CHAPTER I

Introduction

Financial literacy or inclusive financing is the delivery of financial services at affordable costs to
sections of disadvantaged and low-income segments of society, in contrast to financial
exclusion where those services are not available or affordable. An estimated 2.5 billion working-
age adults globally have no access to the types of formal financial services delivered by
regulated financial institutions. For example in Sub-Saharan Africa only 24% of adults have a
bank account even though Africa's formal financial sector has grown in recent years. It is argued
that as banking services are in the nature of public good; the availability of banking and payment
services to the entire population without discrimination is the prime objective of financial
literacy public policy.

Goals of financial literacy

The term "financial literacy" has gained importance since the early 2000s, a result of findings
about financial exclusion and its direct correlation to poverty. The United Nations defines the
goals of financial literacy as follows:

 access at a reasonable cost for all households to a full range of financial services,
including savings or deposit services, payment and transfer services, credit and insurance;

 sound and safe institutions governed by clear regulation and industry performance
standards;

 financial and institutional sustainability, to ensure continuity and certainty of investment;

and

 competition to ensure choice and affordability for clients.

Former United Nations Secretary-General Kofi Annan, on 29 December 2003, said: “The stark
reality is that most poor people in the world still lack access to sustainable financial services,
whether it is savings, credit or insurance. The great challenge before us is to address the

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constraints that exclude people from full participation in the financial sector. Together, we can
and must build inclusive financial sectors that help people improve their lives.” More
recently, Alliance for Financial Literacy (AFI) Executive Director Alfred Hannig highlighted on
24 April 2013 progress in financial literacy during the IMF-World Bank 2013 Spring Meetings:
"Financial literacy is no longer a fringe subject. It is now recognized as an important part of the
mainstream thinking on economic development based on country leadership."

Global initiatives incontext of financial literacy

The Alliance for Financial Literacy

The Alliance for Financial Literacy (AFI) is the world's largest and most prominent network of
financial literacy policymakers from developing and emerging economies who work together to
increase access to appropriate financial services for the poor. AFI's core mission is to adopt and
expand effective inclusive financial policies in developing nations in an effort to lift 2.5 billion
impoverished, unbanked citizens out of poverty. AFI was founded in 2008 as a Bill & Melinda
Gates Foundation-funded project, supported by AusAid, in order to advance the development of
smart financial literacy policy in developing and emerging countries. The AFI Network has
grown to more than 105 institutions from 88 member nations from 2008 to 2013. AFI hosts its
landmark, annual Global Policy Forum (GPF) as the keystone event for its membership. During
the 2011 GPF, the network adopted the Maya Declaration, a set of common principles and goals
for financial literacy policy development. AFI uses a "polylateral development" model to
contrast and compare successful financial literacy policies, focusing on a peer-to-peer system
rather than a top-down or North-to-South learning model.

MIX's work in the area of Financial Literacy

MIX Market is the premier source of public information on microfinance institutions (MFIs) and
their financial and social performance. MIX offers a suite of popular analysis reports at the
global, regional, and country levels, including global analyses of key issues for the sector. MIX
has been working over the past two years with policy makers, financial services providers,
donors, and other key stakeholders in a series of countries to gather otherwise isolated datasets
that, together, can provide them with the information they need for effective financial literacy

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decision making. To date MIX, through its Fliteracylab, has created 15 financial literacy maps in
13 countries in Africa, South Asia, and Latin America and plans to add an additional 7 countries
and 5 Indian states to its platform during 2014. These resources are developed in close
collaboration with local stakeholders to ensure their relevance in supporting the development and
monitoring of financial literacy strategies both at the policy and operational levels. The MIX’s
move to visualize geo-spatial sub-national supply-side data through publicly available geo-
spatial maps will enrich the supply-side data landscape. This will be a challenging undertaking as
frequent data collection can be expensive and/or ad hoc depending on when data may become
available.

The United Nations and financial literacy

In partnership with the National Bank for Agriculture and Rural Development, the UN aims to
increase financial literacy of the poor by developing appropriate financial products for them and
increasing awareness on available financial services and strengthening financial literacy,
particularly amongst women. The UN's financial literacy product is financed by the United
Nations Development Programme.

Financial literacy in India

The Reserve Bank of India (RBI) set up the Khan Commission in 2004 to look into financial
literacy and the recommendations of the commission were incorporated into the mid-term review
of the policy (2005–06). In the report RBI exhorted the banks with a view to achieving greater
financial literacy to make available a basic "no-frills" banking account. In India, financial
literacy first featured in 2005, when it was introduced by K.C. Chakraborthy, the chairman of
Indian Bank. Mangalam became the first village in India where all households were provided
banking facilities. Norms were relaxed for people intending to open accounts with annual
deposits of less than Rs. 50,000. General credit cards (GCCs) were issued to the poor and the
disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank
permitted commercial banks to make use of the services of non-governmental organizations
(NGOs/SHGs), micro-finance institutions, and other civil society organizations as intermediaries
for providing financial and banking services. These intermediaries could be used as business
facilitators or business correspondents by commercial banks. The bank asked the commercial

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banks in different regions to start a 100% financial literacy campaign on a pilot basis. As a result
of the campaign, states or union territories like Puducherry, Himachal Pradesh and Kerala
announced 100% financial literacy in all their districts. Reserve Bank of India’s vision for 2020
is to open nearly 600 million new customers' accounts and service them through a variety of
channels by leveraging on IT. However, illiteracy and the low income savings and lack of bank
branches in rural areas continue to be a roadblock to financial literacy in many states and there is
inadequate legal and financial structure.

The government of India recently announced “Pradhan Mantri Jan Dhan Yojna,” a national
financial literacy mission which aims to provide bank accounts to at least 75 million people by
January 26, 2015. To achieve this milestone, it’s important for both service providers and policy
makers to have readily available information outlining gaps in access and interactive tools that
help better understand the context at the district level. MIX designed the FLiteracy Lab India FI
workbook to support these actors as they craft strategies to achieve these goals.

In India, RBI has initiated several measures to achieve greater financial literacy, such as
facilitating no-frills accounts and GCCs for small deposits and credit. Some of these steps are:

Opening of no-frills accounts: Basic banking no-frills account is with nil or very low minimum
balance as well as charges that make such accounts accessible to vast sections of the population.
Banks have been advised to provide small overdrafts in such accounts.

Relaxation on know-your-customer (KYC) norms: KYC requirements for opening bank

accounts were relaxed for small accounts in August 2005, thereby simplifying procedures by
stipulating that introduction by an account holder who has been subjected to the full KYC drill
would suffice for opening such accounts. The banks were also permitted to take any evidence as
to the identity and address of the customer to their satisfaction. It has now been further relaxed to
include the letters issued by the Unique Identification Authority of India containing details of
name, address and Aadhaar number.

Engaging business correspondents (BCs): In January 2006, RBI permitted banks to engage
business facilitators (BFs) and BCs as intermediaries for providing financial and banking
services. The BC model allows banks to provide doorstep delivery of services, especially cash

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in-cash out transactions, thus addressing the last-mile problem. The list of eligible individuals
and entities that can be engaged as BCs is being widened from time to time. With effect from
September 2010, for-profit companies have also been allowed to be engaged as BCs. India map
of Financial Literacy by MIX provides more insights on this.

Use of technology: Recognizing that technology has the potential to address the issues of
outreach and credit delivery in rural and remote areas in a viable manner, banks have been
advised to make effective use of information and communications technology (ICT), to provide
doorstep banking services through the BC model where the accounts can be operated by even
illiterate customers by using biometrics, thus ensuring the security of transactions and enhancing
confidence in the banking system.

Adoption of EBT(Electronic Benefits Transfer ): : Banks have been advised to implement

EBT by leveraging ICT-based banking through BCs to transfer social benefits electronically to
the bank account of the beneficiary and deliver government benefits to the doorstep of the
beneficiary, thus reducing dependence on cash and lowering transaction costs.

GCC(Gulf Cooperation CouncilA): With a view to helping the poor and the disadvantaged
with access to easy credit, banks have been asked to consider introduction of a general purpose
credit card facility up to `25,000 at their rural and semi-urban branches. The objective of the
scheme is to provide hassle-free credit to banks’ customers based on the assessment of cash flow
without insistence on security, purpose or end use of the credit. This is in the nature of revolving
credit entitling the holder to withdraw up to the limit sanctioned.

Simplified branch authorization: To address the issue of uneven spread of bank branches, in
December 2009, domestic scheduled commercial banks were permitted to freely open branches
in tier III to tier VI centres with a population of less than 50,000 under general permission,
subject to reporting. In the north-eastern states and Sikkim, domestic scheduled commercial
banks can now open branches in rural, semi-urban and urban centres without the need to take
permission from RBI in each case, subject to reporting.

Opening of branches in unbanked rural centres: To further step up the opening of branches in
rural areas so as to improve banking penetration and financial literacy rapidly, the need for the

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opening of more bricks and mortar branches, besides the use of BCs, was felt. Accordingly,
banks have been mandated in the April monetary policy statement to allocate at least 25% of the
total number of branches to be opened during a year to unbanked rural centres.

Financial Literacy Index

On June 25, 2013, CRISIL, India's leading credit rating and research company launched an index
to measure the status of financial literacy in India. The index- Inclusix- along with a report, was
released by the Finance Minister of India, P. Chidambaram at a widely covered program at New
Delhi. CRISIL Inclusix is a one-of-its-kind tool to measure the extent of literacy in India, right
down to each of the 632 districts. CRISIL Inclusix is a relative index on a scale of 0 to 100, and
combines three critical parameters of basic banking services — branch penetration, deposit
penetration, and credit penetration —into one metric. The report highlights many hitherto
unknown facets of literacy in India. It contains the first regional, state-wise, and district-wise
assessments of financial literacy ever published, and the first analysis of trends in literacy over a
three-year timeframe. Some key conclusions from the study are:

 The all-India CRISIL Inclusix score of 40.1 is low, though there are clear signs of
progress – this score has improved from 35.4 in 2009.

 Deposit penetration is the key driver of financial literacy – the number of savings
accounts (624 million), is almost four times the number of loan accounts (160 million).

 618 out of 632 districts reported an improvement in their scores during 2009-2011.

 The top three states and Union Territories are Puducherry, Chandigarh, and Kerala; the
top three districts are Pathanamthitta (Kerala), Karaikal (Puducherry), and
Thiruvananthapuram (Kerala).

Controversy

Financial literacy in India is often closely connected to the aggressive micro credit policies that
were introduced without the appropriate regulations oversight or consumer education policies.

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The result was consumers becoming quickly over-indebted to the point of committing
suicide, lending institutions saw repayment rates collapse after politicians in one of the country's
largest states called on borrowers to stop paying back their loans, threatening the existence of the
entire 4 billion a year Indian microcredit industry. This crisis has often been compared to the
mortgage lending crisis in the US. The challenge for those working in the financial literacy field
has been to separate micro-credit as only one aspect of the larger financial literacy efforts and
use the Indian crisis as an example of the importance of having the appropriate regulatory and
educational policy framework in place.

