios and have covered 40% each of the total ratios of average working fund. DGB got second position having one ratio on first position which covered 20% of the total ratios examined. The performance of BGB and SGB is remarkable. In income related ratios burden to total income, wage bill to total income and cost-income (efficiency) ratios are found out. From the rank arrived of average ratios of the study period of these ratios it is observed that out of the three ratios, DGB got first position having two ratios which covered 66.67% of the total ratios. SGB got second position having one ratio which covered 33.33% of the total ratios. BGB does not reached on first position in any ratios of income. It can be said that DGB performed very well towards income ratios. In compliance with the rank performance analysis of return on SLR investments and Non- SLR investments it was noticed that average return of SLR investments of DGB was more compare to other two banks while average return on Non-SLR investments of BGB was more than other two banks. DGB and BGB got first position each on the ratios of investments while SGB does not have first position on any one of the ratios of investments. Wage bill to operating expenses and burden ratio are found out to judge the performance of operating expenses. The analysis of above ratios it is noticed that out of the two ratios of operating expenses BGB and SGB got first position having one ratio each which covers 50% each of the two ratios examined. In total liability ratios, deposits to total liability and cost of interest bearing liabilities are found out to measure the performance of deposits and interest bearing liabilities toward total liability of the bank. It is observed that BGB score 100% toward liabilities ratio because of it has got first position on the two ratios of total liability. The remarkable performance is derived by BGB in liability ratios. From the ratio of cost of average borrowings it is noticed that the average ratio of the study period of SGB is lowest compare to other two banks. The bank managed to bring down the average cost of average deposits and got first position in cost of average borrowings ratio. From the overall view of composite ratios it is analyzed that out of the total parameters tested, BGB got first position which covered 41.67% of the total parameters, SGB got first position on 33.33% of the total parameters while DGB got first position having 25% of the total parameters. It can be said that the performance of BGB was remarkable compare to other two banks On the basis of Asset Liability Management (1) DGB Deposits In relation with the analysis of deposits it is observed that numbers of accounts of deposits are constantly increased. Total deposits and average deposits are constantly increased. The growth rate of average deposit is increasing year by year up to 2010 which tends to decline in 2011 with 8.85% and stood with improvement with 13.96% in Average deposit per branch and average deposit per employee is increased. It is noticed that the bank showed high proportion of time deposit to total deposits which resulted increase in cost of average deposits. Average growth rate of the study period of average deposits stood at 18.77%. Borrowings In consonance with analysis of borrowings it is revealed that depending upon the cost effectiveness of refinance, the bank has availed the refinance selectively sources which 174

3 includes NABARD, Sponsor bank and National Housing Board. It is noticed that the proportion of total borrowings of refinance from NABARD to total borrowings is increased constantly. The bank availed refinance form sponsor bank which increased constantly after Growth rate of total borrowings and average borrowings is reduced in last two years. In spite of reduction in growth rate, the cost of borrowings is increased in 2012 because of the more interest paid by the bank with reduced amount of borrowings or the bank may have the borrowings which consist of high rate of interest. Average growth rate of the study period of average borrowings stood at 50.83%. Advances From the study of advances it is analyzed that the bank performed efficiently with reference to the proportion of priority sector advances to total advances which is very high and it performed above the benchmark ratio 60%. The proportion of non-priority sector advances is reduced. The bank has fulfilled the main objective of RRB to boost the agriculture sector by providing advances at higher rate. The bank has improved the proportion of agriculture advances year by year. The proportion of non-agriculture advances to total advances has been reduced. The average growth rate of average advances stood at 21.47%. Loan Disbursement From the analysis of loan disbursed it is observed that the proportion of loan disbursed to priority sector is improved. The proportion of agriculture advances is also improved. The percentage of Loan disbursed to SC/ST, Minorities and SM/MF/AL is improved but in 2012 it is declined. It is revealed that the performance of loan disbursement to priority sector, farm sector, SC/ST, minorities and SF/MF/AL is satisfactory. Investments According to the analysis of investments it is revealed that the proportion of SLR investments to total investments is improved. Bank followed a policy to retain major proportion of total investments in to SLR investments. It is noticed that as the proportion of SLR investments is increased, the yield on SLR investments is decreased. Bank has reduced the proportion of Non SLR investments to total investment. If the bank increases the proportion of non-slr investments to total investments, bank can avail the advantage of increase in interest income because the rate of interest on non-slr investments is more compare to SLR investments. Average growth