chapter 6 summary, findings &...

299

CHAPTER – 6

SUMMARY, FINDINGS & SUGGESTIONS

6.1 Introduction 300

6.2 Summary 300

6.3 Findings & Interpretation

6.3(a) for Level of Achievement of Priority Sector

Lending targets – Bank Wise

302

6.3(b) for Comparative Analysis of Distribution of

Lending to Priority Sectors – Bank Group Wise

305

6.3(c) for Impact of selected Priority Sector Lending

Ratios upon selected Financial Ratios - Bank Wise

308

6.3(d) for Impact of selected Priority Sector Lending

Ratios upon selected Financial Ratios - Bank

Group Wise

321

6.4 Suggestions 323

6.5 Suggestions for Further Research 326

300

6.1 Introduction :

This chapter deals with the summary of the entire research work, major

findings that are derived on the basis of the analysis and interpretation of the

data, conclusions drawn as well as the suggestions.

Major findings are narrated for three parts of analysis – bank wise and

bank group wise. Findings related to impact analysis are presented selected

priority sector wise indicating impact of each selected priority sector upon

selected financial performance indicators of selected PSBs. Some of the

findings are also presented in the form of tables and charts wherever required

in order to facilitate easy access and understanding as regards findings.

Conclusions are drawn based upon the findings and finally suggestions are

offered to cope up with the adverse impact of lending to various priority sectors

upon major financial performance indicators of selected PSBs.

6.2 Summary :

The present research work has been presented in various six chapters.

The summary of each chapter has been given below:

Chapter 1 : Research Methodology

This chapter covers Title of the Problem, Research Design, Nature of the

study, Sampling Technique, Sample Size, Data collection, Scope of the

study, Objectives, Hypotheses, Outline of chapter plan, Analysis of data,

Limitations of the Study and Future Scope of the study. In this chapter,

the researcher has adopted a systematic and scientific approach for the

work and these aspects have been tested further with the help of scientific

tools of the research.

Chapter 2 : Literature Review

This chapter covers review of literature relating to concept, industry and

title. Literature refers to various journals, articles, periodicals, web sites,

news papers, books, magazine etc. in the related area of the study.

301

Chapter 3 : Conceptual Framework

This chapter covers overview of the banking sector in India, Genesis and

Evolution of the concept of priority sector lending, targets and sub targets

prescribed by Reserve Bank of India under priority sector lending by

banks, composition and classification of priority sector and several other

aspects of priority sector lending.

Chapter 4 : Sample Profile

For the purpose of the study, performance of selected Public Sector Banks

has been analysed. In this chapter researcher has narrated simple brief

history of selected banks, major performance indicators of the selected

banks.

Chapter 5 : Analysis and Interpretation

The chapter includes the analysis of various priority sectors advances by

selected PSBs in India. It also includes study of impact of these advances

upon various financial parameters of selected banks. On the basis of the

analysis, meaningful conclusions have been drawn. The researcher has

collected data for 26 public sector banks from Reserve Bank of India

website. Three different analyses are undertaken:

d) Analysis of Level of Achievement of Priority Sector Lending targets by

selected Public Sector Banks – as Proportion of Adjusted Net Bank

Credit (ANBC). For this, Average and Ratio Analysis tool is used.

e) Comparative Analysis of Lending to Selected Segments of Priority

Sector by State Bank of India & Associates Banks and Other

Nationalised Banks – Bank Group Wise. To undertake this analysis,

ANOVA test has been used.

f) Analysis of Impact of each Selected Priority Sector Lending Parameters

on each Selected Financial Parameters of Public Sector Banks. Karl

Pearson‘s Correlation Co-efficient and Test of significance have been

used for this analysis.

302

Chapter 6 : Findings and Suggestions

This chapter includes summary of each chapter, findings of the study and at

last, suggestions for effective priority sector lending by banks in India as well

as suggestions for further research.

6.3 Findings :

On the basis of present research work, the major findings of the study are as

under:

6.3(a) for Level of Achievement of Priority Sector Lending targets :

As regards to average achievement of priority sector lending targets (as

a percentage of ANBC), as stipulated by Reserve Bank of India, by selected 26

Public Sector Banks during the study period the analysis exhibits as under.

Table No. 6.1 – Level of Achievement of total PSL Targets

Total Priority Sector

Lending target of

40% of ANBC

40% &

above

1)SBI, 2)SBBJ, 3)SBH, 4)SBT,

5)Allahabad Bank, 6)Andhra Bank,

7)BOB, 8)BOI, 9)Bank of Maharashtra,

10)Canara Bank, 11)Dena Bank,

12)Indian Bank, 13)IOB, 14)OBC,

15)Punjab & Sind Bank, 16)Syndicate

Bank, 17)Union Bank of India,

18)United Bank of India, 19)UCO Bank,

Below

40%

1)SBM, 2)SBP, 3)Central Bank of India,

4)Corporation Bank, 5)Punjab National

Bank, 6)Vijaya Bank 7)IDBI

IDBI - 28.10%

303

The findings shows that majority of selected PSBs have achieved the overall

priority sector lending targets as stipulated by RBI during the study period.