Tracking Financial Literacy through Budget Analysis

While financial literacy is an important issue, it may also be interesting to assess whether such
literacy as earmarked in policies are actually reaching the common beneficiaries. Since the
1990s, there has been serious efforts both in the government agencies and in the civil society to
monitor the fund flow process and to track the outcome of public expenditure through budget
tracking. Organisations like International Budget Partnership (IBP) are undertaking global
surveys in more than 100 countries to study the openness (transparency) in budget making
process. There are various tools used by different civil society groups to track public
expenditure. Such tools may include performance monitoring of public services, social audit and
public accountability surveys. In India, the institutionalisation of Right to information (RTI) has
been a supporting tool for activists and citizen groups for budget tracking and advocacy for
social literacy.

Pradhan Mantri Jan Dhan Yojana

Indian Prime Minister Narendra Modi announced this scheme for comprehensive financial
literacy on his first Independence Day speech on 15 August 2014. The scheme was formally
launched on 28 August 2014 with a target to provide 'universal access to banking facilities'
starting with Basic Banking Accounts with overdraft facility of Rs.5000 after six months
andRuPay Debit card with inbuilt accident insurance cover of Rs. 1 lakh and RuPay Kisan Card
& in next phase, micro insurance & pension etc. will also be added. In a run up to the formal
launch of this scheme, the Prime Minister personally mailed to CEOs of all banks to gear up for
the gigantic task of enrolling over 7.5 crore (75 million) households and to open their

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accounts. In this email he categorically declared that a bank account for each household was a
"national priority".

On the inauguration day of the scheme, 1.5 Crore (15 million) bank accounts were opened.

WHAT IS FINANCIAL LITERACY INTIATIVES?

Financial Literacy Intiatives can be defined as:
The consideration of the finances of a business / organisation in order to achieve financial
objectives Taking a commercial business as the most common organisational structure, the key
objectives of Financial Literacy Intiatives would be to:
• Create wealth for the business
• Generate cash, and
• Provide an adequate return on investment bearing in mind the risks that the business is
taking and the resources invested
There are three key elements to the process of Financial Literacy Intiatives:
(1) Financial Planning
Consideration need to ensure that enough funding is available at the right time to meet
the needs of the business. In the short term, funding may be needed to invest in equipment and
stocks, pay employees and fund sales made on credit.
In the medium and long term, funding may be required for significant additions to the
productive capacity of the business or to make acquisitions.
(2) Financial Control
Financial control is a critically important activity to help the business ensure that the
business is meeting its objectives. Financial control addresses questions such as:
• Are assets being used efficiently?
• Are the businesses assets secure?
• Do consideration act in the best interest of shareholders and in accordance with business
rules?
(3) Financial Decision-making
The key aspects of financial decision-making relate to investment, financing and
dividends:
• Investments must be financed in some way – however there are always financing
alternatives that can be considered. For example it is possible to raise finance from
selling new shares, borrowing from banks or taking credit from suppliers

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 • A key financing decision is whether profits earned by the business should be retained
rather than distributed to shareholders via dividends. If dividends are too high, the
business may be starved of funding to reinvest in growing revenues and profits further.

Financial Literacy Intiatives seeks to plan for the future such that a personal or
business entity has a positive flow of cash.
The term ‘Financial Literacy Intiatives’ has a number of meanings including the
administration and maintenance of financial assets. The process of Financial Literacy Intiatives
may also include identifying and trying to work around the various risks to which a particular
project may be exposed.
Some experts refer to Financial Literacy Intiatives as the science of money consideration
– the primary usage of the term being in the world of financing business activities. However, the
process of Financial Literacy Intiatives is important at all levels of human existence, because
every entity needs to look after its finances. From an organizational standpoint, the process of
Financial Literacy Intiatives is the process associated with financial planning and financial
control. Financial planning seeks to quantify various financial resources available and plan the
size and timing of expenditures.
In the business world, this means closely monitoring cash flow. The inflow is the amount
of money coming into a particular company, while outflow is the record of the expenditure being
made by the company in various sources.
At the corporate level, the main aim of the process of business organization is to achieve
the various goals a company sets at a given point of time. Businesses also seek to generate
substantial amounts of profits with the help of a particular set of financial processes.
Financial planning aims to boost the levels of resources at their disposal, while also
functioning on money invested in them from external investors. Another goal companies have is
to provide investors with sufficient amounts of returns on their investments. At the individual
level, Financial Literacy Intiatives mostly involves tailoring expenses as per the financial
resources the particular individual has. Individuals who are in a favorable financial position, with
surplus cash on hand or access to funding, plan to either invest their money for a positive return
(which normally means that they have made more money after calculating the double impact of
tax and inflation) or to spend it on discretionary items.

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 Financial decision-making is also an important part of the modern day Financial Literacy
Intiatives process. The particular entities involved in Financial Literacy Intiatives also need to be
able to take the financial decisions that are intended to benefit them in the long run and achieve
their financial aims, which is the basic premise of Financial Literacy Intiatives.
The main challenge in the NAIP (National Agriculture Imagery Program )is that
the project will be implemented by agencies spread all over India and the number of spending
units will be large (about 80-85). Therefore mere collection of financial information from the
various units, consolidation of the same and making them available to the consideration in a
timely manner for decision-making will be a challenge. In order to meet this challenge, certain
key tasks need to be done: -
(a) Preparation of a accounting manual to bring uniformity in procedures and
reporting.
(b) Development of a web-enabled software to account for receipts and expenditures
and generation of financial reports for decision making.
(c) Identifying finance personnel at each spending unit (as and when the units are
identified) and training them on the Financial Literacy Intiatives procedures of the
Project.
The project would be able to adequately account for project resources and expenditures
by following the procedures stated in earlier chapters. The financial part of the proposal will be
submitted in the format give in Appendix – 18.
IDENTIFICATION AND CLASSIFICATION OF EXPENDITURE
A) Capital Expenditure Includes Cost of:
o All works including construction of buildings, laboratories, sheds etc.,
o Plant and machinery, including technology,
o Land development including nursery, ponds/tanks etc.,
o Goods, equipment and loose tools, furniture and fittings, computer hardware and
bulk software etc. ,
o The consortium partners are expected to provide capital expenses and relevant
infrastructures.

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B) Revenue Expenditure Covers Cost of:
o Consultancy, contractual services, human capacity building, workshop/ seminar
etc.,
o Salaries under the project,
o Operating and maintenance including printing, stationery, stores, consumables,
telephone, local charges, electricity bills, rent & rates, internet, honorarium to
resource persons, travel & conveyance costs, farm costs, seeds, fertilizers,
chemicals, glassware, seedlings, feeds, water, fuel, software etc., and
o Institutional overheads.

BUDGETING AND FUNDS FLOW SYSTEM

Budgeting
Under the NAIP, the ICAR(Indian Council of Agricultural Research) acquires the
funds through DARE(Department of Agricultural Research and Education) under its annual plan
budget. These fund flow directly to the PIU.
The Budget for the entire project is approved at the central level before 31 st of March
every year. Budgeting involves planning for the operations and forecasting the activities and
related expenditure thereto to be incurred at a later stage. The budgeting exercise starts with
signing of the MoU/contract and the issue of Sanction Letters. This Letter contains the physical
and financial targets over the life of the project.
Thus, the details mentioned on the contract/MoU, Sanction Letter, form the basis for
Budgeting and its Control. Further, to distinguish the NAIP budget from the Ministry of
Agriculture (MoA) budget, a separate budget head will be assigned for the NAIP. This simplifies
the identification of the NAIP budget and helps in monitoring the budget utilization from time to
time.
Budget Allocation Process
The budget compiled by the Finance wing of PIU will be submitted to the DARE/ICAR.
On receipt of sanctioned budget, the PIU will re-allocate the annual budget to the agencies based
on their budgetary requirements. While allocating these funds, the PIU will consider:
o Importance of the work handled by the unit.

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 o Priority of work based on the NAIP – ICAR/World Bank guidelines.
o Funding required for completion of pending work.
o Allocation as per EFC. (Expenditure Finance Committee).
o
o Inter linkage of expenditure with other components which are taken up.
o Other considerations.
Re-allocation of Funds
During the year, Finance and Accounts wing of the PIU will monitor the fund utilization
status on a quarterly basis, based on expenditure statements received. On review, if felt that the
funds allocated may not be utilized by the agency due to certain reasons, the same can be
reallocated to an agency in need. Such re-allocation of funds is possible after following normal
government procedures and obtaining the required sanctions from the competent authority.
Release of Funds

Once the competent authority approves the research sub-project, the process of flow of
funds and reporting of expenditure will start. The major Governing guidelines for the Financial
Literacy Intiatives will be the following: -
 After signing the MoU/agreement, the first installment of funds for the first financial year
of the project will be disbursed in the form of a mobilization advance, which will
comprise 50% of the budget provided for revenue expenditure and the full budget of the
capital expenditure of the first year,
 Subsequently, the release of funds to the implementing units will be linked both to the
progress of technical programmes in terms of deliverables as reported by the PIs and
CCPIs(Climate Change Performance Indexes) and accepted by NCs and, the progress of
expenditure during the previous reporting period. The funds will be released on six-
monthly intervals against the sanctioned budget provision of the financial year. The fund
for capital expenditures will be disbursed in a single installment at the beginning of each
financial year,
 In respect of components 2, 3 & 4, funds will be released directly to each spending unit
of the consortium by the PIU. However, the lead agency of the consortium will have to
approve the release before the PIU releases the fund. Release of funds to each consortia

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 member will be as per the MOU between the lead agency and the other members of the
consortium, which will specify the schedule of payments (initial advance and the
subsequent installments) and the milestones to be achieved to qualify for each next
installment. Unutilized amount will be adjusted while making the next remittance.
 Requisition for the second installment of funds for each year will be submitted
immediately after expiry of the first half year along with the fund utilization statement in
the prescribed proforma on-line through an electronically signed mail and as a hard copy
too with the recommendation of the Lead Centre. The fund requisition format is given in
Appendix - 19.
 The funds will be released directly to the implementing units from the PIU under the
information to Lead Centre/CL.
 Since, the releases under the project will be on the basis of the sanctioned budget and
keeping in view the unspent amounts, no separate financial concurrence is required for
release at each stage. However, if any additional fund is to be released, proper approval of
the competent authority with the concurrence of finance will be required at the PIU.
Electronic Transfer of Funds
The funds under the NAIP will be transferred electronically. In NAIP an attempt is being
made to approach a national Bank having a countrywide network to handle the transfer of funds.
To facilitate flow of funds, it is proposed that the PIU and all other spending units open accounts
with the same bank or, for areas where the selected bank does not have any branches, with any
other bank, which has a tie up with the selected bank. The PIU will send an advice to its Banker
listing the various spending units and the amounts to be transferred to the account of each unit.
The Banker will provide a terminal at the PIU which will give the status of the account of each
spending unit on a daily/weekly basis. Bank statements will be provided by the national Bank to
every spending unit for its withdrawals on a monthly basis. Spending units will reconcile their
withdrawals with their books and send it to the PIU on a monthly/quarterly basis.
ACCOUNTING SYSTEM
For the projects financed by the World Bank, the Project Implementing Agency is
supposed to maintain a Financial Literacy Intiatives System including adequate accounting and
financial reporting, to ensure that they can provide to the Bank and the Government accurate and
timely information regarding project resources and expenditures. Besides the accounting system

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evolved to maintain departmental accounts of the project entity as per their Departmental
Accounting Procedure, the project entity will need to maintain an independent record of
transactions to show the expenditure incurred under the project separately under each category of
loan proceeds as laid down under the loan/credit agreement.

