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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.


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.


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.


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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