However, still few of PSBs could not achieve the target. The level of

achievement by IDBI is the lowest during the study period.

Table No. 6.2

Level of Achievement of

Agriculture Advances Targets

Total Agriculture

Advances target

of 18% of ANBC

18% &

above

1)SBI 2)SBBJ 3)SBH 4)Allahabad Bank

5)Andhra Bank 6)BOB 7)Canara Bank

8)Central Bank of India 9)Indian Bank

10)IOB 11)Punjab National Bank

12)Syndicate Bank

Below

18%

1)SBM 2)SBP 3)SBT 4)Bank of India,

5)Bank of Maharashtra 6)Corporation Bank

7)Dena Bank 8)IDBI 9)OBC 10)Punjab &

Sind Bank 11)Union Bank of India

12)United Bank of India 13)UCO Bank

14)Vijaya Bank

IDBI 8.81%

Corporation Bank 10.46%

The analysis shows that only 12 of selected PSBs, could achieve the agriculture

advances targets during the study period. Other 14 banks could not achieve the

target. Overall average level of achievement of agriculture lending target is

low. Further, the achievement is far below the target in case of IDBI and

Corporation bank during the study period.

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Table No. 6.3

Level of Achievement of

Weaker Section Advances Targets

Weaker Section

Advances target

of 10% of

ANBC

10% &

above

1)SBI 2)SBBJ 3)SBH 4)SBM 5)SBP

6)SBT 7)Allahabad Bank 8)Andhra Bank

9)Bank of India 10)Canara Bank 11)CBI

12)Indian Bank 13)IOB 14)PNB 15)Punjab

& Sind Bank 16)Syndicate Bank 17)United

Bank of India 18)UCO Bank

Below

10%

1)BOB 2)Bank of Maharashtra 3)Corporation

Bank 4)Dena Bank 5)IDBI 6)OBC 7)Union

Bank of India 8)Vijaya Bank

IDBI – 2.26%

The results shows that majority of banks could achieve the Weaker Section

Advances target of 10% during the study period. However, 8 banks could not

achieve the target. Further, again the IDBI could achieve only 2.26% during

the study period which is very low.

RBI has stipulated specific targets for these three sectors, targets for MSE,

Housing and Education Finance are covered under overall priority sector

lending targets. The overall achievement of priority sector lending, agriculture

& weaker section advances targets by selected 26 PSBs during the study period

thus can be presented as under:

Table No. 6.4 Achievement of Targets by selected PSBs (%)

Target Achieved by % of total 26 Banks

Total Priority Sector Lending Target 19 Banks 73.08%

Total Agriculture Advances Target 12 Banks 46.15%

Weaker Section Advances Target 18 Banks 69.23%

305

Figure No. 6.1 Achievement of PSL Targets

by selected PSBs (%)

Conclusion :

The study reveals that as regards to achievement of priority sector lending

targets by selected PSBs during the study period, the performance of banks

seems to be satisfactory. However, in case of agriculture advances targets, the

achievement level is found very low. Achievement level of priority sector

lending and weaker section advances targets can be considered satisfactory as

majority of selected PSBs could achieve these targets during the study period.

IDBI is lagging far behind the other banks in achievement of all targets during

the study period.

6.3 (b) Comparative Analysis of Distribution of Priority Sector

Lending – Bank Group Wise

In this analysis the results found by using ANOVA test and hypotheses are

tested at 5% level of significance with d.f.(6,35) in case of SBI & Associates

and d.f. (6,133) in other Nationalized Banks. Major finding are as under :

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Table No. 6.5 ANOVA results for Distribution of Lending to

selected Priority Sectors – Bank Group Wise

Ratios Bank Group ANOVA

Results Findings Conclusion

Total PSL

Ratio

SBI &

Associate

Banks

F cal > F tab

2.99 > 2.34

H : Rejected

There is

significant

difference in total

Priority Sector

Lending ratio in

all selected PSBs

during the study

period.

Other

Nationalized

Banks

8.75 > 2.10

Total

Agri

Ratio

SBI &

Associate

Banks

F cal < F tab

0.65 < 2.34

H : Accepted

There is no

significant

difference in total

Agri ratio during

the study period.

Other

Nationalized

Banks

F cal > F tab

3.20 > 2.10

H : Rejected

There is

significant

difference in total

Agri ratio during

the study period.

Direct

Agri

Advances

Ratio

SBI &

Associate

Banks

F cal < F tab

0.845 < 2.34

H : Accepted

There is no

significant

difference in

Direct Agri ratio

in all selected

PSBs during the

study period.