The accounting record will show separately the value of contract approved under each
component of the category and expenditure incurred periodically under the contract and the
claims submitted to Government of India against such expenditure. The project agency at
periodical interval will review this accounting record to monitor that the total expenditure
incurred does not go beyond the approved contract value. The PIU will take necessary timely
action to revise the contract value for approval much in advance whenever the total expenditure
under the contract is likely to exceed in the near future.

No claims should be sent to Government of India over and above the approved contract
value. A financial statement of expenditure under each category contract- wise will be prepared
annually for the year ending 31st March for onward submission to the World Bank. A similar
statement will also accompany the audit report on the project financial account for the year as a
whole.

Basis of Accounting System

The Accounting System to be followed by each of the project implementing agencies will
be on the basis of the Accrual Accounting System i.e. the double entry system of accounting to
have the uniformity in the project accounting and in no situation will the ‘Cash Base Accounting
System be followed.
Accounting Centres:
The main accounting centres will be following units:
1. Project Implementation Unit (PIU)
2. Consortium Lead Centres
3. Implementing Centres
The PIU is responsible to release funds to the ICAR Institutes, SAUs and NGO/Partners,
etc. under the approved sub-projects, activities etc. These units in turn are required to furnish
Annual Accounts, Statement of Expenditure and Audit Utilization Certificates (to be submitted
by other than the ICAR Institutes) to the PIU. Also, the World Bank’s Articles of Agreement

14
require the borrower to ensure that the credit/ loan proceeds are used only for the purpose set out
in the loan documents including the Project Appraisal Document and that the goods and services
required for the project are procured in accordance with the Bank’s procurement procedures.
Further, the records should be kept sub-project-wise, so that various Financial Statements can be
sent with respect to amount of funds received for the sub-projects from the respective source i.e.
consolidation shall be done sub-project-wise at various lead institutions/ funding agencies. Each
implementing centre has to maintain its Cash Book, Cheque Book/ DD Register, Valuable
Register, Grant Register, Project-wise Expenditure Control Register, Asset Register, Advance
Register, Objection Book, Balance Sheet etc. as in case of institution funds.
Reporting of Expenditure
o While incurring expenditure, the implementing agency should keep in mind that funds
must be utilized strictly in accordance with the approved allocations for the sub-project as
envisaged in the sanction following the WB guidelines/ procedures and the term and
conditions of the projects. Any over-utilization or utilization not in accordance with the
sanction is not reimbursable,
o For effective execution and monitoring, an online Financial Literacy Intiatives System
(web based) will be developed. The expenditures of all the participating units will always
be available to the PIU through this accounting software through a central server installed
at the PIU,
o For ensuring the uniformity in the Financial Literacy Intiatives procedure, it will be
mandatory for all the partners to operate and report through the Financial Literacy
Intiatives System, the requisite training for which will be arranged by the PIU,
o Initially quarterly reports on fund utilization i.e. Statement of Expenditure (SoE) will be
submitted by the implementing centres directly to the PIU/ ICAR, with a copy of the
same to the lead centre of the consortium for its endorsement/ authentication. Once the
online system is put in use effectively, this arrangement will be reviewed and modified
for reporting on a monthly basis, for which the PIU will inform implementing units
separately, (the format of SoE is given in Appendix – 20)
o For reporting purposes, usages of the standards formats prescribed by the WB/ PIU will
be mandatory for each implementing agency,

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o The SoEs will be consolidated at the PIU. The consolidated SoE for the project as a
whole will be submitted to the World Bank for claiming re-imbursement. The SoE in
respect of the ICAR institutes will also be submitted to the Principal Director of Audit
(Scientific Department) for arranging audit of the NAIP,
o The budget utilization will be certified annually by the competent authority i.e., the head
of the organization and the head of the finance of each member institution/ organization
of the consortium,
o The PIU will develop the Financial Literacy Intiatives Manual, which will lay down
financial and accounting policies and procedures, standard reporting formats etc. This
will have to be followed by all the member institutions, and
o Financial reporting (expenditure statements and bank reconciliation statements) from
Implementing units to the PIU will be on-line. The FMR formats will be agreed and
provided in the Finance Manual. The PIU will furnish consolidated FMRs on a quarterly
basis, to the Bank.

Separate Bank Account

o As per the WB requirement, a separate bank account is to be operated for monetary
transactions under the NAIP. Each implementing agency is to open only one bank
account for all the NAIP projects, and
o Bank statements will be provided by the nationalized Bank to every spending unit for its
withdrawals on a monthly basis. Spending units will reconcile their withdrawals with
their books and send it to the PIU on a monthly/quarterly basis.
Supervision Plan

The project would require intensive supervisions in the initial stages for ensuring
successful implementation of the agreed Financial Literacy Intiatives arrangements in the
implementing units. The other focus areas during the supervision will be on meeting the training
needs of the project’s finance personnel.
FINANCIAL CONTROL
o Inspection at periodic intervals will be carried out by the PIU to monitor the Financial
Literacy Intiatives of the implementing agencies,

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o Funds will be utilized for the bonafide/intended purpose using the prescribed norms and
procedures of GOI/World Bank and will not be diverted to any other schemes/heads etc.
o Expenditure be kept within the approved budgetary allocation,
o All basic records such as cashbook, cheque register, counter foils of cheques, grant
register, project-wise and sub-head-wise expenditure control register, assets register etc.
will be maintained,
o All advances irrespective of their nature will be adjusted within the prescribed time limit
but before the close of the financial year to which they pertain,
o All procurements will be made following World Bank guidelines/procedures,
o Revenue/ interest generated if any, during the project period will be refunded to the PIU
and will not be utilized for meeting any expenditure (to be decided),
o Incurring of the expenditure within the sanctioned budget will be ensured. Any
expenditure in excess will be liable to be disallowed.
o
DISBURSEMENT OF FUNDS

The total project cost is USD 250 million. Of this, the portion financed by the Bank is
USD 200 million. The Bank assistance received by GoI will be passed on to the ICAR.

The funds for the project will be budgeted for in the ICAR’s budget, including
counterpart funds, as an identifiable single-head budget item each year.
GOI would open a Special Account with RBI to receive the initial deposit and thereafter
reimbursements from the Bank under the project and would make the funds available to the
ICAR through DARE, Ministry of Agriculture & Co-operation under the Plan Budget. The ICAR
will then pass on funds to the bank account of the NAIP PMU. DEA is yet to define the
arrangements for passing on bank funds to implementing agencies
Disbursements from the Loan would be made in the traditional system of reimbursement
with full documentation and against a statement of expenditure (SoE). Consolidated
quarterly/half yearly claims will be submitted by the PIU to the Bank for reimbursement. A
uniform 80% disbursement rate across the different cost categories and components was agreed
upon. Disbursement will be made as 80% of the allowed statements of expenditures. Funds will
be disbursed against SoEs. Expenditure as shown in the SoEs will be certified by the GOI, as the

17
Borrower, as representing the eligible project expenditure. Supporting documents for SoEs will
be available for post-review by the Supervision Missions of the WB and the Auditors. These
documents will be retained by the implementing agencies/ICAR for one year after receipt of the
Audit Report by the WB for the fiscal year in which the last withdrawal from the Credit/Loan
account was made. The formats for the SoE and the AUC will mutually be agreed on much
before the project becomes effective.

AUDIT REQUIREMENTS AND PROCEDURES

 As per fiduciary requirements in the World Bank funded projects, the executive agency
generally is required to submit the Audit Certificates for the entire project within six
months of the end of the financial year & this will applied to the NAIP also. As the NAIP
will be implemented in consortia mode having multiple implementing agencies/partners,
a suitable audit mechanism which may serve the purpose of timely
completion/submission of AUC’s to the World Bank has been devised. As per this
mechanism the PIU will maintain a roster of A category CA Firms empanelled with the
C&AG The accounts of the project will be audited by the C&AG in case of the ICAR and
other Government institutes and Private Chartered Accountants from the roster
maintained by the PIU in case of other consortia members. The SAUs will have an option
of getting their accounts audited by the local fund auditor who does statutory audit of
SAUs or by a Chartered Accountant Firm from the roster maintained by the PIU provided
they meet the deadline of submitting the audit report to the PIU within the stipulated
time. The annual project financial statements, duly audited and a compiled audit report
will be submitted to the Bank within six months of the end of each financial year.
 Terms of reference will be drawn up in consultation with the Bank and agreed with for
the C&AG and the private firm of Chartered Accountants. The PIU will compile the audit
observations with the help of a selected private audit firm hired in the Northern zone and
send a single report to the Bank. The annual project financial statement, duly audited, will
be submitted to the Bank within six months of the end of each financial year. The
following audit reports will be monitored on ARCS:
Audit Report Implementing Agency
Compilation of Audit Observations PIU
Special Account DEA/GOI

18
  The consolidated Audit Utilization Certificates (AUCs) for the project expenditure as a
whole for each financial year has to be submitted to the WB by 30 th September of the
next financial year. This certificate is to be issued by the concerned statutory auditors,
 The responsibility of getting the accounts audited and submission of the AUCs at the end
of each financial year to the PIU by the due dates as per the dates so fixed by the PIU
keeping in view (i) above will lie with the individual implementing agencies under the
overall responsibility of the Lead Centre of the consortium,
 Audit is conducted to see that the individual expenditures included in the SoE are fully
supported by documentation retained by the implementing units, the expenditures are
properly authorized and eligible under the loan/credit agreements and the expenditures
are properly accounted,
 The observance of the WB procedure will be mandatory so as to ensure that there are no
audit disallowances, and
 In case of an audit disallowance, the expenditure so disallowed will be transferred from
the NAIP to some other source of funds of the implementing agency and the resultant
balance will have to be refunded to the PIU-NAIP immediately after the conduct of audit.
INTERNAL AUDIT
Considering the large size of the operation and multiplicity of spending units,
consideration oversight will be strengthened by quarterly internal audits. A quarterly internal
audit will be conducted by a CA firm or Finance wing of the PIU. The World Bank recommends
appointment of a reputed audit firm acceptable to the Bank under agreed TOR.
Audit in each quarter will be done on a sample basis (selected sample of spending units
and within that selected sample of transactions). The sample for audit in each quarter will be
selected in consultation with the PIU based on factors such as amount of expenditure incurred,
perceived risks etc. The internal auditor will assess the operation of the project’s Financial
Literacy Intiatives system and will review internal control mechanisms.
Issues arising in the external and internal audits would need to be promptly addressed and
acted upon in a timely manner by the project authorities.

