| DEPOSIT
INSURANCE
Bank
deposits are insured upto a specific quantity by the Deposit
Insurance and Credit Guarantee Corporation (DICGC). Deposit
Insurance Corporation (DIC) was established in January 1962.
Later it became a part of DICGC. The amount of the policy
increased from Rs 1,500 in 1962 to Rs 5,000 in 1968; Rs 10,000
in April 1970; Rs 20,000 in July 1976; Rs 30,000 in June 1980,
and Rs 100,000 in May 1993. It is necessary to raise this
amount further. The fully protected accounts as a proportion
of insured deposits to total assessable deposits has also
gone up from 24 percent in 1962 to 75 percent in 1995-96.
Deposit Insurance Scheme is offered by commercial banks, co-operative
banks, and the Regional Rural Banks (RRBs). In March 1996,
it covered 2,122 banks including 102 commercial banks, 196
RRBs and 1,824 cooperative banks.
CAPITAL
BASE OF BANKS
The
capital base of commercial banks has become a subject of great
attention in the whole world in the recent past. In India,
it had become progressively very weak. The ratio of paid-up
capital and reserves to deposits of Indian banks had declined
from 6.7 percent in 1956 to 4.1 percent in 1961, 2.4 percent
in 1969, 1.2 percent in 1984, and 2.1 percent in 1986. It
increased to 7.53 percent in 1995, which was the result of
the prescription of capital adequacy norms by the authorities
since 1992-93. The Bank appointed the Basle Committee on Banking
Supervision for International Settlement (BIS). It was established
in 1988. It was a system in which minimum funds were set for
banking firms based on the risk of bank assets. It specified
Capital to Risk Assets Ratio of 8 percent as the capital adequacy
norm. The risk-based capital standard has been adopted by
many countries including India where it came into force in
1992-93.
CUSTOMER
SERVICE
The
quantitative expansion in bank business has not gone hand
in hand with a quick, reliable, and better service to the
customer. In fact, numerous complaints have been heard in
many forums, regarding the deteriorating customer service
in banks. The undue delays in every aspect of bank dealings
like delays in encashment of cheques, the complicated process
of getting credit proposals sanctioned, the lack of gentle
and sensitive behavior of bank employees vis-à-vis
the customer, and the malpractices and frauds committed by
employees are some of the deterrents affecting customer service.
Banks can improve service by increasing the efficiency of
internal operations; by providing new and wider range of services
at low cost; by adopting new technology, and by working for
longer hours.
The
banks and the RBI have undertaken steps to improve over-the-counter
services and time-denominated activities. They are going in
for new techniques afforded by fast improving technology.
They have been trying to decentralize their decision making
so that they can cater to regional preferences, socioeconomic
obligations, and so on. A few years back, the RBI set a number
of guidelines to banks, to upgrade their customer service.
They were as follows:
» Banks
are to accept Public Provident Fund (PPF) deposits and render
all possible help to customers in operating PPF accounts.
» They
should not insist on succession certificate to release the
balance in the deposit account and other assets held by the
deceased account holder to the heirs or survivors.
» They
have to make payments against drafts promptly without awaiting
receipt of confirmatory advice, and accept passports and postal
identifications as adequate for purposes of identification.
» They
have to observe non-business working days even in rural branches.
» For
mail transfers, they have to afford credit transfer to the
client’s account within seven days from the date of
deposit of funds, otherwise they will have to pay interest
on the proceeds for the delay at a rate of 5 percent per annum,
whether the proceeds should be credited to saving bank or
fixed deposit, and whether the delay is due to postal transit,
due to misplacement, or for some other reason.
» If the
due date of payment of fixed deposit falls on a holiday, they
will have to pay interest at the rate contracted for the holiday
prevailing between the date of expiry of deposit and the date
of actual payment of proceeds of the deposit.
» They
have to augment the installed capacity of locker facility,
not as a business proposition but as a service to the community
at large, and 80 percent of this capacity should be made available
on a first come-first-served basis.
» They
have to pay interest at savings rate for delay in the collection
of outstation cheques, beyond 10 days for cheques, or drafts
drawn on state capitals, and 14 days for cheques lodged at
all other places.
» They
should avoid any stipulation requiring borrowers to keep a
part of the loan amount as deposits.
» They
should invest application money of debentures and bonds for
the purposes specified under the Companies Act.
LEAD
BANKING, SERVICE AREA APPROACH & ACTION PLANS
The
authorities developed various schemes and institutional arrangements
to guide and monitor the overall development of banks and
social banking. The Lead Bank Scheme (LBS), the Service Area
Approach (SAA), and the Action Plans (APs) are some of the
approaches.
The LBS was introduced by the RBI in December 1969 with these
objectives:
» To survey
the potential for banking, industrial, and agricultural development
in a given area
» To mobilize
deposits on a massive scale
» To increase
lending, on a reasonable terms to the weaker sections of the
society, along with the underdeveloped sectors and areas in
the economy
» To make
banks one of the key instruments in local development
» To expand
the network of bank branches so that greater regional balance
is achieved in banking development
» To prepare
District Credit Plans (DCPs) for the lead districts
Under
this scheme, a bank is entrusted with the responsibility of
locating growth centres, assessing deposit, identifying functional
and territorial credit gaps, and evolving coordinated programs
of credit deployment in each district assigned to it, with
the help of other banks and credit agencies. Since August
1976, the lead banks are required to assume leadership in
formulating district credit plans, which are the blueprints
for action by banks and other financial institutions to bring
about overall development of the district. The lead bank is
an important agency for making institutional arrangements
for credit planning – district, regional, and national.
The RBI has allotted all the districts, except metropolitan
cities, to nationalized banks and each of these banks has
been designated a lead bank for the districts allotted to
it. The lead banks had prepared DCPs for 380 districts by
the end of June 1978. However, these plans were scrapped in
December 1979 on account of certain shortcomings in them,
viz. absence of uniform methodology; absence of alignment
between development programs and credit plans; inadequate
attention paid to development of agriculture and allied activities,
and so on.
In
the milieu of vast expansion in the network of banks and volume
of credit disbursed in rural areas, the public sector banks
carried out research in special districts in November-December
1987, to assess the impact of bank credit on rural development.
As a sequel to the findings of these studies, the RBI introduced
a new strategy of rural lending in the form of SAA as a part
of the LBS. The SAA became operational on 1 April 1989. In
this approach, each semi-urban and rural bank is assigned
some areas where it will operate, adopting a planned approach
to its growth.
Consequent
on a rapid and vast increase in the total banking business
after nationalization, a need was felt to consolidate and
improve the quality of banks’ operations, services,
and overall performance. Action Plans were formulated to achieve
this objective. It was introduced around 1985 by the RBI.
The Action Plans cover areas like organizational structure;
training; human resources development; customer service; deposit
mobilization; credit management; housekeeping; manpower planning;
recycling of funds; productivity; efficiency; profitability;
modernization; technology upgradation, and consolidation of
SAA.
The
implementation of the APs is monitored at the highest level
both in banks and the RBI. This has helped to bring about
significant improvements in the operation and performance
of banks. Banks are continuously working towards the improvement
in their structure, supervision & control. Training capacities
have been improved and diversified. Improvements are being
made in cost control, productivity of business, and reduction
of loss-making branches. Housekeeping, internal audit, customer
service, and technology upgradation have been improved and
strengthened. Action plans have helped to establish an active
management culture within the banks.
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