Other

Nationalized

Banks

0.274 < 2.10

Indirect

Agri

Advances

Ratio

SBI &

Associate

Banks

F cal < F tab

1.139 < 2.34

H : Accepted

There is no

significant

difference in

Indirect Agri

ratio during the

study period.

Other

Nationalized

Banks

F cal > F tab

10.595 > 2.10

H : Rejected

There is

significant

difference in

Indirect Agri

ratio during the

study period.

MSE

Advances

Ratio

SBI &

Associate

Banks

F cal < F tab

1.741 < 2.34

H : Accepted

There is no

significant

difference in

MSE Ratio

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during the study

period.

Other

Nationalized

Banks

F cal > F tab

9.79 > 2.10

H : Rejected

There is

significant

difference in

MSE ratio during

the study period.

Weaker

Section

(WS)

Advances

Ratio

SBI &

Associate

Banks

F cal < F tab

0.913 < 2.34

H : Accepted

There is no

significant

difference in WS

Ratio in all

selected PSBs

during the study

period.

Other

Nationalized

Banks 0.839 < 2.10

Housing

Finance

(HF) Ratio

SBI &

Associate

Banks

F cal > F tab

2.47 > 2.34

H : Rejected

There is

significant

difference in HF

ratio in all

selected PSBs

during the study

period.

Other

Nationalized

Banks 19.467 > 2.10

Education

Loan (EL)

Ratio

SBI &

Associate

Banks

F cal < F tab

0.177 < 2.34

H : Accepted

There is no

significant

difference in EL

ratio in all

selected PSBs

during the study

period.

Other

Nationalized

Banks 0.511 < 2.10

Conclusion :

The analysis reveals that,

i) There is significant difference in total Agriculture Advances Ratio, Indirect

Agriculture Advances Ratio and MSE Advances Ratio in case of selected

other Nationalized Banks. i.e. it can be concluded that distribution of Total

Agriculture, Indirect Agriculture and MSE advances vary significantly in

other Nationalized Banks during the study period.

ii) There is significant difference in total Priority Sector Lending Ratio and

Housing Finance Ratio in all selected 26 Public Sector Banks (PSBs). i.e.

distribution of these advances vary significantly in all selected PSBs during

the study period.

308

iii) As regards to Direct Agriculture Advances Ratio, Weaker Section

Advances Ratio and Education Loan Ratio, difference is not significant in

all selected Public Sector Banks (PSBs). Therefore it may be concluded

that distribution of these advances do not vary significantly in all selected

PSBs during the study period.

iv) Overall analysis shows that in case of other Nationalized Banks, all ratios

are significantly different, except Direct Agri Advances Ratio, Weaker

Section Ratio and Education Loan Ratio. It can be concluded that in other

Nationalized Banks distribution of advances to majority of priority sector

varies significantly during the study period.

v) In case of SBI & Associate Banks, the study reveals that total Priority

Sector Lending Ratio and Housing Finance Ratio show significant

difference i.e. we can conclude that distribution of total priority sector

lending and housing finance vary significantly in SBI & Associate Banks

during the study period.

vi) The analysis reveals that in all selected PSBs, the distribution of lending to

selected priority sectors does not follow the similar pattern in each bank

group during the study period.

6.3(c) for Impact of selected Priority Sector Lending Ratios upon

selected Financial Ratios – Bank Wise

Bank wise analysis of impact of selected priority sector ratios (viz.

total PSL, Agri, MSE, WS, HF and EL ratios) upon selected financial ratios

(viz.NP, ROA, ROE and NPA ratios) of selected 26 public sector banks

during the study period. Karl Pearson‘s Correlation coefficient is

calculated with the help of SPSS software to know the nature and degree of

relationship and whether the relationship is significant or not is tested at 5%

and 1% levels with the help of Test for Significance. The analysis reveals

the following results.

309

6.3(c)(i) Impact of total Priority Sector Lending upon selected

Financial Ratios :

Figure No. 6.2

Impact of total PSL on Financial Ratios of selected PSBs (%)

As regards impact of total PSL on Net Profit, in case of 10 banks

(38.46%), viz. SBBJ, SBP, Andhra, Canara, CBI, Corporation, Punjab

& Sind, Syndicate, United Bank of India and UCO Banks, it shows

adverse impact on Net Profit. It may be concluded that with increase

in total priority sector lending, there is decrease in net profit in these

10 banks during the study period. In the other 16 banks (i.e. 61.54%)

the impact is positive.

Impact of total PSL on ROA is positive in only 8 banks (30.77%) viz.

SBH, BOB, BOI, Corporation, IDBI, IOB, OBC and UCO bank. i.e.

in these banks ROA increases with increase in total PSL. In other 18

banks (69.23%) impact is negative. It may be concluded that ROA in

these banks decreases with increase in total PSL during the study

period.