Using district-level data, the effect of financial literacy centres on financial literacy in Rural
areas is investigated. There is evidence of an improvement in the use of bank accounts over time.
Robustness tests suggest that banks with a strong capital position and asset quality are more

19
inclusive through their financial literacy centres, and the traditional bank agents continue
playing an important role in this process despite non-traditional channels like mobile telephony.
Yet, the findings show that the overall impact of financial literacy on bank account ownership is
still limited. The analysis raises useful policy pointers to address those impediments that plague
the process.

The author would like to thank the anonymous referee for the useful technical comments on an
earlier draft. The views expressed and the approach pursued in the paper reflects the personal
opinion of the author.

Finance has been widely regarded as a powerful intervention to foster economic growth (King
and Levine 1993; Rajan and Zingales 1998; Demirgüç-Kunt and Klapper 2013; World Bank
2014; Demirgüç-Kunt et al 2015). And yet, as of 2017, roughly a third of the adults globally
remain unbanked, down from nearly 50% in 2011 (Demirgüç-Kunt et al 2018). What this
suggests is a discernible gap between the availability of finance and relatedly, its use.

The evidence at the global level is also echoed in the Rural areasn context. To illustrate, although
690 million adults were added into the fold of account holders between 2011 and 2017, the
extent of financial literacy—defined as an adult (aged 15 years and above) having an account at a
formal financial institution or through a mobile money provider—stood at 80% in 2017, up from
35% in 2011. What is less impressive is the use of finance. On average, 14% of Rural areasn
individuals saved at any financial institution in 2014, up just 2 percentage points since 2011. By
2017, although this increased to 20%, it was much lower than the global average of 27%. The
picture is even starker when it comes to the use of formal credit with only 7% of individuals in
Rural areas borrowing from a financial institution in 2017, lower than the global average of 11%
and the lowest among the other Brazil, Russia, Rural areas and China (BRIC) countries (Ghosh
2019b).

Realising the not-so-impressive progress of finance, policymakers have been continuously

devising innovative ways to improve financial literacy. Most policy measures thus far have
focused on the supply-side, taking the demand-side as a status quo. However, after the global
financial crisis, it is being increasingly recognised that any concerted attempt to promote

20
financial literacy would need to take a holistic view of the process, encompassing the demand-
side as well.

One area on the demand-side of the financial literacy process that has gained currency is
financial literacy. By now, there is persuasive evidence which suggests that adequate knowledge
of basic economic concepts, such as interest rate compounding, inflation or financial risk
diversification equips individuals to incur lower transaction fees, deleverage their outstanding
debts and ensure lower interest outgo on loans (Lusardi and Tufano 2015). Central banks stand
out as institutions that are leading programmes on financial literacy. Consistent with this global
trend, the Rural areasn central bank has also undertaken significant steps to promote financial
literacy of its population. A key initiative in this regard has been the establishment of Financial
Literacy Centres (FLCs).1Accordingly, beginning 2007, commercial banks were advised to set up
FLCs on a pilot basis in the state/union territory under their jurisdiction. How far have such
FLCs been effective in improving financial literacy remains a moot empirical issue.

Financial Literacy in Rural areas

Financial literacy has assumed increasing prominence owing to the rising complexity of the
financial products and services being offered along with information asymmetry regarding the
same. The growing importance of financial literacy in the quest for inclusive growth has
prompted central banks to undertake necessary measures to ensure a more financially informed
and literate populace.

Accordingly, in 2007, based on the recommendations of an expert committee, the Rural areasn
central bank advised the banks to set up FLCs on a pilot basis in any one district in the
state/union territory under their jurisdiction. Subsequently, based on an evaluation of the FLC
model, banks were advised to directly set up FLCs in each of the lead district manager (LDM)
offices in a time-bound manner.

Under the stipulated guidelines, the lead bank was needed to set up FLCs with the key objectives
of facilitating financial literacy through provision of two essentials, that is, literacy and easy
access, for disseminating information regarding the central bank and general banking concepts to

21
the various target groups, and for providing education on financial planning and responsible
borrowing, including debt counselling and insurance.

Beginning 2007, the FLCs were gradually established in the country. 2 Figure 1 highlights the
year-wise establishment of FLCs.3 Illustratively, as many as 60 FLCs were established by 2007
and over 180 districts across 20 states were covered by FLCs in 2010.

Akin to Ghani et al (2014), I have divided the sample into districts having established FLCs on
or before 2009 (period 1), districts having established FLCs in 2010–11 (period 2) and finally,
those districts which established FLCs after 2011 (period 3).

Such policy focus on financial literacy is not unique to Rural areas. Several countries such as
Russia, Belgium, Sweden and Turkey are implementing a national strategy for financial literacy.
Others such as Czech Republic, Netherlands, Slovak Republic, Spain and the UK are revising
their first national strategy for financial education based on the experience gained.

Data and Key Variables

Three sets of data, namely household-level, district-level and finally macroeconomic data have
been used for this analysis.

Household-level data: The household level data is obtained from the Financial Literacy Insights
(FII) survey. The FII survey is operated by the global research group InterMedia and sponsored
by the financial services for the poor initiative of the Bill and Melinda Gates Foundation. For
Rural areas, three survey rounds have been undertaken till 2015. In each of these rounds, the
survey was nationally representative covering all major states and union territories of adult
individuals (aged 15 years and above).

The surveys follow a multistage, stratified and randomised sampling design.Operationally, the
sample respondents were first allotted to states in proportion to their estimated adult population
and thereafter, the resultant sample was proportionally allotted to urban and rural areas. In the
second stage, households were selected using the random walk method. In the third and final
stage of selection, one eligible respondent in each household was selected using the Kish grid
process. The current analysis uses household-level data for the relevant variables, including, inter

22
alia, information regarding the ownership and use of bank account, the age, gender, location as
well as educational and income status of the respondent.

However, several adjustments were made in the existing data. First, data for certain states such as
Delhi which is included as a catch-all in the survey data were deleted, as the FLCs are
disaggregated by geography (East Delhi, West Delhi, etc), making it difficult to ensure a
consistent match. Second, the state of Telangana is not treated separately from Andhra Pradesh.
Third, given the thinness of the sample, the smallest north-eastern states are treated as state-
composite, although Assam (the largest in terms of area) is categorised as a separate state. 4 After
these adjustments, the final sample comprises 21 state and state composites. Comprising over
44,000 individuals each year, the pooled sample consists of a maximum of 1,33,646 individuals
in a total of 538 districts (Table 1), entailing an average of 250 respondents per district.

The data also provides information on whether a respondent has access to information from
traditional and non-traditional sources. Based on availability, I employ a binary variable
dependent on whether the respondent (i) has a mobile and/or landline phone; (ii) has a television
(TV)/DVD, and finally; (iii) utilises the services of a bank agent. I employ these as channels
through which the respondent can acquire financial literacy (World Bank 2014).5

District-level data: Three key variables at the district level are used. The first is the year of
establishment of FLC in a district. Information on this is obtained from the website of the
sponsor bank for each state, including State Level Bankers’ Committee (SLBC) documents. 6 I
also extracted information on the geographical location of the FLC, (that is, rural, urban, semi-
urban or metropolitan) from the website of the Pradhan Mantri Jan Dhan Yojana. The sponsor
bank website also provides information on the delivery method of training by the FLC (that is,
single or otherwise).7 This information was then integrated with the survey data, thereby
ensuring a consistent state–district-year match of financial literacy with the relevant information
on financial literacy. I employed district domestic product per capita as a control for demand-side
conditions.

Macroeconomic and banking data: First, I culled out information on the financial (for
example, asset, equity and non-performing loans [npls]) and physical (for example, number of
branches) indicators of the sponsor bank associated with the FLC. At the aggregate level, I

23
employed the real gross domestic product (GDP) growth to control for macroeconomic
conditions.

Ownership and use of bank account: Table 2 (p 78) shows that year-wise variation in bank
account ownership and use (Panels A1 and B1) disaggregated further by state-year (Panels A2
and B2). In both the cases, I find that there has been a significant improvement, although the use
of bank accounts has on average, remained roughly 20–25 percentage points lower as compared
with access.

The evidence across states (Panels A2 and B2) highlight substantial variation in the ownership
and use of bank accounts. Without loss of generality, states which rank high on the pecking order
of account ownership also rank high on use. The year-wise correlation between ownership and
use of bank account are 54% in 2013, 73% in 2014 and 97% in 2015, respectively.

Panel C of the table depicts the establishment of FLCs over time and separately at the state level.
Reflecting proactive policy response, the average number of FLCs has improved over time, from
1.8 in 2013 to 2.3 in 2015.

Key variables: A description of the relevant variables, including summary statistics is in Table 3
(p 79). On the financial literacy side, I find that 56% of respondents had a bank account, whereas
only in 31% of the cases these accounts were active, reiterating the divergence between
ownership (supply) and use (demand).

As regards financial literacy, roughly 10% of the FLCs were established on or before 2009 and
nearly 7% were established in 2012 or after. Geographically, nearly 57% of the FLCs are in
urban areas and close to 5% are in rural areas. In-house delivery of training under FLCs is most
common, accounting for close to 80%. Among bank characteristics, the sponsor bank has
average equity of nearly 6% of its assets with NPLs of less than 5% and profitability averaging
0.5%. Looking at delivery channels, mobile and TV are typically available with most
respondents, with 50% on average reporting the presence of mobile and close to 60% reporting
having a TV or DVD. Using the services of a bank agent appears to the least preferred, at less
than 0.5%.

24
Access and usage of accounts: The coefficient on FLC is not statistically significant in column
(1), suggesting that the establishment of FLCs does not exert any perceptible impact on access to
bank account.

On the other hand, the coefficient on FLC 2009 equals -0.088 (column 3), so that initial FLCs
dampen the use of bank accounts by roughly 9 percentage points. One way to interpret these
results would be to suggest that during the initial days of the programme, awareness regarding
the FLCs was limited. Besides, the FLCs were serving mostly walk-in clients; outdoor literacy
drives were an exception. In addition, the literacy material available at the FLCs was primarily
publicity material pertaining to various products of sponsor banks. As a result, the FLCs were not
in a position to maintain arm’s length distance from sponsor banks, negating the very efficacy of
the scheme.

The next set of estimation examines the relevance of geographical location of FLCs for financial
literacy. If the FLCs in a particular location affects financial literacy, the interaction term would
capture these differences. In column 4, I find that the interaction term FLC2009*RURAL is
positive and statistically significant, so that the FLCs established in rural areas are more
influential in positively impacting the access to bank accounts. When I look at the use of
accounts, column 6 shows that the coefficient on FLC 2009 is negative, while that on FLC 2012
is positive. Both of them are statistically significant. In other words, the FLCs established at a
later period positively affected the use of accounts; those established earlier were less effective.

