Chapter 10 th Conclusion & Recommendation 10.1 Conclusion 10.2 Recommendations 10.3 Summary of All Chapters 10.4 Scope for the Further Research 235
10.1 Conclusion: - Since the financial sector is not a standalone entity and for its effectiveness various arrangements and frame works are required among which an effective legal framework is important. therefore, financial sector reforms has provided the economy with a lot of resilience and stability and have boomed nearly every sector of the economy but, importance must be given to social sector such as, availability of health institutions, quality of elementary education, literacy rate etc, which areas of more concern in recent times. And countries like China, Indonesia and even Sri-Lanka are in much better position. And taking in account the role of RBI as a Regulator and Supervisor of the financial system which have gone under various strategic shifts and RBI has made significant improvements in the quality of performance of its regulatory and supervisory function, and as a result our standards are comparable to the worlds. From the data collected and analyzed the impact of credit policy on nationalised bank and its investors in Jalgaon District can be given from the findings from bank manager of nationalised bank and its investors and hypothesis tested: - 1. The impact of credit policy upon nationalized bank and its investors is more or less similar. Credit policy is arrangement of interest rates applicable to deposit & loan and Regulatory rate like CRR, SLR and Repo rate. Basically from the interest rate point of view this will discourage investors from banking in Jalgaon District. 2. If we compare the two terms one is High interest rate and Requirement of loan it is exactly opposite to each other it was seen that when interest rate is high on loan the requirement is lower and vice-versa. It means interest rates are affecting on demand for loan or money in the economy. 236
3. Most of investors are not satisfied with the earnings on deposit in the form of interest. So it shows that satisfaction level among investors in the banking sector is relatively low which is in another like land and stock market etc. sector. 4. Credit Policy encourages changes in Interest rates & amount of money & credit in economy to minimize price fluctuation and promote economic growth. It is now widely agreed that credit policy can contribute to sustainable economic growth by maintaining low and stable inflation. We can say that not only to maintain or control the liquidity but also central bank should also keep eye on the rate of inflation. 5. Changing in rate of interest also keep away investors from banking operation particularly deposit segment as well as application for loan. If seen from last few years rate of interest on deposit and loan is relatively changing this would make a major effect on banking investors. 6. The principal drawback of reserve requirements is that they impose an indirect tax on the banking system as an across-the-board levy, which does not take into consideration the relative liquidity position of the players in the credit markets. 7. The formulation of credit or monetary policy mainly involves preparing a precise plan aimed at pursuing various objectives, namely, price stability, output expansion, maintaining orderly conditions in the financial markets, etc. and setting appropriate intermediate and operating targets. The implementation of this plan is undertaken by using various direct and indirect operating instruments such as reserve requirements, open market operations; refinance facilities, etc. to regulate the operating and intermediate targets. 8. In India, the opening up of the economy in the early 1990s had a significant impact upon the conduct of Credit or monetary policy. Price stability remains the key objective of monetary policy and there is virtually a national consensus that high inflation is not good. Inflation expectations and inflation tolerance have come down. It even affects the spending decisions and saving pattern of the people. 237
9. In certain situations, even though there are policy initiations from the RBI, it may not be fully effective. This is because, even when there are no changes in the money supply, there may be changes in the price level due to many other reasons. 10. Investors in Jalgaon District may not be fully aware about the detail about banking operation because they were unknown about various scheme of deposit like recurring etc. but it would maintain money on their saving account. 11. Short-term interest rates have emerged as operative target or instruments of monetary policy. Central banks usually forecast market liquidity and then conduct open market operations to influence the interest rate structure to affect the real economy. 12. The Credit policy is also supposed to keep the inflation of the country in check. Any economy can suffer both inflation and deflation which are harmful to the economy. So the RBI has to maintain a fair balance in ensuring that during recession it should adopt an easy money policy whereas during inflationary trend it should adopt a dear money policy 13. The Repo rate currently is 6%. If any bank ever needs funds for any purpose t can borrow from RBI by paying 6% interest. By increasing repo rates, RBI makes money costlier, and by reducing this rate, it makes it cheaper, and this way, it tries to achieve the desired contraction or expansion in the money supply for dealing with inflation. 14. In 2013 It is far too common to observe situations where RBI is adopting tight monetary policy by increasing CRR as well as the interest rates and contracting money supply in the market, and finance ministry announcing decisions to provide massive additional capital to banks so that their liquidity could increase and they could lend much more in the market! In March-April this year, RBI was tightening money supply and soon, government of India announced plans to provide additional Rs 15000 cr capital to public sector banks which would increase their capacity to lend by Rs 185000 cr when the total CRR is worth about Rs 300,000 cr, this move of the government effectively means, reducing CRR by two third. 238