There is adverse impact of total PSL on ROE in 10 banks (38.46%)

viz. SBH, SBP, Andhra, Canara, CBI, Corporation, Punjab & Sind,

Syndicate, United Bank of India and UCO bank. It shows that with

310

increase in priority sector lending, ROE decreases in these banks. In

other 16 banks (61.54%), impact is positive.

Total PSL affects Non Performing Assets (NPAs) adversely in case of

10 (38.46%) banks i.e. SBH, SBP, Andhra, BOM, Corporation, IOB,

OBC, Punjab & Sind, Syndicate and UCO bank. It reveals that with

increase in total priority sector lending NPAs increases in these banks.

Impact is positive in case of other 16 selected PSBs.

Overall analysis exhibits that total priority sector lending causes

positive impact on all selected financial parameters, except on ROA,

in case of majority of selected PSBs during the study period. In only 8

banks (30.77), it has positive impact on ROA. It shows that total PSL

has overall adverse impact on ROA of majority of selected PSBs.

Total PSL has overall adverse impact on all selected financial ratios in

case of a few PSBs viz. SBBJ, SBP, Andhra, BOM, Canara, CBI,

Corporation, Punjab & Sind, Syndicate, UBI and UCO bank.

Relationship between :

PSL and ROA ratio is significant at 1% level in DENA bank

PSL and ROE ratio is significant at 5% level in BOI

PSL and NPA ratio is significant at 1% level in BOI and

at 5% level in SBI & PNB. Hypotheses are rejected in these

cases.

In all other banks, relationship between total PSL ratio and

selected financial ratios is not significant and hypotheses are

accepted

311

6.3(c)(ii) Impact of total Agriculture Advances upon selected

Financial Ratios :

Figure No. 6.3 Impact of total Agri Advances on Financial

Ratios of selected PSBs (%)

As regards impact of total Agriculture advances on Net Profit, only 9

banks (34.62%) exhibit positive impact. viz. SBI, Allahabad, BOB,

BOI, BOM, DENA, P&S, UBI and UCO bank. It may be concluded

that increase in agriculture advances leads to increase in Net Profit in

these 9 banks during the study period. In the other 17 banks (i.e.

65.38%) the impact is adverse i.e. with increase in agri advances,

there is decrease in Net Profit.

Impact of total agriculture on ROA is positive in case of 11 banks

(42.31%) viz. SBI, SBH, SBT, BOB, BOI, Canara, Corporation,

OBC, Syndicate, United Bank of India and Vijaya Bank i.e. in these

banks ROA increases with increase in agri advances. In other 15

banks (57.69%) impact is adverse. It can be concluded that ROA in

these banks decreases with increase in total agriculture advances


There is positive impact of total agriculture advances on ROE in 14

banks (53.84%) namely SBI, SBBJ, Allahabad Bank, BOB, BOI,

BOM, Dena Bank, IDBI, PNB, P&S, Syndicate Bank, UBI, UCO

312

Bank and Vijaya Bank. It shows that with increase in agri advances,

ROE also increases in these banks. In other 12 banks (46.15%),

impact is adverse i.e. agri advances increases and ROE decreases.

Total agriculture advances affect Non Performing Assets (NPAs)

positively in case of 14 banks (53.84%), they are SBI, SBBJ,

Allahabad Bank, BOB, BOI, CBI, Dena Bank, IDBI, PNB, P&S,

Syndicate Bank, UBI, UCO Bank and Vijaya Bank. It reveals that

with the increase in agriculture advances NPAs of these banks

decreases. Impact is adverse in case of other 12 selected PSBs.

Overall analysis exhibits that total agriculture advances affect selected

financial parameters variedly in case of different PSBs during the

study period. It shows more or less similar proportion of positive as

well as negative impact on selected financial parameters of selected

PSBs during the study period.

The analysis exhibits that agriculture advances adversely affect Net

Profit of majority of selected PSBs i.e. 65.38% during the study

period.


Agri and NP ratio is significant at 1% level in SBT and at 5%

level in Andhra Bank & Canara Bank

Agri and ROA ratio is significant at 5% level in Dena Bank and

P&S Bank

Agri and ROE ratio is significant at 1% level in SBT and at 5%

level in Andhra Bank, Canara Bank & UCO Bank.

Agri and NPA ratio is significant at 1% level in SBT, BOB, OBC

and at 5% level in SBH & UCO Bank. Hypotheses are rejected

in these cases. In all other banks, relationship between Agri ratio

and selected financial ratios is not significant and hypotheses are

accepted.