Relatedly, the FLCs established in urban areas exert a positive impact on the use of bank
account: a one standard deviation increase in urban FLCs is associated with a 9 percentage point
increase in the use of accounts, an increase of nearly 30% relative to the mean. More generally,
recognising the limitations of the initial training modules, the banks started preparing financial
literacy material in vernacular languages using stories and pictorial representations, improving its
appeal and accessibility to the respondents. The role of the financial counsellors was also
streamlined, including improvements in staffing, resources and infrastructure, as well as their
capacity-building. All these factors could explain the efficacy of the FLCs at a later date.

Summing up, the key takeaway is that FLCs are more effective in influencing the use of accounts
as compared with access. I next undertake several robustness tests of the baseline findings.

25
Robustness tests: Several robustness tests are done to explore the relevance of sponsor bank
characteristics, to analyse the usefulness of the various channels of financial literacy, and finally
to understand the relevance of the delivery method of financial literacy in affecting financial
literacy. As earlier, all specifications include the full set of controls, but these are not reported for
brevity. Estimation results are set out in Table 5.

Bank characteristics: Across columns (1) to (3), three key findings are of interest. First, and
more generally, the impact of bank characteristics on financial literacy operating via FLCs is
manifested only in the later period. The coefficient of the interaction terms of FLC 2009 with
each of the bank characteristics is not statistically significant. Second and in terms of specifics,
the coefficient on FLC2012*NPL is negative and statistically significant both with regard to
financial access and use, implying that banks with higher loan delinquency are less able to
devote resources towards fostering financial literacy. Third, establishment of the FLCs by
sponsor banks with bigger branch network does not necessarily translate into financial literacy,
indicating that the physical branch infrastructure is not a necessary condition for improving
financial literacy. Based on the point estimates, a 10% increase in FLCs established by sponsor
banks with low NPLs is found to increase the use of finance by 2.8% more vis-à-vis banks with
high-NPLs, and alternately by 9.5% more for well-capitalised vis-à-vis low-capitalised banks.

Financial literacy channels: Next, I examine the channels through which financial literacy
influences financial literacy. Three features are of note in columns (4) to (6). First, all of the
identified channels played a role in improving financial literacy: the coefficient of each of the
variables is generally significant across most specifications. Second, most of the interaction
terms of FLCs with the identified channels were insignificant during the initial period. Third, as
the process gathered momentum and the awareness about bank agents and financial literacy
centres increased, the net effect was an improvement in financial literacy. This is reflected in the
fact that the interaction terms when significant, are positive.

Delivery method: The final set of columns examines the relevance of the delivery method of
financial literacy in impacting financial literacy. Results set out across columns (7) to (9) show
that financial literacy programmes delivered in-house exert an impact on the use of bank
accounts, primarily in the latter period.

26
To sum up, the findings indicate that FLCs established by well-capitalised sponsor banks with
low levels of problem loans are better equipped to ensure financial literacy. In addition, the
results also show that both traditional as well as non-traditional channels are able to improve
financial literacy, although their impact via FLCs is manifested at a later period.

27
 CHAPTER II

REVIEW OF LITERATURE

A large number of studies have been conducted on the topics related to performance of
commercial banks in India: A comparative study of different categories of banks. In this chapter
an attempt has been made to present in brief, a review of literature available on the studies done
so far. The review of past studies has been presented in chronological order to provide a glimpse
of work done in this area.

Buser et al (1981) studied the capitalization ratio of banks and argued that banks
generally have an optimal capitalization ratio and need to remain well capitalized when they
have a high franchise value. They confirmed the positive relationship whether we use interest
margin or return on assets as a dependant variable and in all specifications. This indicated that
well-capitalized banks support lower expected bankruptcy costs for themselves and their
costumers, which reduce their cost of capital.

Vashisht (1987) critically evaluated the trends and progress of commercial banks in India
during the period 1971-1983. The ratio analysis was used to evaluate the performance of
commercial banks with respect to different indicators. He analysed that commercial banks did
very well with respect to branch expansions, deposit mobilization and priority sector advances.

Amandeep (1990) evaluated the profits and profitability of nationalized banks. The study
analysed the factors that influence the profitability of banks and suggested that in order to
improve the banks’ profitability, the banks need to focus attention on the management of spread,
burden, establishment expenses, income and deposit composition.

Berg et al (1992) studied the impact of deregulation on efficiency of different banking

sectors. They used the stochastic frontier technique to study the impact and the study showed that
financial liberalisation has positively affected the efficiency and productivity of commercial
banks and deregulation has significant impact on efficiency.

Molyneux and Thornton (1992) explored thoroughly the determinants of bank

profitability on a set of countries. They use a sample of 18 European countries during the 1986-

28
1989 period. They found a significant positive association between the return on equity and the
level of interest rates in each country, bank concentration and government ownership.

Presely (1992) focused on asset and liability management in the banking sector. The
literature concerning the asset and liability management for banks strongly suggests that risk
management issues and its implications must be concentrated by the banking industry. He
concluded from his study that there is a need for greater risk management in relation to more
effective portfolio management, and this requires a greater emphasis upon the nature of risk and
return in bank asset structure, and greater diversification of assets in order to spread and reduce
the bank's risks.

Jain (1993) studied the various aspects of bank marketing and suggested the areas where
weaker and underdeveloped sections needed support. He highlighted the merging issues relating
to banker-customer relationship and pointed out that disparities in branch expansion and credit
deployment should be reduced.

Avkiran (1995) studied the financial performance of banks by using combination of

financial ratio analysis, benchmarking, measuring performance against budget and concluded
that most of the banks registered huge difference with respect to performance as compared to the
ideal one.

Berger (1995) examined the relationship between the return on equity and the capital
asset ratio for a sample of US commercial banks for the 1983-1992 time period. Using the
Granger Causality Model, he showed that the return of equity and capital to asset ratio tend to be
positively related. He concluded that the relationship between bank concentration and
performance in the US depend critically on what other factors are held constant.

Angbazo (1997) investigated the determinants of bank net interest margins for a sample
of US banks for 1989-2003 period. The results for the pooled sample documents that default risk,
the opportunity cost of non-interest bearing reserves, leverage and management efficiency are all
positively associated with bank interest spread.

Edris (1997) determined the importance of selection factors used by Kuwait business
consumers in choosing domestic and foreign banks. Findings of this study showed that the

29
highest – ranking determinant factors of selection a bank in Kuwait by business firms were size
of bank assets, personnel efficiency, banking experience, friendliness of staff, reputation, and
availability of branches abroad.

Bhatia and Verma (1998) determined the factors influencing profitability of public
sector banks in India by applying the technique of multiple regression analysis. The analysis
revealed that priority sector advances, fixed/current deposit ratio and establishment expenses
affected the profitability of public sector banks negatively and net spread influenced the
profitability of banks positively and significantly.

Barajas et al (1999) documented significant effects of financial liberalization on banks’

interest margins. Although the overall spread has not declined after financial reform, the
relevance of the different factors behind the bank spreads were affected by such measures.
Another change linked with the liberalization process was the increase of the coefficient of loan
quality after the liberalization.

Demerguç-Kunt and Huizingha (1999) examined the determinants of bank interest

margins and profitability using a bank level data for 80 countries in the 1988-1995 period. The
set of variables included several factors accounting for bank characteristics, macroeconomic
conditions, taxation, regulations, financial structure and legal indicators. They reported that a
larger ratio of bank assets to GDP and a lower market concentration ratio lead to lower margins
and profits.

Patel (2000) highlighted the problem of bad loans growing level of non-performing
assets in the commercial banks in the post-reformed period. It was observed that it is important
for the banks and supervisory authorities to adopt more effective lending practices. It was also
emphasized that corporate entities should follow more stringent disclosure and transparency
practices and corporate governance principles.

Ben and Goaied (2001) investigated the determinants of the Tunisian banks’
performances during the period 1980-1995. The study used panel data regression analysis to find
the underlying determinants of Tunisian banking industry performance. They indicated that the
best performing banks are those who have struggled to improve labour and capital productivity,

30
those who have maintained a high level of deposit accounts relative to their assets and finally,
those who have been able to reinforce their equity.

Abreu and Mendes (2002) investigated the determinants of banks’ interest margins and
profitability for some European countries in the last decade. They reported that well capitalized-
banks face lower expected bankruptcy costs and this advantage “translate” into better
profitability. Although with a negative sign in all regressions, the unemployment rate is relevant
in explaining bank profitability. The inflation rate is also relevant.

Guru et al (2002) attempted to identify the determinants of successful deposit banks in

order to provide practical guides for improved profitability performance of these institutions. The
study was based on a sample of seventeen Malaysian commercial banks over the 1986-1995
period. The profitability determinants were divided in two main categories, namely the internal
determinants (liquidity, capital adequacy and expenses management) and the external
determinants (ownership, firm size and external economic conditions). The findings of this study
revealed that efficient expenses management was one of the most significant in explaining high
bank profitability. Among the macro indicators, high interest ratio was associated with low bank
profitability and inflation was found to have a positive effect on bank performance.

Mazhar (2003) discussed the development and performance of domestic and foreign
banks in Arab gulf countries. The main contribution of his study was to make financial
comparison based on return on assets, return on equity, return on deposits, and other financial
banking activities as credits and deposits to determine the performance and showed that local and
foreign banks in these countries have performed well over the past several years. Moreover, he
added that banks in these economies are well capitalized and the banking sector is well
developed with intense competition among the banks.

Chien and Danw (2004) showed in their study that most previous studies concerning
company performance evaluation focus merely on operational efficiency and operational
effectiveness which might directly influence the survival of a company. By using an innovative
two-stage data envelopment analysis model in their study, the empirical result of this study was
that a company with better efficiency does not always mean that it has better effectiveness.

31
 Elizabeth and Elliot (2004) studied the correlation between customer service and
financial performance among Australian financial institutions. They applied the coefficient of
correlation and concluded that all financial performance measures as interest margin, ROA, and
capital adequacy are positively correlated with customer service quality scores.

Sensarma (2005) examined the efficiency of scheduled commercial banks for the period
1986-2003. He employed the technique of stochastic frontier analysis to estimate bank-specific
cost and profit efficiency and concluded that the cost efficiency of the banking industry increased
during the period and profit efficiency underwent a decline.

Tektas and Gunay (2005) discussed the asset and liability management in financial
crisis. They argued that an efficient asset-liability management requires maximizing bank's profit
as well as controlling and lowering various risks, and their study showed how shifts in market
perceptions can create trouble during crisis.

Drehmann et al (2007) studied the integrated impact of correlated credit risk and interest
rate risk on commercial banks in perspective of economic value and capital adequacy. It was
emphasized that by modeling the whole balance sheet of a bank and taking account of the
repricing characteristics of all exposures, we cannot only assess the impact of credit and interest
rate risk on the bank’s economic value but also on its future earnings and capital adequacy.