of investments of the study period stood at 7.22%. Average percentage of SLR investments to total investments of the study period stood at 80.14%. (2) BGB Deposits With reference to the analysis of deposits it is observed that numbers of accounts of deposits are constantly increased up to 2010 which declined in 2011 and improved in Total deposits and average deposits are constantly increased. The growth rate of total deposit and average deposits is remarkable in 2012 compare to preceding years. The proportion of time deposits to total deposits is improved year by year which shows that bank has availed more finance for long term which gives long period to use. In turn, it created increase in cost of deposits because the rate of interest of time deposits is more than the rate applicable on low cost deposits. It showed highest cost of average deposit in 2012 in comparison of previous years. Average growth rate of the study period of average deposits stood at 17.12%. Borrowings In connection with the analysis of borrowings it is cleared that depending upon the cost effectiveness of refinance, the bank has availed the refinance selectively sources which includes NABARD and Sponsor bank. It is noticed that the major portion of total borrowings is financed from NABARD. In the last three years bank has reduced the finance from NABARD and started the source of finance from sponsor bank. In is further noticed that in last two years, the growth rate of total borrowings and average borrowing increased with huge margin which reflected in increase of cost of borrowings in last two years. Average growth rate of the study period of average borrowings stood at 55.29%. 175

4 Advances The financial statements of bank disclosed that the advances of the bank is increased year by year but if it is compare to the total assets it is noticed that the proportion of advances to total assets is declined year by year. The percentage of Priority sector advances is improved up to 2009 and started to decline constantly up to 2012 but still it is above the benchmark ratio 60%. The percentage of Agriculture advances also tends to decline which has made improvement in non-agriculture advances. The proportion of non-priority sector advances is improved. The percentage of loan to SC/ST, Minorities, women beneficiaries, SM/MF/AL showed mixed trend to trend of decline. It can be concluded that bank should give more attention to advances. The average growth rate of average advances of the study period stood at 14.37%. Loan Disbursement From the analysis of percentage of loan disbursed to total loan disbursed it is noticed that there is constant decline in percentage of priority sector advances and agriculture advances in particular. There is decline in percentage of loans to SC/ST, Minorities, women beneficiaries, SM/MF/AL, weaker sections. Investments In consonance with analysis of investments in is observed that the bank has operated business activities by investing more proportion in SLR investments to get interest stability. Yield on SLR investments is improved year by year which is highest 7.08% in A non SLR investment includes risk factor. Bank has reduced the proportion of Non SLR investments which reduced the yield on Non SLR investments. It is noticed that the yield on Non SLR investments is more than the yield on SLR investments. Average growth of investments of the study period is stood at 11.98%. Average percentage of SLR investments to total investments stood at 83.95%. (3) SGB Deposits According to the analysis of deposits it is examined that the total number of deposits accounts has been increased during the study period. The growth rate of total deposits declined after The growth rate of average deposits is also declined after 2009 constantly but improved in The proportion of time deposits to total deposits is improved and the cost of average deposits is also increased. Average growth rate of average deposits of the study period is stood at 18.14%. Borrowings From the analysis of borrowings it is revealed that bank has used different combinations for refinance form NABARD, Sponsor bank and NHB in different years depending upon the policy of the bank. Taking the average percentage of total borrowings to the different sources of borrowings it can be said that bank availed maximum borrowings from sponsor bank rather than NABARD. The growth rate of total borrowings and average borrowings is increased in last couple of years. The cost of average borrowings is highest in 2012 compared to previous years. Average growth of average borrowings of the study period stood at 81.53%. Advances With the view to the analysis of advances of the bank it is noticed that the proportion of advances to total assets is improved but the growth rate of advances in last two years tends to decline. Particularly in last two years the proportion of advances to priority sector tends to decline but it is above the bench mark ratio of 60%. The proportion of advances to farm sector tends to constant decline. The proportion of non-priority sector advances has been improved. The proportion of non-farm sector advances tends to increase. Average loan proportion to target groups is 63.41%, non-target groups are 35.33%, SC/ST is 4.24% and minorities is 2.06% of the study period. The proportion of Loans to SM/MF/AL is improved in last two years. The average growth rate of average advances of the study period stood at 17.67%. 176