313

6.3(c)(iii) Impact of Micro and Small Enterprise(MSE)

Advances upon selected Financial Ratios :

Figure No. 6.4

Impact of MSE Advances on Financial Ratios

of selected PSBs (%)

As regards impact of MSE advances on Net Profit, only 5 banks

(19.23%) shows positive impact. viz. SBH, SBM, Canara, DENA and

UCO bank. It may be concluded that with increase in MSE advances

Net Profit increases in these 5 banks only during the study period. In

the other 21 banks (i.e. 80.77%) the impact is adverse i.e. with

increase in MSE advances, Net Profit decreases.

Impact of MSE advances on ROA is positive in case of 13 banks

(50.00%) namely SBT, Allahabad Bank, Andhra Bank, BOM, CBI,

Corporation Bank, Dena Bank, IDBI, OBC, P&S Bank, United Bank

of India, UCO Band and Vijaya Bank. i.e. in these banks ROA

increases with increase in MSE advances. In other 13 banks (50.00%)

impact is negative. It may be concluded that ROA in these banks

decreases with increase in MSE advances during the study period.

314

There is positive impact of MSE advances on ROE in case of only 3

banks (11.54%) viz. SBH, Canara and DENA bank. It shows that

with increase in MSE advances, ROE also increases in these banks. In

other 23 banks (88.46%), impact is adverse i.e. ROE decreases with

increase in MSE advances.

MSE advances affect Non Performing Assets (NPAs) positively in

case of only 3 banks (11.54%) viz. SBI, BOI and Canara bank. It

reveals that with increase in MSE advances NPAs of these banks

decreases. Impact is adverse in case of other 23 (88.46%) selected

PSBs. It shows that with increase in MSE advances, there is increase

in NPAs of these banks.

Overall analysis exhibits that MSE advances adversely affect all

selected financial parameters in case of majority of selected PSBs



MSE and NP ratio is significant at 1% level in Corporation Bank

& IOB and at 5% level in BOM, Dena Bank, & P&S Bank.

MSE and ROA ratio is significant at 1% level in Canara Bank and

at 5% level in United Bank of India.

MSE and ROE ratio is significant at 1% level in BOM, Dena

Bank, & IOB and at 5% level in Corporation Bank & Indian

Bank.

MSE and NPA ratio is significant at 1% level in Andhra Bank,

BOB, Corporation Bank, IOB, PNB and at 5% level in Dena

Bank, OBC & Vijaya Bank. Hypotheses are rejected in these

cases.

In all other banks, relationship between MSE ratio and selected

financial ratios is not significant and hypotheses are accepted.

315

6.3(c)(iv) Impact of Weaker Section (WS) Advances upon

selected Financial Ratios :

Figure No. 6.5

Impact of WS Advances on Financial Ratios


As regards impact of Weaker Section advances on Net Profit, only 4

banks (15.38%) shows positive impact. viz. SBBJ, BOB, BOI and

IDBI. It may be concluded that with increase in WS advances, there is

increase in Net Profit in these 4 banks only during the study period. In

the other 22 banks (i.e. 84.61%) the impact is adverse i.e. Net Profit of

these banks decreases with increase in WS advances during the study

period.

Impact of Weaker Section advances on ROA is positive in case of 13

banks (50%) namely SBH, SBM, BOM, Canara, Corporation, Dena,

IDBI, IOB, OBC, P&S, Syndicate, United Bank of India and Vijaya

Bank i.e. in these banks ROA increases with increase in WS advances.

In other 13 banks (50%) impact is negative. It may be concluded that

ROA in these banks decreases with increase in WS advances during

the study period.

316

There is positive impact of Weaker Section advances on ROE in case

of only 2 banks (7.69%) viz. BOB and BOI. It shows that with

increase in WS advances, ROE also increases only in 2 banks. In

other 24 banks (92.31%), impact is adverse i.e. with increase in WS

advances, there is decrease in ROE.

Weaker Section advances affect Non Performing Assets (NPAs)

positively in case of only 5 banks (19.23%) viz. SBI, SBH, BOB, BOI

and Syndicate bank. It reveals that with increase in these advances

NPAs of these 5 banks decreases. Impact is adverse in case of other

21 (80.77%) selected PSBs. It shows that WS advances increases and

NPAs of these banks increases.

Overall analysis exhibits that increase in the level of Weaker Section

advances adversely affect all selected financial parameters in case of

majority of selected PSBs during the study period. Impact on ROA

shows equal level of positive and negative impact in selected PSBs.


WS and NP ratio is significant at 1% level in Corporation Bank

& P&S Bank and at 5% level in SBT & Andhra Bank.

WS and ROA ratio is significant at 5% level in SBT and United

Bank of India.

WS and ROE ratio is significant at 1% level in Corporation &

P&S Bank and at 5% level in SBT & SBM.

WS and NPA ratio is significant at 1% level in Canara,

Corporation & OBC banks and at 5% level in SBT, SBM &

BOB. Hypotheses are rejected in these cases.