Based on the above literature, we can say that there are some studies about banks in India
and in some other countries also has been done on analyzing the performance by using various
techniques like stochastic frontier analysis and panel data regression analysis. In this study an
attempt has been made to study the performance of commercial banks in India on the basis of
certain indicators such as net profit, operating profit, interest earned, interest expended, spread,
establishment expenses etc.

32
OBJECTIVES OF THE STUDY

Following were the objectives of the study:

1. To study the initiatives taken by different banks in rural areas towards Financial Literacy.

2. To compare the initiatives of different categories of the banks.

To suggest the measure that bank should undertake to improve financial literacy

33
 Chapter 3

RESEARCH METHODOLOGY

It is imperative to decide upon and document a research methodology well in advance to

carry out the research in the most effective and systematic way. This chapter describes the
research methodology adopted to serve the objectives of the study in an effective manner. This
chapter consists of the following sections:

 Conceptual Framework

 Sample design

 Collection of data

 Tools of analysis

 Hypothetical formulation

 Limitations of study

These sections are discussed as follows:

3.1 CONCEPTUAL FRAMEWORK

. The following initiatives were proposed to be included in this study:

 Net Profit

 Operating Profit

 Interest Earned

 Interest Expended

34
  Spread

 Establishment Expenses

 Total Deposits

 Total Advances

 Total Volume

 Return on Assets

Three different categories of banks were chosen from Public sector, Private Sector and
Foreign Banking Sector. In this research, the performance of different categories of banks have
been analysed on the basis of certain initiatives such as Net Profit, Operating Profit, Total
Deposits, Spread, Total Advances, Return on Assets etc. and in order to compare the banks of
different categories, various statistical tools have been applied viz., Trend Analysis, Compounded
Annual Growth rate, Arithmetic, Standard Deviation, Coefficient of Variation and Test of
Significance.

3.2 SAMPLE DESIGN

The sample for the study consisted of total of six banks from three different categories of
banks called strata’s viz., Public Sector, Private Sector and Foreign Banking Sector and each
bank was the unit of population. The population for the study comprised of all the commercial
banks from public sector, private sector and foreign banking sector. The public sector banks
comprised of 20 nationalised banks and 8 banks of the State Bank Group. The private sector
banks consisted of 21 old private banks and new 9 private sector banks. The foreign banking
sector comprised of 33 foreign banks. Thus, the total of 91 banks was there in population for the
study. The sampling technique used was stratified random sampling. The selected banks were –
ICICI Bank, AXIS Bank, HDFC Bank, State Bank of India, Punjab National Bank and CITI
Bank.

35
3.3 COLLECTION OF DATA

The entire structure of data for the study rests solely on secondary sources of information.
The study was carried out for the period from 2012-13 to 2017-18. Data relating to initiatives i.e.
Net Profit, Operating Profit, Interest Earned, Interest Expended, Establishment Expenses, Spread
etc. of banks under study has taken from Bank Quest, Credit Information Review, IBA Bulletins,
Annual Reports of the banks and websites such as Moneycontrol.com, Money.rediff.com and
websites of the banks. Only those banks were selected for the purpose of the study for which data
for completed 12 months from 2016-17 to 2009-10 was available. The raw data in the form of
various for the sample banks was first recorded in a master table and then subsequent statistical
tools for the analysis were applied.

3.4 TOOLS OF ANALYSIS

Analysis and interpretation of initiatives was done to compare the different categories of
banks selected, which in turn helped in studying the performance of the commercial banks taken
under the study. To compare the different categories of banks on the basis of various initiatives
such as net profit, interest earned, establishment expenses, total advances etc. various statistical
tools have been applied viz., Trend Analysis, Arithmetic, Standard Deviation, Coefficient of
Variation, Compounded Annual Growth rate and Test of Significance. Following were the tools
used to analyse the secondary data.

3.4.1 TREND ANALYSIS

Trend Analysis is one quantitative method use to determine patterns in data collected over
time. It is also used to detect patterns of change in statistical information over regular intervals of
time. Trend represents the long term direction of the time series. The method of Least Squares
has been used to Table out the trend. It is a mathematical method and used to fit a straight line
trend.

36
The straight line trend is represented by the equation

Yc = a + bX

where:

Yc is the estimated value of the dependent variable

X is the independent variable (time in trend analysis)

a is the Y-intercept (the value of Y when X=0)

b is the slope of the trend line

a and b can be calculated as:

Y
a=
N

 XY
b=
 X2

where:

N represents the number of years (months or any other period) for which data are given.

3.4.2 ARITHMETIC MEAN

The Arithmetic Mean is an average. The formula for arithmetic mean is:

A.M. (X ) X1 + X2 + X3 + ……………………… + Xn n

= n =  Xi/n
i=1
37
3.4.3 STANDARD DEVIATION

The Standard Deviation is an absolute measure of dispersion that expresses variation in the same
units as the original data. The formula for standard deviation is:

 (Xi - X )2 / (n-1)
S.D. (

3.4.4 COEFFICIENT OF VARIATION

The Coefficient of Variation is one relative measure of dispersion. It relates the standard
deviation and the mean by expressing the standard deviation as a percentage of the mean. The
unit of measure, then, is “percent” rather than the same units as the original data. The formula
for coefficient of variation is:

Coefficient of
= X
Variation (C.V.)

3.4.5 COMPUNDED ANNUAL GROWTH RATE

The Compounded Annual Growth Rate of the initiatives such as Establishment Expenses,
Spread, etc. can be calculated for a period of six years i.e. 2012-13 to 2017-18. The formula for
calculating compounded annual growth rate (CAGR) is:

CAGR = [(Final Value / Initial Value)1/n - 1] x 100

3.4.6 TEST OF SGINIFICANCE

In order to study the variation of performance between the growth rates of net profit, operating
profit, interest earned etc. of different banks with banking industry, the following test of
significance was applied:

X - 

S 38
 t=

where:

X is the mean of the sample

 is the actual or hypothetical mean of the population

n is the sample size

S is the standard deviation

3.5 HYPOTHESIS FORMULATION

The following are the hypothesis of the study:

Null Hypothesis (Ho): There is no significant difference between the performances of different
categories of banks on account of various indicators.

Alternate Hypothesis (Ha): There is a significant difference between the performances of

different categories on account of various indicators.

3.6 LIMITATIONS OF THE STUDY

The study has following limitations:

1. The study concentrated only on the analysis of quantitative financial data. The qualitative
aspects of performance of banking industry were not covered by the study.

2. The study was primarily dependent on secondary data. In such a case, limitations of
secondary data were inherent in the study.

3. The accuracy of the research is limited by the knowledge of the researcher.

39
 4. As the study was to be completed in a short time, the time factor acted as a considerable
limit on the scope and extensiveness of the study.

CHAPTER IV

Financial literacy initiatives in banks by rural areas

To meet the first objective of the research, trend analysis of the banks under consideration
has been determined by using method of least square. The trend graphs have been plotted of each
performance indicator. To determine the second objective, the various statistical tools have
applied to compare the performance of the banks under consideration, such as Arithmetic Mean,
Standard Deviation, Coefficient of Variation, Compounded Annual Growth Rate and test of
Significance. Following is the comparison of the banks on the basis of various initiatives.

40
4.1 NET PROFIT

Table 4.1: Net Profit of the Commercial Banks

(Rs. crores)

Years

Banks C.V.
Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.G.R
Mean S.D. (in t-value
13 14 15 16 17 18 (in %)
%)

ICICI Bank 258 1206 1637 2005 2540 3110 1792.67 918.57 51.24 51.55 0.161*

% change 367.44 35.74 22.48 26.68 22.44

AXIS Bank 134 193 271 324 485 659 344.33 178.76 51.92 30.48 2.201*

% change 44.03 40.41 19.56 49.69 35.88

HDFC Bank 297 438 602 853 1116 1382 781.33 379.16 48.53 29.27 0.608*

% change 47.47 37.44 41.69 30.83 23.84

SBI 2432 3105 4379 4304 4406 4541 3861.17 799.75 20.71 10.99 1.146*

% change 27.67 41.03 -1.71 2.37 3.06

41
PNB 562 842 1108 1410 1439 1540 1150.17 352.51 30.65 18.33 0.264*

% change 49.82 31.59 27.26 2.06 7.02

CITI Bank 325 391 572 600 706 900 582.33 191.25 32.84 18.54 1.594*

% change 20.31 46.29 4.90 17.67 27.48

42
 Net Profit is one of the most driving and motivating force for every business concern.
Profits must be earned to: a) pay the dues to stakeholders, b) expand or diversify the business

Table 4.1 showed Net Profit for all the commercial banks taken under study through
2012-13 to 2017-18 and provided that the maximum average net profit amounting to Rs.3,861.17
crores was earned by State Bank of India followed by ICICI Bank and Punjab National Bank was
amounting to Rs.1,792.67 crores and Rs.1,150.17 crores, respectively. The minimum average net
profit amounting to Rs.344.33 crores was earned by the AXIS bank followed by the CITI Bank
and HDFC Bank amounting to Rs.582.33 crores and Rs.781.33 crores, respectively. The
maximum standard deviation of net profit was noticed in ICICI Bank followed by State Bank of
India and HDFC Bank. The major reason behind high standard deviation of ICICI Bank was of
steep increase in the net profit from the 2012-13 to 2013-14. The minimum standard deviation
was of CITI Bank. The coefficient of variation revealed the consistency and it was maximum in
the case of AXIS Bank (51.92%) followed by the ICICI Bank (51.24%) and HDFC Bank
(48.53%), respectively. The least coefficient of variation was noticed in the State Bank of India
(20.71%) and it also showed the maximum consistency. The laudable compounded annual
growth rate of net profit has been attained by ICICI Bank (51.52%0 followed by AXIS Bank
(30.48%) and HDFC Bank (29.27%), respectively and the minimum growth rate has been
noticed by State Bank of India (10.99%). The reason for high growth rate of ICICI Bank was due
to sharp increase of 968 per cent in interest earned during the period of the study and moreover,
the bank is gaining market share in private banking, retail banking, credit cards and most of the
other verticals in which it is present whereas, there was only 32.47 per cent increase in interest
earned of State Bank of India during the period of the study. The t-values in the table 4.2.1
revealed that there was no significant difference between the performances of all the banks taken
under study and the banking industry on account of various indicators.

In Table 4.1, the growth in percent of trend showed that all the banks performances
increased and decreased over the time period of the study and the maximum fluctuations was
recorded in case of ICICI Bank. In the year 2012-13 highest growth in percent of trend was
recorded by the HDFC bank (128.57%) followed by the AXIS Bank (150.56%) and CITI Bank
(105.01%), respectively and the least was recorded by ICICI Bank (55.72%) but it has shown the

43
highest growth in the next year i.e. 2013-14 and this was due to sharp increase of 335 per cent in
interest earned in the year 2013-14. In the year 2016-17, each bank has shown similar growth in
percent of trend and it also showed the maximum increased and decreased over the period of the
study.