15. Lending behavior of nationalised bank in Jalgaon District is affected by credit policy of Reserve bank of India. When bank as a financial institution working on the function to accept money in the form of deposit and distribution of money in the form of loan but performance of banking is major depends upon interest earn on loan when RBI as a central bank increase interest rates on loan it will affect the lending behavior of banks. 16. When data analysis was done on the investor and manager part it was found that the interest rate plays an important role while making an investment with banking institution. Question is asked to manager as well as investors that any challenges did they faced they said the amount after maturity is gain on deposit i.e. the interest which investors was earning on deposit. So it is a challenge that has to be faced by banking institution as well as investor of bank. 17. As far as the profit of the banking is concern most of the time it is depend upon the recovery or repayment of loan with interest amount. But when there is high rate of interest applicable on loan segment afterwards it was seen that it becomes bad debt for banking institution. So the willingness of client is also affected by the interest rates & requirement of loan is affected by interest rates. 18. The cash reserve ratio (CRR) remains a powerful instrument of monetary policy in India as well as in most of the developing economies. It not only impounds liquidity at the first instance but also directly impacts banks' cost of raising funds since a portion of deposit mobilization is continuously impounded by the central bank. Reserve requirements are especially effective in developing economies, as their financial markets are not mature enough for open market operations. 19. According to the policy of neutral money, if the money is made neutral and the money supply is kept constant, there will be no disturbances in the economic system. In such 239
situation, relative prices will change according to the changes in the demand and supply of goods and services, economic resources will be allocated according to the wants of the society and there will be no inflation and deflation. However, the money supply should not be kept constant under certain conditions. 20. when investor is approaching to the banks for requirement of loan some of the equal challenges faced by the investors they are facing high interest rates on loan as well as complex procedure of loan so it would become crucial to the investor segment whether to approach the banks for loan or not? 21. Inflation also plays an important role in savings and consumption of investors so whenever central bank think about to change in interest rates it must be keep in mind about the rate of inflation. 28% investors said that RBI should increase short term interest rates for controlling inflation. These observations need not rule out a constructive role for the use of short term interest rates as a monetary instrument. One possibility is that increasing short rates in the face of increases in inflation is just an indirect way of reducing money growth: Sell bonds and take money out of the system. Another possibility is that while control of monetary aggregates is the key to low long run average inflation rates, an interest rate policy can improve the short run behavior of interest rates and prices. The short run connections between money growth and inflation and interest rates are very unreliable, so there is much room for improvement. 240
10.2 Recommendation: - 1. Indian government should set up Technical Advisory Committee on Credit or Monetary Policy with outside experts to review macroeconomic and monetary developments and advise the Reserve Bank on the stance of monetary policy. 2. The Reserve bank of India along with Government should arrange the awareness programme on the baking operation on yearly basis. 3. The traditional banking functions would give way to a system geared to meet all the financial needs of the customer. We could see emergence of highly varied financial products, which are tailored to meet specific needs of the customers in the retail as well as corporate segments. The advent of new technologies could see the emergence of new financial players doing financial intermediation. For example, we could see utility service providers offering say, bill payment services or supermarkets or retailers doing basic lending operations. The conventional definition of banking might undergo changes. 4. Reserve bank of India should appoint Financial Advisor at the branches of bank because it will help investors or customers to aware about the banking operation and investment scheme at the branches. 5. One of the concerns is quality of bank lending. Most significant challenge before banks is the maintenance of rigorous credit standards, especially in an environment of increased competition for new and existing clients. Experience has shown that the worst loans are often made in the best of times. Compensation through trading gains is not going to support the banks forever. 6. Large-scale efforts are needed to upgrade skills in credit risk measuring, controlling and monitoring as also revamp operating procedures. Credit evaluation may have to shift from cash flow based analysis to borrower account behavior, so that the state of readiness of 241