5 Loan Disbursement From the analysis of disbursement of loan it is observed that the proportion of disbursement of loans to priority sector is remarkable. The proportion of loan disbursement to farm sector is declined in last two years which has improved the proportion of loan disbursement in non-farm sector. Loan proportion to SSI and rural artisans is improved in last year compare to previous years while the proportion of loan disbursed to small business finance, SC/ST, minorities, SM/MF/AL has been improved in last five years. Investments In consonance with the analysis of investments it was noticed that the bank has invested major proportion of total investments in to SLR investments to make the interest income stable. The bank s proportion of SLR investments to total investments lay in the range of 85% to 91% during the study period. The bank has reduced the proportion of non-slr investments to total investments which is in the range of 8.75% to 14.34% during the study period. The average growth rate of total investments of the study period stood at 18.44% while average percentage of SLR investments to total investments of the study period stood at 87.17%. From the analysis of asset liability management it is observed that out of the total parameters tested, BGB got first position which covered 38.39% of the total parameters, SGB got first position on 33.33% of the total parameters while DGB got first position having 27.78% of the total parameters. It can be said that the performance of BGB was remarkable compare to other two banks On the basis of Break Even Analysis Due to variations in average working fund, net interest margin and net cost, the breakeven level of average working fund is fluctuates and affects margin of safety. Generally, reduction in the percentage of break-even level of average working fund increases the percentage of margin of safety which creates an opportunity for maximum profit but other factors like operating expenses, other incomes, provisions, net interest margin percentage and growth rate of average working fund plays important role for determination of profit. (1) DGB With reference to the Break Even Analysis of DGB it is noticed that average working fund grown year by year but the growth rate of average working fund is improved up to 2010 then tends to decline in last two years. Average growth rate of average working fund of the study period is 18.93% and average percentage of break-even level of average working fund of the study period stood at 72.54%. Due to different average working fund and net interest margin, break-even level of average working fund is changed. The proportion of break-even level of average working fund is tends to improve in last couple of years. Because of the high proportion of break-even level, the proportion of margin of safety is reduced. Net Interest margin is vary every year because of change in the proportion of deposits, investments, advances and borrowings and their different rates which affected the interest income and payment of interest. The net interest income is grown every year but the rate of growth is declined whereas the net cost is grown but the growth rate is declined in 2008 and it started to improve up to 2011 which further declined in 2012 which has affected the profit. (2) BGB According to Break Even level of average working fund it is revealed that the percentage of break-even level of average working fund is reduced constantly up to 2009 which has increased the percentage of margin of safety and created an advantage for profit maximization. The percentage of break-even level of average working fund increased in 2010, 2011 and 2012 which has reduced the margin of safety and it reflected in the reduction of the profit. Average growth rate of average working fund and average percentage of break-even level of average working fund of the study period is 19.64% and 64.68% respectively. Although, another factors like variations in operating expenses, net interest margin, other incomes and provisions also formed part in arriving of net profit. (3) SGB From the analysis of Break Even level of average working fund it is noticed that average working fund of the bank is continuously increased during the study period but the growth rate of average working fund constantly improved up to 2009 which dropped in

6 and then started to improve in next two years. The average growth rate of average working fund stood at 18.32%. The percentage of break-even level of average working fund constantly declined up to 2009 which started to improve in 2010 and 2011 and reduced with huge margin in Average percentage of break-even level of average working fund of the study period is 80.38%. To arrive on the conclusion about the performance evaluation of RRBs of Gujarat on the basis of breaks even analysis, three parameters like percentage of average BEL of Average working fund, Average growth percentage of Average working fund and Average Profit have been taken as base. On the basis of these parameters it is examined that BGB got first position in all three parameters while DGB and SGB could not arrived on fist position on any parameters which indicates that the performance of BGB is significant On the basis of ABC analysis of Branch Performance by applying C/D ratio (1) DGB In connection with the analysis it is observed that 21 branches out of total 159 branches which are 13.21% of the total branches have average C/D ratio more that 100% covered under A category. 56 branches out of total 159 branches which are 35.22% of total branches have average C/D ratio between 40% to 100% are covered under B category While 82 branches out of total 159 branches which is 51.57% of total branches have C/D ratio less than 40% are covered under C category. As far as experience concerned, 86 branches out of total branches having proportion 54.09% are more than 20 years experience. 