44
4.2 OPERATING PROFIT

Table 4.2: Operating Profit of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.G.R
Mean S.D. (in t-value
13 14 15 16 17 18 (in %)
%)

ICICI Bank 545 1250 1988 3077 3949 4749 2593.00 1476.78 56.95 52.25 0.162*

% change 129.36 59.04 54.78 28.34 20.26

AXIS Bank 407 319 435 562 867 1166 626.00 297.90 47.59 27.55 3.263

% change -21.62 36.36 29.20 54.27 34.49

HDFC Bank 545 623 839 1153 1587 2628 1229.17 716.28 58.27 36.88 1.041*

% change 14.31 34.67 37.43 37.64 65.60

SBI 6045 5188 5860 9786 11151 10249 8046.50 2396.96 29.79 16.84 0.748*

% change -14.18 12.95 67.00 13.95 -8.09

45
PNB 1474 1540 1997 2603 2881 2932 2237.83 599.62 26.79 17.29 0.619*

% change 4.48 29.68 30.35 10.68 1.77

CITI Bank 853 868 1233 1172 1577 2180 1313.83 457.76 34.84 20.17 1.564*

% change 1.76 42.05 -4.95 34.56 38.24

46
 Every economic identity should generate sufficient profits from its primary operations.
The operating profit refers to the pure profit of the firm generated by the operations of the firm.
It is calculated by total income less total expenditure.

Table 4.2 showed Operating Profit for all the commercial banks taken under study
through 2012-13 to 2017-18 and provided that the maximum average net profit amounting to
Rs.8,046.50 crores was earned by State Bank of India followed by ICICI Bank and Punjab
National Bank was amounting to Rs.2,593 crores and Rs.2,237.83 crores, respectively. The
minimum average net profit amounting to Rs.626 crores was earned by the AXIS bank followed
by the HDFC Bank and CITI Bank amounting to Rs.1,229.17 crores and Rs.1,313.83 crores,
respectively.

The maximum standard deviation of operating profit was noticed in State Bank of India
followed by ICICI Bank and HDFC Bank. The reason behind high standard deviation of State
Bank of India was because of lot many variations in the operating expenses occurred during the
period of study. The minimum standard deviation was of AXIS Bank. The coefficient of variation
revealed the risk and it was maximum in case of HDFC Bank (58.27%) followed by the ICICI
Bank (56.95%) and AXIS Bank (48.53%), respectively. The least coefficient of variation was
noticed in the Punjab National Bank (26.79%) and it also showed the maximum consistency.

The laudable compounded annual growth rate of operating profit has been attained by
ICICI Bank (43.55%) followed by HDFC Bank (30.05%) and AXIS Bank (19.22%), respectively
and the minimum growth rate has been noticed by State Bank of India (9.22%). The highest
growth in ICICI Bank was due to combined effect of rise in provisions and contingencies and net
profit that increased from Rs.43.95 crores to Rs.1,638.68 crores and Rs.1,206.16 crores to
Rs.3,110.22 crores, respectively. The t-values in the table 4.2 revealed that there was no
significant difference between the performances of all the banks except AXIS Bank and the
banking industry on account of various indicators. AXIS Bank only showed the significant
difference.

47
4.3 INTEREST EARNED

Table 4.3: Interest Earned of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.G.R
Mean S.D. (in t-value
13 14 15 16 17 18 (in %)
%)

ICICI Bank 2152 9368 8894 9410 13784 22994 11100.33 6317.44 56.91 45.23 0.014*

% change 335.32 -5.06 5.80 46.48 66.82

AXIS Bank 1179 1465 1586 1924 2888 4560 2267.00 1158.44 51.10 29.29 2.767

% change 24.26 8.26 21.31 50.10 57.89

HDFC Bank 1703 2023 2549 3093 4475 6889 3455.33 1775.05 51.37 31.42 1.556*

% change 18.79 26.00 21.34 44.68 53.94

SBI 29810 31087 30460 32428 35795 39491 33178.50 3424.63 10.32 5.55 2.427*

% change 4.28 -2.02 6.46 10.38 10.33

48
PNB 6648 7485 7779 8460 9584 11537 8582.17 1598.93 18.63 10.78 0.533*

% change 12.59 3.93 8.75 13.29 20.38

CITI Bank 1910 1979 2280 2203 3064 4384 2636.67 867.14 32.89 16.78 3.537

% change 3.61 15.21 -3.38 39.08 43.08

49
 The major chunk of a banks’ income flows in from interest earned which comprises the
following as per schedule 13 of Banking Regulation Act 1949, a) Interest/discount on
advances/bills, b) Income on investments, c) Interest on balances with Reserve Bank of India and
others. All banks intend to maximum the interest income by improving credit deposit ratio and
extending long-term loans especially in the deregulated environment when the interest rate
witnessed a declining trend.

Table 4.3 represented the position as regards interest earned and provided that the
maximum average interest earned amounting to Rs.33,178.50 crores was earned by State Bank of
India followed by ICICI Bank and Punjab National Bank was amounting to Rs.11,100.33 crores
and Rs.8,582.17 crores, respectively. The minimum average interest earned amounting to
Rs.2267 crores was earned by the AXIS bank followed by the CITI Bank and HDFC Bank
amounting to Rs.2,636.67 crores and Rs.3,455.33 crores, respectively. The maximum standard
deviation of Interest Earned was noticed in State Bank of India followed by ICICI Bank and
HDFC Bank. The minimum standard deviation was noticed by AXIS Bank. The coefficient of
variation revealed the risk and it was maximum in case of ICICI Bank (56.91%) followed by the
HDFC Bank (51.37%) and AXIS Bank (51.10%), respectively. The least coefficient of variation
was noticed in State Bank of India i.e. 10.32 per cent, and it was the highest consistent performer
because it manages all aspects of its business much better than other banks do. The compounded
annual growth rate revealed that splendid performance was recorded by ICICI Bank (48.53%)
followed by HDFC Bank (26.29%) and AXIS Bank (25.34%), respectively and the minimum
growth rate has been noticed by State Bank of India i.e. 4.81 per cent. The reason for high
growth rate of ICICI Bank was due to sharp increase of 316 per cent in advances during the
period of the study whereas, there is only 179 per cent increased in advances of State Bank of
India during the period of the study. The t-values in the table 4.3 revealed that only AXIS Bank
and CITI Bank were having significant difference between their performances and the banking
industry on account of various indicators. Rest of the banks under consideration showed no
significant difference.

In Table 4.3, the growth in percent of trend has shown that all the banks, under
consideration, performances increased and decreased over the period of the study and out of

50
these, ICICI Bank has shown the maximum fluctuations over the time period. As in the year
2012-13, the highest growth rate was recorded in case of HDFC Bank (164.14%) followed by
AXIS Bank (161.62%) and CITI Bank (125.16%), respectively. The least growth was recorded
by ICICI Bank (80.49%) whereas, in 2013-14, the highest growth was recorded by ICICI Bank
(154.98%) much higher than the other banks taken under study and this was due to tremendous
increase of 335 per cent in interest earned in the year 2013-14. From period 2014-15 to 2017-18,
ICICI Bank, HDFC Bank, AXIS Bank and CITI Bank were all showing the similar fashion in
growth of percent of trend whereas State Bank of India and Punjab National Bank were showing
the similar fashion in growth of percent of trend.

51
4.4 INTEREST EXPENDED

Table 4.4: Interest Earned of the Commercial Banks

(Rs. Crores)

Years

Banks Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.V. (in C.G.R (in
Mean S.D. t-value
13 14 15 16 17 18 %) %)

ICICI Bank 1559 7944 7015 6571 9597 16358 8174.00 4410.72 53.96 41.93 0.127*

% change 409.56 -11.69 -6.33 46.05 70.45

AXIS Bank 980 1142 1021 1193 1810 2993 1523.17 712.29 46.76 22.56 2.692

% change 16.53 -10.60 16.85 51.72 65.36

HDFC Bank 1074 1192 1211 1315 1929 3179 1650.00 737.36 44.69 21.97 2.536*

% change 10.99 1.59 8.59 46.69 64.80

SBI 20729 21109 19274 18483 20159 23437 20531.83 1566.89 7.63 1.25 3.279

% change 1.83 -8.69 -4.10 9.07 16.26

52
PNB 4353 4361 4155 4453 4917 6023 4710.33 631.16 13.40 6.04 1.156*

% change 0.18 -4.72 7.17 10.42 22.49

CITI Bank 1103 1030 924 752 1006 1696 1085.17 294.31 27.12 5.51 7.069

% change -6.62 -10.29 -18.61 33.78 68.59

53
 Among the expenses incurred by a bank, interest expended the leading amount of
expenses. As per schedule 15 of Banking Regulation Act 1949, the interest expended comprises
of a) Interest on deposits, b) Interest on Reserve Bank of India/Inter Bank Borrowings and others

The study of interest expended as presented in table 4.4 revealed that amount of average
interest expended to the tune of Rs.20,531.83 was maximum in case of State Bank of India
followed by ICICI Bank, Rs.8,174 crores, and Punjab National Bank, Rs.4,710.33 crores,
respectively and minimum has been noticed in case of CITI Bank Rs.1,085.17 crores. The
maximum standard deviation of interest expended was noticed in ICICI Bank followed by State
Bank of India and HDFC Bank. The minimum standard deviation was noticed by CITI Bank.
The coefficient of variation of 53.96 per cent is highest in case of ICICI Bank followed by the
AXIS Bank (46.76%) and HDFC Bank (44.69%), respectively. The least coefficient of variation
was noticed in State Bank of India i.e. 7.63 per cent, and it was a more consistent performer as it
manages all aspects of its business much better than other banks do. The compounded annual
growth rate revealed that splendid performance was recorded by ICICI Bank (48.08%) followed
by AXIS Bank (20.50%) and HDFC Bank (19.87%), respectively and the minimum growth rate
has been noticed by State Bank of India i.e. 2.07 per cent. The t-values in the table 4.4 depicted
that half of the banks namely, AXIS Bank, State Bank of India and CITI Bank were having
significant difference between their performances and the banking industry on account of various
indicators, and remaining half of the banks under consideration, namely, ICICI Bank, HDFC
Bank and Punjab National Bank showed no significant difference.

In Table 4.4, the growth in percent of trend has shown that all the banks, under
consideration, performances increased and decreased over the period of the study and out of
these, ICICI Bank has shown the maximum fluctuations over the time period. As in the year
2012-13, the highest growth rate was recorded by ICICI Bank (165.17%) much higher than the
other banks taken under study and this was due to tremendous increase of 409.55 per cent in
interest expended in the year 2013-14. From period 2014-15 to 2017-18, ICICI Bank, HDFC
Bank, AXIS Bank and CITI Bank were all showing the similar fashion in growth of percent of
trend whereas State Bank of India and Punjab National Bank were showing the similar fashion in
growth of percent of trend.