Indian banks for Basle II regime improves. Banks will compete with each other to provide value added services to their customers. 7. Structure and ownership pattern would undergo changes. There would be greater presence of international players in the Indian financial system. Similarly, some of the Indian banks would become global players. Government is taking steps to reduce its holdings in Public sector banks to 33%. However the indications are that their PSB character may still be retained. 8. Corporate governance in banks and financial institutions would assume greater importance in the coming years and this will be reflected in the composition of the Boards of Banks. 9. Bancassurance is catching up and Banks / Financial Institutions have started entering insurance business. From mere offering of insurance products through network of bank branches, the business is likely to expand through self-designed insurance products after necessary legislative changes. This could lead to a spurt in fee-based income of the banks. Banking and insurance sectors are booming. While the private and foreign banks are giving stiff but healthy competition to the public sector banks, resulting in overall improvements in the banking services in the country, the insurance sector has also witnessed transformation. The consumer is a gainer with the availability of much better and diversified insurance products. 10. The money supply will also be changed to neutralize the basic changes in the economic structure of the country. Such basic changes are changes in population, changes in the techniques of production innovations etc. 11. With the growing globalization and integration of economies, monetary authorities are now required to pay greater attention to external developments. Swings in trade flows and especially capital flows are quite common and these impart a high degree of volatility to exchange rates. 242
12. RBI s policy should regulate the sup-ply of money. It is possible that the change in money supply causes disequilibrium and the monetary policy should neutralize it. However this objective of a monetary policy is always criticized on the ground that if money supply is kept constant then it would be difficult to attain price stability. 13. Monetary policy is made by the RBI whereas the fiscal policy by the government. Both of them are supposed to be handled independently and hence it results in the lack of coordination which ultimately harms the economic policy of the country. 14. Hence, if India needs to push its growth around its potential without creating inflationary pressures, it will require enormous investments in supply to match the rising demand. The past few years make it clear that either India needs to grow slower to lower inflation or needs to undertake some urgent policy reforms to push growth without allowing inflation to accelerate. 15. The central elements of this consensus are that the instrument of monetary policy ought to be the short term interest rate, that policy should be focused on the control of inflation, and that inflation can be reduced by increasing short term interest rates. 16. Due to the rapid growth of the economy a large number of NBFC s have increased. They don t come under the impact of monetary policy and thus can cause a hindrance to the effective implementation of monetary policy. 243
10.3 Summary of all Chapters: - Chapter No.1: - Introduction A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, throughout the day. The banking system in India should not only be hassle free but it should be able to meet the new challenges posed by the technology and any other external and internal factors. For the past three decades, India s banking system has several outstanding achievements to its credit. The Banks are the main participants of the financial system in India. The Banking sector offers several facilities and opportunities to their customers. All the banks safeguards the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier s cheques. Chapter No.2: - Review of Literature In review of literature chapter researcher has gives Total 42 Review including of National & International research papers, books, Reserve Bank of India s Reports, Working Papers of RBI & others. As investment decisions are made over a medium-term horizon, it is important to consider real lending rates in a medium-term perspective. Borrowers tend to view the nominal lending rate in terms of a desired real rate of return and expected inflation. Although several methods, including surveys, are employed to calculate expected inflation, it is difficult to assign expected values with a reasonable degree of precision given the uncertainty surrounding the future outcomes. As interest rate deregulation progressed in the 1990s and the lending rate regime changed frequently, there was significant change in the loan pricing mechanism by banks. 244
