Abstract Delivery of Microcredit to Self Help Groups by Regional Rural Banks in Andhra Pradesh Dr. B. Savitha Assistant Professor, Department Of Commerce, St. Francis College For Women, Hyderabad Dr. P. Jyothi Professor, School Of Management Studies, University Of Hyderabad The availability of profitable and efficient financial services to the majority of the population in a country fosters sustained economic development. In India, Banks play a very important role as providers and facilitators in the credit delivery mechanism through their microfinance initiatives. They have been instrumental in providing financial services to the unreached segment of the population. Microfinance through banks and Microfinance institutions aims at providing profitable banking to a new market that has not been served properly before. In the global context as well as in India, both banks and Microfinance institutions are playing an important role in the credit delivery mechanism. In India, commercial banks, regional rural banks and cooperative banks provide credit directly to Self Help Groups as well as Microfinance Institutions for onlending to Self help Groups. Both the models of credit delivery are looking to make a significant impact in improving financial inclusion in the country in the years to come. Growth under the Microfinance Institutions Model has largely been facilitated by the sharp increase in bank credit to Microfinance Institutions. A wide range of banks are financing microfinance sector, the private sector lending mostly to Microfinance Institutions s due to priority sector obligations and the public sector through their wide network of branches are reaching out to Self Help Groups in rural areas along with regional rural banks. The state of Andhra Pradesh has witnessed an impressive performance by Regional rural banks with regard to financing of Self Help Groups (SHGs) and microfinance institutions in the state. This has facilitated the process of rural development and financial inclusion. The present research paper analyses the performance of Regional Rural Banks in financing Self Help Groups and microfinance institutions in the state of Andhra Pradesh. Introduction In India, the southern state of Andhra Pradesh is known for the microfinance movement. Commercial banks have found great success in financing Self help groups and Microfinance institutions in the state. Regional Rural Banks are only second to commercial banks with regard to their progress under microfinance. They play an important role in financing Self Help Groups (SHGs) with a view to facilitate the process of rural development and financial inclusion. They work towards providing uninterrupted credit flow to the rural sector of the economy by combining the professionalism of commercial banks and their strong lineage towards cooperative banking. Regional Rural Banks are sponsored by commercial banks along with the Central Government and the concerned State Governments. The provision of microfinance services by Regional Rural Banks through SHG - bank linkage has been a successful initiative in financial inclusion. In India, Andhra Pradesh continues to be one of the leading states with regard to the microfinance movement. Therefore, an analysis of Regional Rural Banks s involvement in the SHG movement in the state will provide insight into their role in financial inclusion. The savings of Self Help Groups with Regional Rural Banks and the loans disbursed by them are a good indicator of the positive role these banks are playing in the credit delivery and finanacial www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 128
inclusion process. Apart from Self Help Groups, Regional Rural Banks also advance loans to Microfinance institutions which undertake on lending and the number of microfinance institutions that have received loans from these banks is a proof of their growing presence in the credit delivery mechanism. Regional Rural Banks rank second only to Commercial banks in terms of loans to self help groups, the volume of the savings of self help groups and also the amount of loans outstanding of self help groups with them. Their performance with regard to financing Microfinance institutions has also been impressive for the year ended 31 st March, 2012. Progress under microfinance Savings of Self Help Groups with Banks Agency wise position as on 31/3/2012 Source: Nabard report on status of microfinance 2011-12 Source: Nabard Report on the Status of Microfinance 2011-12 www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 129
Table 1: Loans to MFI s by Regional Rural Banks Source: Nabard report on the status of microfinance 2012 Source: Nabard Report on the Status of Microfinance 2011-12. With regard to the percentage of non performing assets in loans of Regional Rural Banks s to Self Help Groups in Southern India, the state of Andhra Pradesh recorded 3.48%,which is a good indicator of the successful track record of these banks. Progress under Microfinance Non Performing Assets against Bank loans to SHG s Source: Nabard Report on the Status of Microfinance 2011-12 www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 130