36 branches out of the total branches having proportion 22.64% are have experience 10 to 20 years, While 37 branches out of total branches having proportion 23.27% are have experience of less than 10 years. From the aerial view it can be said that 14 branches having proportion of 8.81% of total branches performing above the 100% C/D ratio having the advantage of experience which is more than 20 years while 34 branches having proportion of 21.38% of total branches not performing effectively because the experience is more than 20 years but average C/D ratio is less than 40%. (2) SGB From the analysis it is observed that 46 branches out of total 183 branches which are 25.14% of the total branches have average C/D ratio more that 100% covered under A category. 95 branches out of total 183 branches which are 51.91% of total branches have average C/D ratio between 40% to 100% are covered under B category, While 42 branches out of total 183 branches which is 22.95% of total branches have C/D ratio less than 40% are covered under C category. As far as experience concerned, 108 branches out of total branches having proportion 59.02% are more than 20 years experience. 21 branches out of the total branches having proportion 11.48% have experience 10 to 20 years. While 54 branches out of total branches having proportion 29.51% have experience of less than 10 years. Taking overall view it is noticed that 34 branches having proportion of 18.58% of total branches performing above 100% C/D ratio having the advantage of experience which is more than 20 years while 13 branches having proportion of 7.10% of total branches not performing effectively because the experience is more than 20 years but average C/D ratio is less than 40%. To arrive on the conclusion about the performance evaluation of RRBs of Gujarat on the basis of ABC analysis which is based on the average ratios of the study period, following nine parameters have been taken as bases which consist of average C/D ratio of more than 100%, average C/D ratio between 40% to 60% and average C/D ratio less than 40%. Under each case the age of branch like more than 20 years, 10 years to 20 years and less than 10 years has been taken. In case of average C/D ratio is more than 100% considered as high risk category and lower percentage of branches is preferable. In case of average ratio between 40% to 100% considered as moderate category and first rank allotted to those branches having high percentage. In case of average C/D ratio less than 40% considered as underperformed category and lower percentage of branches is preferable. On the basis of the ranks, performance evaluation has been made. From the analysis, it is noticed that in all nine parameters of performance evaluation, SGB got first position on six ratios having 66.67% of the total parameters while DGB got second position on three ratios covering 33.33% of the 178

7 total parameters. It can be concluded that the performance of SGB is outstanding from the view point of ABC analysis On the basis of SWOT Analysis SWOT analysis is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective. In the study of performance evaluation of RRBs, different methods like CAMEL model, Composite ratios, Asset liability management, Break Even analysis, ABC analysis of branch performance by applying C/D ratio have been used. From the different methods, strengths, weaknesses, opportunities and threats are found out which are descriptively discussed in the part of analysis. It is noticed that each RRB has different strengths, weaknesses, opportunities and threats which may vary from one RRB to other On the basis of views of H.O. manager of RRBs The findings from the views of H.O. manager of RRBs it is revealed that probable % of total population of villagers rendering services of DGB is 45% while it is 30% and 40% for BGB and SGB respectively. All three managers are agreed on the statement that the rates of interest on advances and deposits are attracting the rural people. The rural mass which is covered by all there RRBS including Small farmers, Marginal farmers, big farmers, SHG, SSI, and others takes the benefit of advance for different purposes. The major beneficiaries of advances of all three banks are male. According to the managers of DGB and BGB, the beneficiaries of advances which are not regular in repayment covered under government sponsor schemes. From the view point of the manager of SGB they are marginal farmers and landless laborers. The probable reasons for irregularity in repayment of advances are less literacy, rural mass depends on crop, natural calamity, carelessness, low income, political pressure and government policies, diversification of fund and waiver and relief given by government from time to time. If any customer having loan account which is not repaid totally, BGB and SGB disburse another loan to same customer with another purpose because in their view these kind of customers are existing account holder / first account regular customer and covered under standard category. DGB do not disburse any loan to those customers having loan account which is not repaid totally. The problems of RRBs for credit disbursement to rural people are less literacy and unwillingness to submit required documents for credit. To improve the business, RRBs used effective communications like advertising, help of sakhi mandal, help of SHG, and Kisan mela. The hurdles in improvement of business of RRBs are incomplete documents, lack of security for mortgage loan and habit of taking advances from landlord. The positive effects like improvement in economic position, improvement in earning capacity, and improvement in life style are being measured for beneficiaries of advances of all three RRBs. Types of loan requirement by majority of rural people are agriculture crop loan, vehicle loan, home loan, loan for agriculture equipment, car loan, rural godown, farm building, general credit card, education loan, MSME and government sponsor schemes. Types of deposit mobilized by majority of rural people for short term deposits are savings accounts, recurring accounts, current