Chapter No.3: - Research Methodology The research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically. The proposed study is descriptive and analytical in nature. The proposed research studies the Analytical study of RBI Credit Policy: its impact on Nationalised bank & its investors in Jalgaon District by filling up Questionnaire of the Bank Manager and Bank Investor s of Nationalised bank in Jalgaon District. 70 bank managers were covered from Jalgaon District. The sample was selected on the basis of Stratified Random Sampling Method. Stratified Random Sampling involves the division of population into smaller group known as strata. Here the Urban and Rural strata were used for the purpose of data collection. 1000 Investors of 10 nationalised banks were covered from Jalgaon District. The sample was selected on the basis of Stratified Random Sampling Method. Stratified Random Sampling involves the division of population into smaller group known as strata. Here the Recurring Deposit, Fixed Deposit and Savings strata were used for the collection of data. The analysis of the data will be done with the help of Personal computer and with the help of Microsoft Word, Microsoft Excel, mean, mode, standard deviation and Minitab 16 package software. Chapter No.4: - Banking scenario in world & banking in India This chapter is mainly focuses on the Basic structure of Indian Banking system like Types of Banking, Banking Scenario in India as well as World, Phases of Indian Banking like Nationalisation, Liberalisation & Privatization. Along with this chapter also includes the Recommendation Narasimham Committee on Banking Sector. The financial reform process is often thought of as comprising two stages the first phase guided broadly by the 245
Narasimham Committee I report while the second is based on the Narasimham Committee II recommendations. The aim of the former was to bring about operational flexibility and functional autonomy so as to enhance efficiency, productivity and profitability. The latter focused on bringing about structural changes so as to strengthen the foundations of the banking system to make it more stable. Chapter No.5: - Conceptual Framework This chapter includes Basic information about Reserve Bank of India, Interest Rates. It also includes the Conceptual analysis of Monetary or Credit Policy of RBI. Controlling of Inflation is another aim of credit policy so this chapter also focuses on the Phenomenon of Inflation, Impact of Inflation and Relation between inflation and Money Supply. The credit creation capacity of banks is affected by CRR. Banks have to keep a part of their total deposits in liquid forms. This liquidity is kept in cash & government securities. This instrument of monetary policy also affects the credit creation capacity of banks. When SLR is raised the banks have to keep more of their total deposits in liquid form & the credit creation capacity is adversely affected & it is done to adopt dear money policy. Chapter No.6: - Profile of Jalgaon District The present study attempts to study RBI Credit Policy and Its impact on Nationalised banks & Its Investors in Jalgaon District. We must know the environment as whole, i.e. in which geographical area, customer live, what infra-structural facilities are available. What schooling, what entertainments, what social circles and host of such things. The object of this chapter is to study historical background, location of area, socio-economic situation, and population business, and agriculture, industrial and banking development in Jalgaon District. A review of infrastructure facilities, educational facilities, transportation facilities etc. has also been taken. 246
Chapter No.7: - Data Analysis and Interpretation The data was collected from the 1200 investors in Jalgaon District. out of this 200 were rejected on the basis of Insufficient Knowledge about their banking operation and remaining 1000 were taken for the purpose of data analysis & In case of Bank Manager the data was collected from the 75 Bank Manager in Jalgaon District. out of this 05 were rejected on the basis of Insufficient Knowledge about Reserve bank of India Policy & Banking manuals and remaining 70 were taken for the purpose of data analysis. Chapter No.8: - Testing of Hypothesis The First Hypothesis is There is Adverse effect of Interest Rates on the Bank & its Investors This hypothesis will be tested for 10 Nationalised banks and its 1000 investors in Jalgaon District. For the above hypothesis we would like to see whether the interest rates affecting on the bank and its investors if affecting then in which manner they are affecting whether there is Bad effect or Good effect on the bank and its investors. For this Hypothesis we consider the Analysis of total 4 questions from Investors as well as Manager Segment. 54.9 % people said those Interest rates offered by Bank will Discourage People from the Banking. 81.3% Customer is not satisfied with the Amount of interest which he earning from bank on deposit and from conclusion of another questions it was found that There is adverse effect of Interest rates on the bank & its investors. In Second hypothesis i.e. The Credit Policy creates challenges for Bank but is a need of Better Economy researcher has to found that Policy of RBI creates any challenges for Bank but it is need of economy. So For this Hypothesis we consider the Analysis of questions from Manager & Investors Segment. It is found that from the analysis of 3 questions yes credit policy creates challenges for the bank in the form of Interest rates on Loan as well as deposit 247