In all other banks, relationship between Weaker Section Advances

ratio and selected financial ratios is not significant and hypotheses

are accepted.

317

6.3(c)(v) Impact of Housing Finance (HF) upon selected

Financial Ratios :

Figure No. 6.6

Impact of Housing Finance on Financial Ratios


As regards impact of Housing Finance on Net Profit, 21 banks

(80.77%) show positive impact. It reveals that with increase in

Housing Finance, Net Profit increases in these 21 banks during the

study period. In the other 5 banks (i.e. 19.23%) viz. SBBJ, OBC,

P&S, Syndicate and UCO bank, the impact is adverse i.e. with increase

in housing finance, Net Profit of these banks decreases during the

study period.

Impact of Housing Finance on ROA is positive in case of only 4 banks

(15.38%) viz. IDBI, IOB, UBI and Syndicate Bank i.e. in these banks

ROA increases with increase in Housing Finance. In other 22 banks

(84.62%) impact is negative. It reveals that ROA in these banks

decreases with increase in HF during the study period.

There is positive impact of Housing Finance on ROE in case of 22

banks (84.62%). It shows that with increase in HF, ROE also

increases in these banks. In other 4 banks (15.38%) namely Andhra

318

Bank, IDBI, OBC and P&S Bank, impact is adverse i.e. with increase

in HF, ROE decreases.

Housing finance affect Non Performing Assets (NPAs) positively in

case of 25 banks (96.15%). It reveals that with the increase in these

advances, level of NPAs of these banks decreases. Impact is adverse

in case of only 1 bank (3.85%) i.e. IDBI. NPAs of IDBI increases

with increase in HF .

Overall analysis exhibits that increase in the level of Housing Finance

positively affect Net Profit, ROE and NPA in case of majority of

selected PSBs during the study period. Impact of Hosing Finance on

ROA is adverse in majority of selected PSBs.


HF and NP ratio is significant at 1% level in IOB & UBI and at

5% level in SBT, BOI & P&S Bank.

HF and ROA ratio is significant at 5% level in SBT, BOM & CBI.

HF and ROE ratio is significant at 1% level in SBM, SBT, IOB &

UBI and at 5% level in BOI, Dena Bank & Indian Bank.

HF and NPA ratio is significant at 1% level in SBM & UBI and at

5% level in SBI, SBBJ, SBT, BOI, Canara Bank, Indian Bank,

OBC & Vijaya Bank. Hypotheses are rejected in these cases. In

all other banks, relationship between HF ratio and selected


6.3(c)(vi) Impact of Education Loans (EL) upon selected

Financial Ratios :

As regards impact of Education Loans on Net Profit, 21 banks

(80.77%) show positive impact. It reveals that increase in EL leads to

increase in Net Profit in these 21 banks during the study period. In the

other 5 banks (i.e. 19.23%) viz. SBI, CBI, IOB, Syndicate and UCO

bank, the impact is adverse i.e. with increase in the level of education

loan, Net Profit of these banks decreases during the study period.

319

Figure No. 6.7

Impact of Education Loans on Financial Ratios


Impact of Education Loans on ROA is positive in case of only 7 banks

(26.92%) these banks are BOI, CBI, IDBI, Indian Bank, PNB,

Syndicate Bank & UCO Bank i.e. in these banks ROA increases with

increase in EL. In other 19 banks (73.08%) impact is negative. It may

be concluded that ROA in these banks decreases with increase in EL


There is positive impact of Education Loans on ROE in case of 20

banks (76.92%). It shows that with increase in EL, ROE also

increases in these banks. In other 6 banks (23.08%) namely SBI, CBI,

IDBI, IOB, Syndicate Bank and UCO Bank, impact is adverse i.e.

with increases in EL, ROE decreases in these 6 banks.

Education Loans affect Non Performing Assets (NPAs) positively in

case of 19 banks (73.08%). It reveals that with the increase in these

advances, level of NPAs of these banks decreases. Impact is adverse

in case of 7 banks (26.92%) viz. Canara Bank, CBI, IDBI, IOB, PNB,

UCO Bank and Vijaya Bank. It shows that with increase in EL, there

is increase in NPAs of these banks.

320

Overall analysis exhibits that increase in the level of Education Loans

positively affect Net Profit, ROE and NPA in case of majority of

selected PSBs during the study period. Impact of Education Loans on

ROA is adverse in majority of selected PSBs.


EL and NP ratio is significant at 1% level in Allahabad Bank,

IOB & P&S Bank and at 5% level in SBT.

EL and ROA ratio is significant at 1% level in CBI and at 5%

level in Dena Bank & United Bank of India.

EL and ROE ratio is significant at 1% level in Allahabad Bank,

IOB & P&S Bank and at 5% level in SBT, CBI & Dena Bank.