accounts and No Frill accounts for BGB. Deposits mobilized by DGB from short term deposits include savings accounts, recurring accounts and no frill accounts. DGB do not offer current accounts. Deposits mobilized by SGB from short term deposits include savings accounts, recurring accounts and current accounts. SGB do not offer No Frill accounts. As far as term deposits concern, all three banks has mobilized deposits with the help of term deposits which includes less than one year, one year to three years and more than three years. The rural people are satisfied with the services offered by all three RRBs. The factors affecting the performance of the banks are competitive market at semi-urban and urban center, technology up gradation, target oriented, shortage of staff, political pressure, natural calamity, marketing, infrastructure problem, MFI, power and connectivity problem, illiteracy, behavior, and competitive rates of deposits and advances required. The other factors affecting 179

8 the performance of the banks are policy decision of government, better premises of branches, staff support for technology up gradation and lack of government accounts to be open in RRBs. Comparing the performance of commercial banks and co-operative banks, the attitude of the employees and management of regional rural banks towards disbursement of credit is little bit unsophisticated. They may be waiting for customers to come in bank and they will give them the banking services. It has been found that they have communication problems, infrastructure problems, problem of fund, but in spite of these limitations they need to focus towards the improvement in deployment of healthy advances by being familiar and friendly with the rural people and to reach to remote and rural mass with sophisticated and liberal attitude Analysis of overall findings of RRBs of Gujarat State To evaluate the performance of RRBs of Gujarat State of the period of seven years i.e., 2006 to 2012 the methods like CAMEL model, Composite ratio analysis, Asset Liability Management, Break Even Analysis, and ABC Analysis are used. SWOT analysis and view of H.O. managers for performance evaluation of RRBs also been consider for analysis. With the help of the above methods, final conclusion has been derived which focused on the top performer bank of the study period. Sr. No. Table 5.1.1: Comprehensive Rank Performance Analysis Methods of Performance Evaluation Ranks DGB BGB SGB 1 CAMEL Model Composite Ratios Asset Liability Management Break Even Analysis ABC Analysis 2 N.A. 1 Total of Ranks on First Position From the comprehensive rank performance analysis it is found that out of the five methods of performance evaluation of RRBs, Baroda Gujarat Grameen Bank has got first rank in Composite ratio analysis, Asset Liability Management and Break Even Analysis. Dena Gujarat Grameen Bank has got first rank in CAMEL Model and Saurashtra Grameen Bank has got first rank in ABC analysis respectively. It should be concluded that the performance of Baroda Gujarat Grameen Bank is superior compare to the other two banks of the post-merger study period. 5.2 Suggestions From the capital adequacy ratio it is observed that all three banks have performed very well in maintaining the ratio above the bench mark of 9%. It is further noticed that in last two years there has been constant decline in capital adequacy ratio and in particularly the ratio of SGB reduced largely compare to other two banks. Reason may be substantial increase in risk weighted assets and/or large fluctuations in total capital. Banks should try to improve the ratio for improvement of the financial health. Debt-Equity ratio of BGB and SGB is increased in last two years which may increase the cost of borrowings and affect the profitability of the banks and for that reason banks have to minimize the ratio. The proportion of net advances to total assets of DGB and BGB has been reduced in last couple of years while SGB has improved the proportion of net advances to total assets. SGB and BGB have to improve the proportion of advances to total assets to increase the interest income. The proportion of advances and investments to total assets of BGB and DGB is constantly declined and the proportion of balance with other banks to total assets tends to constant improved which indicates that banks have received the deposits with large extent and increased the borrowings proportion to boost the advances; but the advances not increase which was expected by the bank hence bank has invest the balance funds in balance with other banks (which is schedule 7 of the balance sheet) to get interest stability. In these 180

9 case banks should invest some part of balance funds in to investments and particularly in non SLR investments to get advantage of maximization of interest income. The proportion of advances from total assets of SGB is effective in comparison of DGB and BGB because SGB has reduced the proportion of balance with other banks and set a proportion of investments to total assets more than DGB and BGB. With the help of the ratios found to measure asset quality of the bank it is noticed that net NPA of SGB is below 1% while in case of DGB it is below 2%. Net NPA of BGB recorded more than 4% in last three years so BGB should focus to minimize net NPA. The proportion of investments to total assets of BGB and DGB is constantly declined while SGB has improved this proportion. BGB and DGB have to improve the proportion of investments to total assets. In accordance with the management efficiency ratios it is revealed that credit deposit ratio of SGB is above 60% while for DGB and BGB it is nearly 40% and still it is declining in last couple of years. DGB and BGB should improve their credit deposit ratio. The growth rate of Business per employee of DGB has been