segment but with the help of this policy RBI will also makes changes in the amount of money & credit available with the banks. In the Third hypothesis Changing Interest Rates shows significant impact on the Investors in Jalgaon researcher is trying to find out whether changing interest rates makes any impact on the investors in Jalgaon District. This hypothesis will be tested for 1000 investors of Nationalised banks in Jalgaon District. For the above hypothesis we would like to see whether the Interest rate plays any important role for Investors? For this Hypothesis we consider the Analysis of questions from Investors Segment. It was found that changing interest rates highly affect on the decision of investors for making a deposit with the banks in Jalgaon District. In the Fourth hypothesis i.e RBI Credit Policy defines the Business for Nationalised Banks researcher is trying to find out whether the Credit Policy set out any business for limitations for Nationalised banks or not? This hypothesis will be tested for 10 Nationalised banks in Jalgaon District. For this Hypothesis we consider the Analysis of questions from Manager Segment. From the analysis it was found that if RBI will increase the bank rate then nationalised bank in Jalgaon District reduced lending to the customer of their bank. Another part of banking is loan segment if there is increase in the rate of interest on loan it directly affect on the banking business in the form of distribution of credit. Chapter No.9: - Findings of the Study While selecting bank most of the customer were given preference to services provide by the bank along with easy accession of banking. 25% of the Investors was select a bank on the basis of reputation of bank & 6.6% were select a bank on the basis of rate of interests which provide by bank to them. It was very important factor that Investors select a bank on the basis 248
of service rather than rates of interests. Regarding savings with banks question were asked that 60.8% Investors maintain their savings with banks in saving bank accounts. 28% Investors also makes a fixed deposits with their banking in the remaining segment 5.5% will select option of PPF account with bank, 4% gives preference to recurring deposit & other segment Investors maintain their money on current of bank. 47.4% investors said that there is need to find a new ways of Investment other than regular banking deposits. 22.4% investors were not sure 15.4% said that there is no need to find out the new ways of investment and remaining 14.8% can t say. It will show that there is need to make awareness among the 14% investors that would away from the part of investment of banking. Chapter No.10: - Conclusions & Recommendations Since the financial sector is not a standalone entity and for its effectiveness various arrangements and frame works are required among which an effective legal framework is important. therefore, financial sector reforms has provided the economy with a lot of resilience and stability and have boomed nearly every sector of the economy but, importance must be given to social sector such as, availability of health institutions, quality of elementary education, literacy rate etc, which areas of more concern in recent times. And countries like China, Indonesia and even Sri-Lanka are in much better position. And taking in account the role of RBI as a Regulator and Supervisor of the financial system which have gone under various strategic shifts and RBI has made significant improvements in the quality of performance of its regulatory and supervisory function, and as a result our standards are comparable to the worlds. Reserve bank of India should appoint Financial Advisor at the branches of bank because it will help investors or customers to aware about the banking operation and investment scheme at the branches. 249
10.4 Scope for the Further Research: - Research is a process of searching of new knowledge in specific field of knowledge or generating new ideas and opinion in specific area. Research is a process of transformation of knowledge from known to the unknown. In the field of social science research is a continuous process. In social science no research is said to be the final or ultimate research. The study of Credit policy of Reserve bank of India: Its impact on nationalised bank & investors in Jalgaon District is not a virgin topic for study. There are numerous researches that have been done in this area and the researcher has discussed some researches on RBI policy in the literature review of this study. Still there are large numbers of avenues, which are open for further studies in this regards. The researcher here suggests the following topics in the field of Impact of Credit Policy on Cooperative banking, Institutional Investors, Loan segment, financial statements of banks which are open for further studies: 1. Study of Impact of RBI credit policy on Institutional Investors in India. 2. Study of Impact of RBI credit policy on Cooperative bank & its Investors in India. 3. Study of Impact of RBI credit policy on Loan segment of Nationalised banks in India. 4. Study of Impact of RBI credit policy on Savings pattern of customer of Nationalised banks in India. 5. Study of Impact of RBI credit policy on Inflation rate in India. 6. Study of Impact of RBI credit policy on Real estate sector in India. 250