Review of literature The literature available on the working and performance of RRB s in India is varied. Patel and Shete (1980) of the National Institute of Banking Management made analysis of performance of RRB s by comparing them with cooperative and commercial banks. NABARD conducted a study on the viability of RRB s viability with the help of Agriculture Finance Corporation in 1986. The study revealed that viability of RRBs was essentially dependent upon their ability to manage funds and then deploy them profitably. A. K. Jai Prakash (1996) established that RRB s played a crucial role in rural development. In comparison to commercial banks they were effective in disbursement of loans to rural borrowers. In a study in Karnataka Kalkundrickars (1990) found that RRB is helped in raising their income and productivity among rural artisans. In the year 1989 the Khusro Committee suggested merger of RRB s with their sponsor banks for their sustainability. The Narasimham Committee in 1991 suggested that the RRBs should be permitted to engage in all types of banking business and should not be forced to restrict their operations to the target groups. This recommendation changed the very functioning of RRBs. Singh (1992) analyzed the performance of RRBs banks in Punjab. Naidu, L.K. (1988) established that RRB s financing of beneficiaries resulted in increase in their income in the Cuddapah district of Andhra Pradesh. Prasad (2003) evaluated the performance of RRBs in India. Pati (2005) evaluated the performance of RRBs in the north-east region while Bagchi and Hadi (2006) studied the performance of regional rural banks in West Bengal. Studies on single Regional Rural Banks include those by Sudhaker et al. (1984) on the Cauvery Grameen Bank in Mysore district, Parmar (1986) on Banaskantha Mehsane Grameen Bank in Gujarat; Sangwan (1988) on Chattanja Grameen Bank in Andhra Pradesh; Jagadeesha et al., (1990) on Tungabhadra Garmeen Bank in Karnataka, Hosamani (2002) on Malaprabha Garmeen Bank in Karnataka and Yadappanvar and Nath (2003) on Jalna Grameen Bank in Maharashtra. Malhotra (2002) analysed whether the geographic location of RRB s affected their performance and concluded that the support from the sponsor bank was key to the success of RRBs. Chavan and Pallavi (2004) examined the growth and regional distribution of rural banking over the period 1975-2002. They found that the liberalisation policies had led to regional imbalances in rural banking. Biswa Swarup Misra 2006 made an attempt to enquire into factors that influence the performance of the RRBs and the role-played by the sponsor banks. Dilip Khankhoje and Milind Sathye (2008) studied the productive efficiencies of RRBs after their restructuring in 1993-94. Syed Ibrahim (2010) established that RRB s had performed extremely well in the post merger period. Raman Thirumal (2011) studied the factors influencing profitability of Regional Rural Banks. Objective of the study To compare the consistency of performance of Regional rural banks in providing Microcredit in the form of loans to Self help groups in the state of Andhra Pradesh To compare performance of Regional rural banks in providing loans to Microfinance institutions. Methodology: Comparison of the credit delivery mechanism in the state of Andhra Pradesh will involve comparison of performance of Regional rural banks in financing Self help groups and Microfinance institutions. Sources of Data: The data relating to regional rural banks performance in the state of Andhra Pradesh was collected from NABARD report on status of microfinance for the years 2008-2012. To analyse the performance of Regional rural banks in providing micro credit, the loans of regional rural banks to self help groups have been analyzed in the state while the loans of regional rural banks to microfinance institutions have been considered and analyzed at a national level. www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 131
The hypotheses developed were tested using one way ANOVA and the results are presented. The state of Andhra Pradesh has been witnessing impressive growth in the area of microfinance in the last few years. Commercial and regional rural banks have performed extremely well in terms of financing self help groups and Microfinance institutions in this state. The following are the 5 Regional Rural Banks in Andhra Pradesh considered for the purpose of study. 1. Andhra Pragati Grameena Bank 2. Andhra Pragati Vikas Grameena Bank 3. Chaitanya Godavari Graneena Bank 4. Deccan Grameena Bank 5. Saptagiri Grameena Bank The consistency of performance of Regional Rural Banks is analysed on the basis of amount of loans to self help groups, amount of loans outstanding to Self Help Groups and the amount of non performing assets in loans to Self Help Groups. In terms of loans to Self Help Groups, Saptagiri Grameena Bank has been the most consistent recording the lowest coefficient of variation of 17.85%. Table 2: Loans by Regional Rural Banks to Self Help Groups RRB Loans to SHGs in A.P.