constantly declined up to 2010 and improved in 2011 which fall down to 10.44% in The growth rate of business per employee of BGB has been constantly declined in first three years and improved in It is dropped to 8.21% in 2010 and started to improve in 2011 and In case of SGB the growth rate of business continuously declined up to 2010 which was improved in 2011 and dropped with huge margin and stood at 0.99% in The reason may be huge increase in number of employees or slow growth in business. All three banks should increase the business to get higher growth rate of business per employee. Business per branch of all three banks improved but the growth % of business per branch of DGB and BGB is effective compare to SGB because its growth % is very slow. The reason may be newly opened number of branches or slow progress in business. Profit after tax per employee of DGB and SGB has been constantly increased up to 2010 and started to fall down in 2011 and In case of SGB, the profit after tax per employee continuously improved up to 2010 which fall down in 2011 and got huge improvement in The reason may be variations in number of employees and/or fluctuations in profit. All three banks should incase the profit for the purpose of higher profit per employee. Profit after tax per branch of DGB and BGB is constantly declined from the last two years but SGB has increased the profit largely in 2012 compare to other two banks. Return on net worth of DGB and SGB is declined in last two years while SGB has improved the return on net worth in 2012 after heavy decline in Bank should improve the profit margin to earn higher return on net worth. Earning quality reflects quality of a bank s profitability and its ability to earn consistently. The average ratio of operating profit to average working fund of BGB is more than other two banks because in most of the years, the ratio of BGB was more than the ratio of other two banks. All the banks should improve the ratio by making increase in profitability. It is further noticed that net interest margin of all three banks has been continuously declined. Banks should make efforts to improve net interest margin. Return on average working fund of all three banks showed constant decline and need for betterment. Provisions to average working fund ratio forms a key determinant to arrive the ratio of return on net worth. Higher the provisions can reduce the ratio of return on average working fund. All three banks should set the provisions adequately for improvisation in the ratio of return on average working fund. Financial return of DGB and BGB is declined in last couple of years while SGB performed efficiently and improved the ratio. DGB and BGB should focus on betterment of the ratio. Basic EPS and diluted EPS of DGB declined in last two years after reaching top level in The EPS of BGB showed huge decline in last three year while SGB showed excellent performance in 2012 and got highest EPS after declining in All three banks should maximize the earning for improvement in EPS. It is very important for a bank to maintain correct level of liquidity, which will otherwise lead to declined earnings. The proportion of liquid assets to total assets of DGB and BGB is nearly 45% to 50% or even more which very high compare to SGB. Utilization of the liquid assets from total assets of SGB is noticeable. DGB and BGB should maintain proper 181

10 proportion of liquid assets to total assets to increase the profit. The percentage of government securities to total assets of all three banks tends to decline in last couple of years. Banks should increase the proportion of investments to total assets and should set adequate combination of SLR and Non SLR securities in their investment portfolio to get improvement in interest income from investments. The percentage of liquid assets to deposits of SGB is nearly 20 to 30% while for DGB and BGB it is above 50%. It means that DGB and BGB have applied more amounts of deposits in liquid assets. All the banks should maintain adequate level of the ratio which earn optimum interest as well as can fulfill the demand of deposit holders. Banks have to take proper care in hedging liquidity risk, while at the same time ensuring that a good percentage of funds are invested in higher return generating investments, so that banks can generate profit while at the same time provide liquidity to the depositors. According to the ratio of cash to deposit, it is noticed that all three banks have maintain the ratio nearby percentage of the guidelines of reserve bank of India. It is revealed that in the initial years of amalgamation, the average proportion of demand deposits to total deposits of first three years of DGB, BGB and SGB is 51%, 62% and 43% respectively which was reduced in last four years. The average proportion of demand deposits to total deposits of last four years of DGB, BGB and SGB is47%, 52% and 41% respectively. Due to reduction in the proportion of demand deposits to total deposits the proportion of time deposits to total deposits has been increased. All three banks should maintain adequate level of short term and long term deposits to minimize the cost of deposits and to mobilize maximum low cost deposits as much as possible which the bank can utilize it in to advances and investment for betterment of the bank. The cost of average deposits in last two years of all three banks tends to increase. The reason may be increased proportion of term deposits to total deposits and/or high interest rates on time deposits. Bank should follow a policy which can improve deposit mobilization as well as control the increased cost of deposits. From the ratio of priority sector advances to total advances it can be said that all three banks performed effectively above the benchmark ratio of 60%. DGB s average ratio