EL and NPA ratio is significant at 1% level in Andhra Bank &

OBC and at 5% level in SBH, Allahabad Bank, BOB, CBI, IOB

& P&S Bank. Hypotheses are rejected in these cases.

In all other banks, relationship between EL ratio and selected


Conclusion :

Bank wise analysis, to study the impact of selected priority sector lending

ratios upon selected financial ratios of selected 26 public sector banks, reveals

that during the study period, the impact of total Priority Sector Lending,

Housing Finance and Education Loans reflect overall positive impact upon Net

Profit, Return on Equity (ROE) and Non Performing Assets (NPA) as well as

they show negative impact on Return on Advances (ROA) in case of majority

of selected Public Sector Banks. Agriculture, MSE and Weaker Section (WS)

advances are found to affect all selected financial ratios adversely in case of

majority of selected Public Sector Banks during the study period.

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6.3(d) for Impact of selected Priority Sector Lending Ratios

upon selected Financial Ratios – Bank Group Wise

1) SBI & Associate Banks :

Relationship between MSE Ratio & NP ratio is moderate negative

(‗r‘ = -0.377). It reveals that MSE advances have adverse impact

on Net Profit of SBI & Associate Banks during the study period i.e.

with increase in MSE advances, Net Profit of banks decreases.

HF Ratio (‗r‘ = -0.270) and EL Ratio (‗r‘ = -0.141) have negative

relationship with ROA ratio. Hence, it can be concluded that with

the increase in Housing Finance and Education Loans, ROA

decreases i.e. they affect Return on Advances adversely

MSE advances (‗r‘ = 0.060) has low positive relationship with

ROE i.e. MSE advances do not contribute much to Return on

Equity of SBI & Associates during the study period.

All selected priority sector lending ratio has negative correlation

with NPA ratio. Values of ‗r‘ for total PSL, Agri, MSE, WS, HF &

EL ratios are respectively, (-0.764), (-0.418), (-0.530), (-0.171),

(-0.153) & (-0.265). It reveals that with increase in lending to

selected priority sectors, there is decrease in NPAs. Thus, all

selected ratios have positive impact on NPAs of SBI & Associate

Banks during the study period.

All other selected priority sector lending ratios have positive

relationship and hence positive impact on all selected financial

ratios. It reveals that increase in these advances causes

improvement in financial performance of SBI & Associates.

Hypotheses are accepted at 5% level of significance in all cases. It

shows that relationship between all selected priority sector lending

ratios and all selected financial ratios of SBI & Associate Banks is

not significant during the study period.

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2) Other Nationalized Banks :

Relationship between HF Ratio & NP ratio is low negative

(‗r‘ = -0.056). It reveals that housing finance have adverse impact

on Net Profit of other Nationalized Banks during the study period

i.e. increase in Housing Finance, there is decrease in Net Profit.

Other selected ratios have low positive relationship i.e. increase in

those advances causes only slight increase in Net Profit.

All selected priority sector ratios show positive relationship with

ROA ratio. It reveals that with the increase in priority sector

lending, ROA increases i.e. they affect Return on Advances

positively. Relationship between total PSL Ratio and ROA Ratio is

significant at 5% level, hence, hypothesis is rejected in total PSL

ratio.

WS Ratio (‗r‘ = -0.016) and HF Ratio (‗r‘ = -0.362) have negative

relationship with ROE. They affect ROE adversely i.e. with

increase in these advances, ROE decreases. Other selected ratios

show low positive relationship i.e. those advances do not contribute

much to Return on Equity of other Nationalized Banks during the

study period.

HF Ratio (‗r‘ = -0.243) and EL Ratio (‗r‘ = -0.174) have negative

relationship with NPA Ratio. It reveals that increase in these

advances causes decrease in NPAs i.e. they have positive impact on

NPAs. Other selected priority sector ratios have adverse impact on

NPAs as they show positive relationship.

All other selected priority sector lending ratios have positive

relationship and hence positive impact on all selected financial

ratios.

Hypotheses are accepted at 5% level of significance in all cases

except ROA Ratio. It shows that relationship between all selected

priority sector ratios and all selected financial ratios, except ROA

ratio, of other Nationalized Banks is not significant during the

study period.

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Conclusion :

The overall analysis reveals that in SBI & Associate Banks –

bank group as a whole, MSE advances affect Net Profit adversely.

Housing Finance and Education loans affect Return on Advances

adversely. Lending to all other selected priority sectors has positive

impact on selected financial parameters of banks during the study

period. The relationship between all selected priority sector ratios and

all selected financial ratios is not significant at 5% level and hypotheses

are rejected.