(` in crores) Grameena bank Andhra Grameena vikas bank Chaitanya Godavari Grammena bank Deccan grameen Bank Saptagiri Grameena bank 2008-09 2009-10 2010-11 2011-12 Mean Std. Deviation Coefficient of Variation 37639.42 44612.58 53840.98 73410 52375.7 15513.57258 29.62% 70882.92 61637.77 17427 97844 61947.9 33419.412 53.95% 8311 11089.38 1390.26 18648.56 9859.8 7138.768768 72.40% 21149.53 22045.24 27693.09 32317 25801.2 5221.116315 20.24% 29435.06 30617 35694 43048 34698.5 6193.211697 17.85% With regard to outstanding loans to self help groups, Saptagiri grameena bank has been the most consistent with a coefficient of variation of 15.73%. Table 3: Outstanding Loans of Regional Rural Banks to Self Help Groups RRB'S Loans O/S TO SHG's in A.P(` in crores) 2008-09 2009-10 2010-11 2011-12 Grameena bank 63518.86 78887.01 91508.17 113000 Grameena vikas bank 90451.12 116423.8 8 147186.1 166519.14 Chaitanya Godavari 11800.98 15901.28 16078 23798.06 Mea n Std. Deviation Coefficient of Variation 8672 8.5 20922.1837 24.12% 1301 45 33552.7036 25.78% 1689 4.6 5008.534212 29.65% www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 132
Grammena bank Deccan grameen Bank 29685.15 38509.15 48667.4 63342.34 Saptagiri Grameena bank 33111.12 40288.37 48793 42693 4505 1 14451.7198 32.08% 4122 1.4 6484.389454 15.73% In terms of non performing assets in loans of Regional Rural Banks to Self help groups, Andhra Pragati Grameena Bank is the most consisitent with a coefficient of variation of 31.61%. Table 4: Non Performing Assets (NPA) in loans of Regional Rural Banks RRB'S NPAs in Loans O/S TO SHG's in A.P (` in crores) 2008-09 2009-10 2010-11 2011-12 Mean Std. Deviation Coefficient of Variation Grameena bank 393.16 566.28 964.62 895.99 705.013 271.0271499 38.44% Grameena vikas bank 2940.82 4634.00 3787.41 1197.25906 31.61% Chaitanya Godavari Grammena bank 82.1 232.06 0 488 200.54 214.375906 106.90% Deccan grameen Bank 183.57 105.94 961.25 1552.76 700.88 686.7933486 97.99% Saptagiri Grameena bank 324.78 256.97 397.74 4735.58 1428.77 2205.290941 154.35% The success of Regional Rural Banks in credit delivery in the state of Andhra Pradesh can be better understood by comparing the two models of credit delivery namely - Regional Rural Bank loans to self help groups and Regional Rural Bank loans to Microfinance institutions. The success of the model of credit delivery also depends on the amount of loans outstanding and the non performing assets under both the models of credit delivery. The performance of Regional Rural Banks in the credit delivery mechanism is compared and analysed by developing suitable hypothesis and testing with one way ANOVA with the objective of determining the more successful mode of credit delivery. The hypotheses with the results are presented in Table 5 and 6 Table 5: Results from the analysis of performance of Regional Rural Banks in the state of Andhra Pradesh S. No. Hypotheses 1 H1: There is no significant difference between the amount of loans given by regional rural banks to Self help groups in the state of Andhra Pradesh Andhra Pradesh FCritical 5%levelof significance at F Calculated Value Accepted/Rejected 3.055568 5.854709221 Rejected 2 H2: There is no significant difference 3.055568 21.71399042 Rejected www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 133
in the amount of the loans outstanding of regional rural banks to Self help groups in the state of Andhra Pradesh 3 H3: There is no significant difference in the amount of the non performing assets of regional rural banks to Self help groups in the state of Andhra Pradesh 3.179117 3.537992433 Rejected In Andhra Pradesh there was significant difference between the amount of loans, loans outstanding and non performing assets with respect to loans given by regional rural banks to Self help groups. Table 6: Hypotheses relating to performance of Regional Rural Bank loans to Microfinance Institutions across the country S. No. Hypotheses FCritical at 5%levelof CALCULATED F VALUE All India 1 H7: There is no significant difference in the amount of the loans given by regional rural banks to microfinance institutions 2 H8: There is no significant difference in the amount of the loans outstanding of regional rural banks to microfinance institutions significance 1.907059 4.53781895 Rejected 1.919203 3.178871244 Rejected 3 H9: There is no significant difference in the 2.216309 4.163441024 Rejected amount of non performing assets of regional rural banks in terms of loans to MFI s. With regard to financing of microfinance institutions there was significant difference between the amount of loans, loans outstanding and non performing assets with respect to loans given by regional rural banks to them. Conclusion The success of Regional rural banks of Andhrapradesh in microcredit delivery has been judged by comparing the growth in numbers of recipients of microcredit (Self Help Groups and Microfinance Institutions), the volume of credit in terms of loans disbursed, the decline in loans outstanding and the decline in the non performing assets in the loans disbursed to them. To evaluate the success each of these criteria is considered in detail to conclude on which model of credit delivery has been successful. The bank self help group linkage model