of the study period is 84.69% and the average ratio of BGB and SGB of the study period is 71.01% and 82.94% respectively. It is further noticed that the ratio of priority sector advances to total advances of BGB and SGB tends to constant decline in last four years which need to improvise little better. All three banks should maintain the proper proportion of long term and short term advances and also utilize the total assets effectively in advances and investments to get advantage of maximize the interest income. Return on average advance of all three banks has been improved in last two year which is the good sign of the performance of the banks. The average ratio of secured advances to total advances of the study period of BGB is more than other two banks. DGB and SGB has increased the proportion of secured advances to total advances in last couple of years which shows good efficiency of banks towards the high security of advances. The ratio of operating cost to average working fund of all three banks lay between 2 to 3% during the study period but in 2012, all the banks effectively performed and reduced the ratio. BGB showed lowest ratio compare to other two banks. All three banks should reduce the proportion of operating cost as much as possible. Burden ratio also been decreased in the last year which shows the efficiency of the banks which will turn in to increase in profit. It is noticed that financing cost of all three banks increased in the last year which was lower in earlier years. The reason may be banks should have paid more interest on deposits and borrowings. Banks need to increase the proportion of short term deposit to total deposits and to take refinance at lower rate to get advantage of reduction in financial cost. The return on average advances adjusted to financing cost has been reduced. The cause may be reduction in the proportion of advances or/and interest rates on advances or/and rates of deposits. The return on average investment adjusted to financial cost showed negative ratio for DGB and BGB in last three years while for SGB it is positive in last two years. The reason may be the reduction in the proportion of investments or/and rate of interest on investments. 182

11 The mix trend is recorded of burden to interest income ratio during the study period but in 2012 all three banks able to reduce this ratio which needed for improvement in the profitability of the bank. The ratio of wage bill to total income shows more ups and downs during the study period which is in the range of 15% to 32% but in the year 2012 all three banks effectively worked and able to reduce the ratio which may create the advantage of improvement in the profit. Cost-Income ratio which showed efficiency of the banks to cover the cost from the income received. From this ratio it is noticed that there is high ratio in earlier years but all three banks performed effectively and able to reduce the cost from the income received. The average percentage of return on SLR investment of DGB is more than other two banks which shows the efficiency of DGB towards the choice of SLR securities which has given highest return on SLR investments in comparison of other two banks. The average percentage of non-slr investment of BGB is more than DGB an SGB which indicates the effectiveness of the bank in relation to the selection of best non-slr securities which has earned highest return in comparison of other two banks. All the banks should improve the proportion of investments to total assets and should set investment portfolio in such a way that it can generate better return on investments. The proportion of wage bill to total operating expenses of all three banks has been reduced in the last year compared to earlier years. All three banks effectively worked on reduction in wage bill to operating expenses especially in All three banks should control the operating expenses as well as try to reduce it. Burden ratio of DGB and BGB is constantly declined in last couple of years while it is increased in SGB. The bank should improve the burden ratio by making increase in other incomes and/or reduce operating expenses. In the ratios related to total liabilities it is noticed that the proportion of deposits to total liabilities of DGB is reduced constantly from the last four years while for BGB it is constantly declined from the last three years and it is reduced constituently from the last two years in SGB. All three banks should make efforts for improvement in deposit mobilization and increase the proportion of deposits to total liabilities otherwise it will turn the increased proportion of debt. The cost of interest bearing liabilities such as deposits and borrowings for all three banks has been increased. All three banks should control the cost and to make efforts on reduction in the cost of interest bearing liabilities. From the ratio of cost of average borrowings it is noticed that DGB showed highest ratio 10.18% in 2008 which declined and stood at 7.67% in 2012 which showed good performance towards the control of cost of average borrowings. The ratio of BGB has been improved during the study period which stood at highest level of 7.65% in The ratio for SGB is increases continuously since the amalgamation and showed highest 7.05% ratio in Increase in cost of average borrowings may reflect the bank s profitability and net interest margin. All three banks should try to control the cost of average borrowings and to make effective policy which can reduce the cost of average borrowings. Asset Liability management consist of the analysis of deposits, borrowings, advances, loan disbursed and investments. From the asset liabilities management of DGB it is noticed that total deposits and average deposits are constantly increased. The growth rate of average deposit is increased