The overall analysis reveals that in case of other Nationalized

Banks – as a whole, Housing Finance affects Net Profit and ROE

adversely during the study period. Weaker Section advances affect ROE

adversely. The relationship is not significant at 5% level in all cases

except ROA. Relationship between total PSL Ratio and ROA Ratio is

significant at 5% level; hence, hypothesis is rejected in case of total

PSL ratio.

6.4 Suggestions :

a) The analysis reveals that Agriculture, MSE and Weaker Section

advances adversely affect financial performance of majority of selected

PSBs. Therefore, all public sector banks should monitor these advances

closely. End use of the funds deployed as well as timely repayment of

these advances should also be ensured. Banks should try for a

settlement and / or resort to other recovery measures, expeditiously to

minimize negative impact of these advances on their overall

functioning.

b) It has been observed that the MSEs suffer the most in the situations like

economic and global slowdown especially from discontinuity of

business and they become sick immediately. Therefore the RBI has

prescribed guidelines for rehabilitation of sick MSEs with the emphasis

on early detection of incipient sickness and to lay down a procedure to

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be adopted by banks to save the unit from being unviable. All PSBs

should effectively implement these guidelines to nullify the adverse

impact of advances to MSEs on their financial performance.

c) Banks should provide timely and adequate assistance to potentially

viable MSE units which have already become sick or are likely to

become sick. MSEs are of the utmost importance not only from the

point of view of the financing banks but also for the development of the

national economy as the sector contributes to the overall industrial

production, exports and employment generation to a high extent. The

banks should, therefore, take a sympathetic attitude and strive for

rehabilitation, in respect of units in the MSE sector, particularly

wherever the sickness is on account of circumstances beyond the

control of the entrepreneurs.

d) As regards agriculture financing, banks should see that the loans are

given for productive purposes as well as end use of fund should also be

ensured.

e) However, to encourage agriculture being the core sector of Indian

economy, the norms for agriculture finance, its repayment, recovery of

such loans etc. are very liberal that may cause reluctance by the

borrower in repayment of such loans. This may be a major factor for

agriculture lending adversely affecting PSBs in terms of reduced level

of Return on Advances (ROA) and Net Profit. RBI may take up the

issue and frame a kind of need based approach for agriculture finance

i.e. liberalised lending where end use of funds is fully ensured and

tightened norms to discourage the lending for unproductive purposes.

f) To minimize the adverse impact of Weaker Section advances, the target

for Weaker Section advances may be reduced and targets of lending to

other priority sectors, which show favourable impact on financial

performance of banks, can be enhanced.

g) The study reveals that Housing Finance and Education Loans have

positive impact on all major financial indicators of PSBs. Banks can

deploy more credit to these sectors. The significant aspect of these loans

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is that these are the small value loans provided to the large mass of the

people. Hence there is the least possibility of non repayment of such

loans as well as the risk component is distributed among large number

of borrowers promising handsome returns. Returns from these loans

may help to reduce the degree of adverse impact of lending to other

priority sectors.

h) However the outlook and performance level of PSBs shows remarkable

improvement in recent years, yet rigid norms and multi authority levels

for processing, sanctioning, disbursement, recovery and settlements etc

of loans may also be one of the reasons for default and adverse impact.

Adequate decentralisation of authority structure and practical approach

in this regard needs to be adopted by PSBs.

i) There may also exist the possibility of deliberate lending by banks for

unproductive and unidentifiable purposes to take undue advantage, from

and for the borrower, of various facilities provided by the Government

like subsidy, interest benefits, benefits of Government Sponsered

Schemes etc. This may also cause that the loans turn into Non

Performing Assets (NPAs). The Government and RBI should adopt a

stick approach to identify, discourage and demolish such practices by

banks.

The present study reveals that, though the total priority sector

lending exhibits positive impact on the major financial parameters of

the selected Public Sector Banks during the study period, advances to

Micro & Small Enterprises and Weaker Section adversely affect the

financial performance of PSBs. The Reserve Bank of India may

undertake to further investigate and analyse the norms regarding

priority sector lending by commercial banks in India and revise the

same if found necessary. This may facilitate the Public Sector Banks in

implementation of the priority sector lending guidelines and directing

the credit to those sectors of the economy which are in sought of

adequate and timely credit for growth and development.

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6.5 Suggestions for Further Research:

1) A further research can be undertaken for each category under priority

sector separately as the scope of each category is very wide.

2) A study on priority sector lending can be undertaken for other types of

banks also as priority sector lending norms stipulated by the Reserve

Bank of India are applicable to all scheduled commercial banks in

India.

3) A comparative study regarding priority sector lending can be carried

out among different types of banks in India.

4) The research study can be undertaken for longer time span also.

5) Other aspects of priority sector lending can be further analyzed like

processing and sanctioning of loans, reporting and supervisory aspects,

non achievement of priority sector lending targets etc.

chapter 6 summary, findings &...

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