seems to be more successful when compared to bank Microfinance Institution model. In terms of loans to Self Help Groups by Regional Rural Banks under the bank linkage model in Andhra Pradesh, though there has been a decrease from 176658 groups in 2008-09 to 115843 groups in 2012 the amount of loans provided increased from `167417.93 lakhs in 2008-09 to `265267.56 lakhs in 2012. Banks have adopted a selective approach in lending to Self Help Groups with good track record especially due to the crisis faced by microfinance industry. The loans outstanding with Regional Rural Banks of self help groups also declined from `43460.86 lakhs in 2008-09 to `409352.54 lakhs in 2011-12. The amount of non performing assets in loans of regional rural banks to self help groups increased from `983.61 to `12306.33 lakhs and the percentage of non performing assets in outstanding bank loans to self help groups increased from 0.7 in 2008-09 to 3.01 indicating the low repayment rates. With regard to the linkage under the Microfinance Institution bank linkage programme, the number of Microfinance Institutions to which loans are disbursed increased from 59 in 2008-09 to 113 in 2011-12. The amount of loans disbursed to microfinance institutions however did not register much increase during the period 2008-12 and was around `1340lakhs. Bank loans outstanding with Microfinance Institutions increased from `3120.47 lakhs in 2008-09 to `3750.94 www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 134
lakhs in 2011-12 due to the increase in the number of Microfinance Institutions not being able to pay off their bank loans as a result of falling recovery rates from their clients. Among the Regional Rural Banks in Andhra Pradesh, Saptagiri Grameena Bank has been very consistent in the delivery of microcredit to Self Help Groups.The study thus establishes the crucial role the Regional rural Banks are playing in the provision of Microcredit in the state of Andhra Pradesh. References 1. A. B Kalkundrikar 1990 Regional rural banks and economic development Paperback, Daya Pub. House ISBN: 8170350743. 2. A.K. Tomar, Jai Prakash 1996 Role of Regional Rural Banks in Economic Development Mohit Publications 3. Bagchi, K. K. and A. Hadi (2006), Performance of Regional Rural Banks inwest Bengal: an evaluation, Serials Publications: New Delhi. 4. Chavan, Pallavi (2004): 'Banking Sector Reforms and Growth and Regional Distribution of Rural Banking in India' in V K Ramachandran and Madhura Swaminathan (eds), Financial Liberalisation and Rural Credit in India, Tulika Books, New Delhi. 5. Hosemani, S.B (2002), Performance of Regional Rural Banks, New Delhi, 6. Ibrahim Dr. M. Syed (2010) "Performance Evaluation of Regional Rural Banks in India", International Business Research Vol. 3, No. 4; p-203-211 7. Jagadeesha, D.M., Murthy S. Sadath H.G., Khan & Rao 1990. Performance of Tungabhadra Grameen Bank (Regional Rural Bank) in Karnataka- An Economic Analysis. Agricultural Banker, Vol. 13, No. 3, pp. 35-41. 8. Khankhoje, D. and Sathye, M. (2008) "Efficiency of Rural Banks: The Case of India", International Business Research, Vol. 1. No.2, pp. 140-149. 9. Malhotra, Rakesh (2002): "Performance of India's Regional Rural Banks (RRBs): Effect of the Umbilical Cord". URL: http://www.alternativefinance.org.uk/rtf/rrbsmalhotra.rtf. 10. Naidu. L.K. and Naidu, M.C, "Financing of Rural artisans by Regional Rural Banks-A Case Study of Rayalaseema Grarneena Bank in Cuddapah District " in Bank Finance For Rural Artisans (Ed), Naidu. L.K. Ashish Publishing House, New Delhi, 1988, pp 56-58. 11. Narasimhan Committee, 1991. Report of the Committee on the Financial System, Government of India. 12. Parliament of India (Loksabha), 2004. Motion for consideration of 'The Regional Rural Banks (Amendment) Bill, 2004. 13. Parmar, G.D. 1986. Performance of Banaskantha Mehsana Grameen Bank in Gujarat State. Agricultural Banker, Vol.11, No.3, pp. 24-29. 14. Pati, A.P. 2005. Regional Rural Banks in Liberalized Environment with Special Reference to North East India", Mittal Publication, New Delhi. 15. Prasad, T. S. (2003), Regional Rural Banks: Performance Evaluation, Kurukshetra, Vol. 51, No.10, p. 20-24. 16. Raman Thirumal (2011) "Factors influencing profitability of Regional Rural Banks (RRBs)", Journal of Banking Financial Services and Insurance Research, Volume 1,Issue 2, p 76-84 17. Sangwan, S.S. 1989. Viability of Rural Credit Structure: A Case Study of Regional Rural Banks. Pranjan, Vol. 18, No. 2, pp. 213-223. 18. Singh, J. P. 1992. Performance of Regional Rural Banks- a case study of GSP-ASR Regional Rural Bank.Strataegic Management of Rural Sector, New Delhi, Akashdeep Publishing House. 19. Sudhakar, H.R., Venkataraman J.V. & Nagaraj G.N. 1984. An Evolution of Performance of Regional Rural Banks in Mysore District, Karnataka. Financing Agriculture, Vol. 16, No. 2, pp. 28-30. 20. Yadappanavar, A. & Nath, B.R. 2003. Development Strategies of RRBs - A Successful Case Study of Aurangabad and Jalna Gramin Bank in Maharashtra - A Report. Anvesak, Vol. 33, Nov. 13, pp.24-45. www.theinternationaljournal.org > RJSSM: Volume: 03, Number: 06, October-2013 Page 135