year by year up to 2010 which tends to decline in next two years. Bank should grow deposits at higher rate. Average deposit per branch and average deposit per employee is increased during the study period. It is noticed that the bank showed high proportion of time deposit to total deposits which resulted increase in cost of average deposits. Bank should increase the proportion of low cost deposits to total deposits which can reduce the cost of deposits. Average growth rate of average deposits for the study period stood at 18.77%. The bank has availed the refinance selectively sources which includes NABARD, Sponsor bank and National Housing Board. Growth rate of total borrowings and average borrowings is reduced in last two years. From the study of advances it is analyzed that the proportion of priority sector advances to total advances is very high and bank has performed above the benchmark ratio of 60%.The proportion of non-priority sector advances is reduced. The bank has fulfilled the main objective of RRB to boost the 183

12 agriculture sector by providing more advances. Average proportion of loans to SC/ST, minorities and SF/MF and AL are 9.84%, 2.87% and 34.57% respectively. From the analysis of loan disbursed it is observed that the proportion of loan disbursed to priority sector has been improved. The proportion of agriculture advances has been also improved and the percentage of loan disbursed to SC/ST, Minorities and SM/MF/AL is improved. According to the analysis of investments it is revealed that the proportion of SLR investments to total investments has been improved but the proportion of investments to total assets tends to reduce. The average growth rate of investments of the study period stood at 7.22%. With reference to the analysis of the asset liabilities management of BGB it is observed that the total deposits and average deposits have been constantly increased. The growth rate of total deposit and average deposits is remarkable in 2012 compared to previous years. The proportion of time deposits to total deposits is improved year by year. Average growth rate of the study period of average deposits stood at 17.12%. The bank has availed the refinance from NABARD and Sponsor bank. It is noticed that the major portion of total borrowings financed from NABARD. In the last three years bank has reduced the finance from NABARD and started the source of finance from sponsor bank. In is further noticed that in last two years, the growth rate of total borrowings and average borrowing increased with huge proportion which reflected in increase of cost of borrowings. Average growth rate of the study period of average borrowings stood at 55.29%. The financial statements of bank disclosed that the advances of the bank are increased year by year but if it is compare to the total assets, the proportion of advances to total assets is declined year by year. The percentage of priority sector advances is improved up to 2009 and started to decline constantly up to 2012 but still it is above the benchmark ratio 60%. The percentage of agriculture advances tends to decline which has improved non-agriculture advances. The proportion of non-priority sector advances is improved. The average percentage of loan to SC/ST, SM/MF/AL and Minorities are 31.99%, 36.43% and 4.03% respectively. The analysis of percentage of loan disbursed to total loan disbursed it is noticed that there is constant decline in percentage of priority sector advances and agriculture advances in particular. There is decline in percentage of loans to SC/ST, Minorities, women beneficiaries, SM/MF/AL, and weaker sections. It is revealed that the proportion of investments to total assets is reduced and interest income is also reduced. Bank followed policy to invest more and more money in cash on hand and money at short call and balance with RBI. Overall performance of investment of efficient but drawback is the reduction of proportion of investments to total assets of the bank. Average growth of investments of the study period stood at 11.98%. According to the analysis of asset liabilities management of SGB it is observed that the growth rate of total deposits declined after The growth rate of average deposits is also declined after 2009 constantly but improved in The proportion of time deposits to total deposits is improved and the cost of average deposits is also increased. Average growth rate of average deposits of the study period is 18.14%. It is noticed that bank has used different combinations for refinance form NABARD, Sponsor bank and NHB in different years depending upon the policy of the bank. Taking the average percentage of total borrowings to the different sources of borrowings it can be said that bank availed maximum borrowings from sponsor bank rather than NABARD. The growth rate of total borrowings and average borrowings is increased with huge margin in last couple of years. The cost of average borrowings is highest in 2012 in comparison of preceding years. Average growth of average borrowings of the study period is 81.53% which is highest in comparison of other two banks. With view to the analysis of advances of the bank it is noticed that the proportion of advances to total assets is improved but the growth rate of advances in last two years tends to decline. Particularly in last two years the proportion of advances to priority sector tends to decline but it is above the bench mark ratio of 60%. The proportion of advances to farm sector tends to constant decline. The proportion of non-priority sector advances is improved. The proportion of non-farm sector advances tends to increase especially in Average loan proportion to target groups and non-target groups is 63.41% and 35.33% respectively. Average loan percentage to SC/ST, SM/MF/AL and minorities is 4.24%, 184