54
 4.5 SPREAD

Table 4.5: Spread of the Commercial Banks

(Rs. Crores)

Years

Banks Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.V. (in C.G.R (in
Mean S.D. t-value
13 14 15 16 17 18 %) %)

ICICI Bank 593 1424 1879 2839 4187 6635 2926.17 2006.22 68.56 56.71 0.232*

% change 140.13 31.95 51.09 47.48 58.47

AXIS Bank 199 322 565 732 1078 1567 743.83 464.79 62.49 50.05 2.752

% change 61.81 75.47 29.56 47.27 45.36

HDFC Bank 629 831 1338 1778 2546 3710 1805.33 1058.98 58.66 42.99 0.834*

% change 32.11 61.01 32.88 43.19 45.72

SBI 9531 9977 11186 13944 15635 16054 12721.17 2619.09 20.59 12.67 1.216*

% change 4.68 12.12 24.66 12.13 2.68

55
PNB 2295 3124 3625 4006 4667 5515 3872.00 1037.37 26.79 17.65 0.109*

% change 36.12 16.04 10.51 16.50 18.17

CITI Bank 807 950 1356 1451 2058 2688 1551.67 647.12 41.70 27.09 1.512*

% change 17.72 42.74 7.01 41.83 30.61

56
 Spread Management focuses on maintaining an adequate spread (gap) between interest
earned and interest expended to ensure an acceptable profit margin regardless of interest rate
fluctuations. Mathematically, spread can be expressed as:

Spread = Interest earned – Interest expended

The analysis of data contained in table 4.5 indicated that the mean spread of Rs.12,721.17
crores was again highest in case of State Bank of India followed by Punjab National Bank,
Rs.3,872 crores, and ICICI Bank, Rs.2,926.17 crores, respectively and lowest has been noticed in
case of AXIS Bank Rs.743.83 crores. The maximum standard deviation of spread was noticed in
State Bank of India followed by ICICI Bank and HDFC Bank. The minimum standard deviation
was noticed by AXIS Bank. The coefficient of variation of 68.56 per cent was highest in case of
ICICI Bank followed by the AXIS Bank (62.49%) and HDFC Bank (58.66%), respectively. The
least coefficient of variation was noticed in case of State Bank of India (20.59%), and it was a
more consistent performer. It manages all aspects of its business much better than other banks
do. The analysis of compounded annual growth rate reveals that ICICI Bank was leading by
recording a growth rate of 49.67 per cent followed by AXIS Bank (41.15%) and HDFC Bank
(34.50%0, respectively and the minimum growth rate has been noticed by State Bank of India
i.e. 9.10 per cent.

The t-values in the table 4.5 revealed that only AXIS Bank was having significant
difference between their performances and the banking industry on account of various indicators,
and rest of the banks showed no significant difference.

In Table 4.5, the growth in percent of trend has shown that all the banks, under
consideration, performances increased and decreased over the period of the study and this
increase or decrease was not huge in all the banks over the time period taken under study. During
the period 2012-13, the highest growth of 546.54 per cent was recorded by ICICI Bank followed
by AXIS Bank (244.17%) and HDFC Bank (206.23%), respectively. The minimum growth of
97.06 per cent was recorded by Punjab National Bank. The reason for the maximum growth of
ICICI Bank was because of huge percentage increase in spread of 140.13% during 2013-14. In

57
the years from 2013-14 to 2017-18, all the banks taken under study showed similar growth in
percent of trend.

58
 4.6 ESTABLISHMENT EXPENSES

Table 4.6: Establishment Expenses of the Commercial Banks

(Rs. Crores)

Years

Banks Mar’ Mar’ Mar’ Mar’ Mar’ Mar’ C.V. (in C.G.R (in
Mean S.D. t-value
13 14 15 16 17 18 %) %)

ICICI Bank 147 403 546 737 1082 1616 755.17 480.59 63.64 54.61 0.865*

% change 174.15 35.48 34.98 46.81 49.35

AXIS Bank 51 85 121 177 240 381 175.83 110.34 62.75 47.27 5.726

% change 66.67 42.35 46.28 35.59 58.75

HDFC Bank 109 152 204 276 487 777 334.17 232.26 69.50 47.55 2.466*

% change 39.45 34.21 35.29 76.45 59.55

SBI 5153 5688 6447 6907 8123 7932 6708.33 1085.25 16.18 9.87 1.661*

% change 10.38 13.34 7.14 17.61 -2.35

59
PNB 1316 1476 1654 2121 2115 2352 1839.00 378.24 20.57 12.85 0.032*

% change 12.16 12.06 28.23 -0.28 11.21

CITI Bank 163 189 252 244 294 376 253.00 69.63 27.52 16.93 8.662

% change 15.95 33.33 -3.17 20.49 27.89

60
 In banking parlance, establishment expenses refer to the amount expended on employees
in the form of salaries and provisions (contribution to gratuities funds, provident funds and
pension funds etc. Establishment cost is inseparable part of any banking organization. The
analysis of data contained in table 4.6 indicated that the mean establishment expenses of
Rs.6,708.33 crores was again highest in case of State Bank of India followed by Punjab National
Bank, Rs.1,839 crores, and ICICI Bank, Rs.755.17 crores, respectively and lowest has been
noticed in case of AXIS Bank Rs.175.83 crores. The maximum standard deviation of
establishment expenses was noticed in State Bank of India followed by ICICI Bank and Punjab
National Bank. The minimum standard deviation was noticed by CITI Bank. The coefficient of
variation of 69.50 per cent is highest in case of HDFC Bank followed by the ICICI Bank
(63.64%) and AXIS Bank (62.75%), respectively. The least coefficient of variation was noticed
in case of State Bank of India (16.18%), and it also showed the maximum consistency. The
analysis of compounded annual growth rate revealed that ICICI Bank was leading by recording a
growth rate of 49.23 per cent followed by AXIS Bank (39.91%) and HDFC Bank (38.82%),
respectively and the minimum growth rate has been noticed by State Bank of India i.e. 7.47 per
cent. As we have seen in the table 4.6 that the average establishment expense was maximum in
case of public sector banks i.e. State Bank of India and Punjab National Bank but the
compounded annual growth rate of public sector was much less than that of private sector i.e.
ICICI Bank, AXIS Bank and HDFC Bank and foreign banking sector i.e. CITI Bank. This
happened because of private banks are employing personnel with professional skill and
experience in large number whereas, in public sector they are about to overstaffed. The t-values
in the table 4.6 revealed that AXIS Bank and CITI Bank were having significant difference
between their performances and the banking industry on account of various indicators, and rest
of the banks showed no significant difference. In Table 4.6, the growth in percent of trend has
shown that all the banks, under consideration, performances increased and decreased over the
period of the study and this increase and decrease was very minute in all the banks over the time
period taken under study. In the year 2012-13 highest growth in percent of trend was recorded by
the HDFC bank (573.68%) followed by the AXIS Bank (242.86%) and ICICI Bank (210%),
respectively and the least was recorded by State Bank of India (99.85%). From the year 2013-14
to 2017-18, public sector banks and foreign banking sector showed similar trend and all the
private sector banks showed similar trend.

61
 4.7 TOTAL DEPOSITS

Table 4.7: Total Deposits of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ C.G.R
Mar’ 13 Mar’ 15 Mar’ 16 Mar’ 17 Mar’ 18 Mean S.D. (in t-value
14 (in %)
%)

ICICI Bank 32085 48169 68108 99819 165083 230510 107295.67 69839.49 65.09 48.92 0.053*

% change 50.13 41.39 46.56 65.38 39.63

AXIS Bank 12287 16964 20954 31712 40113 58785 30135.83 15807.10 52.45 36.24 2.051*

% change 38.06 23.52 51.34 26.49 46.55

HDFC Bank 17654 22376 30408 36354 55797 68298 38481.17 18035.75 46.87 31.87 1.624*

% change 26.75 35.90 19.55 53.48 22.40

SBI 270560 3E+05 318618 367047 380046 435521 344652.50 55578.63 16.13 9.79 1.525*

% change 9.45 7.60 15.20 3.54 14.60

62
PNB 64123 75813 87916 103167 119685 139859 98427.17 25786.36 26.20 16.78 0.269*

% change 18.23 15.96 17.35 16.01 16.86

CITI Bank 15242 17743 20465 21484 27912 37875 23453.50 7535.54 32.13 18.56 4.631

% change 16.41 15.34 4.98 29.92 35.69

63
 Acceptance of deposits is the primary activity of banking system. More and more
deposits should be mobilized at cheaper rates of interest to enhance advances. The various types
of deposits mobilized by banks are: a) term deposits, b) saving fund deposits, c) current deposits,
d) recurring deposits, e) miscellaneous deposits.

The analysis of data contained in table 4.7 indicated that the mean total deposits of
Rs.3,44,652.50 crores was again highest in case of State Bank of India followed by, ICICI Bank
Rs.1,07,295.67 crores, and Punjab National Bank, Rs.98,427.17 crores, respectively and lowest
has been noticed in case of CITI Bank i.e. Rs.23,453.50 crores. The maximum standard deviation
of total deposits was noticed in ICICI Bank followed by State Bank of India and Punjab National
Bank. The minimum standard deviation was noticed by CITI Bank. The coefficient of variation
of 65.09 per cent was highest in case of ICICI Bank followed by the AXIS Bank (52.45%) and
HDFC Bank (46.87%), respectively. The least coefficient of variation was noticed in case of
State Bank of India (16.13%), and it also showed the maximum consistency. The analysis of
compounded annual growth rate revealed that ICICI Bank was leading by recording a growth
rate of 39 per cent followed by AXIS Bank (29.88%) and HDFC Bank (25.35%), respectively
and the minimum growth rate has been noticed by State Bank of India i.e. 8.27 per cent. ICICI
Bank was showing highest growth rate because it was focusing on growth, taking on slightly
more risk than other banks. The t-values in the table 4.7 revealed that only CITI Bank was
having significant difference between their performances and the banking industry on account of
various indicators, and rest of the banks under consideration showed no significant difference. In
Table 4.7, the growth in percent of trend has shown that all the banks, under consideration,
performances increased and decreased over the period of the study and this increase and decrease
was not huge in all the banks over the time period taken under study. In the year 2012-13 highest
growth in percent of trend was recorded by the ICICI bank (352.16%) followed by the AXIS
Bank (157.51%) and HDFC Bank (137.83%) respectively and the least was recorded by State
Bank of India (102.37%). The reason for huge growth in percent of trend of ICICI Bank in the
year 2012-13 was because of huge growth 617.43 per cent of total deposits during the period of
study. From the year 2013-14 to 2017-18, all the public sector banks i.e. State Bank of India and
Punjab National Bank, foreign banking sector i.e. CITI Bank and the private sector banks i.e.
ICICI Bank, AXIS Bank and HDFC Bank showed similar growth in percent of trend.

64
 4.8 TOTAL ADVANCES

Table 4.8: Total Advances of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ C.G.R
Mar’ 13 Mar’ 15 Mar’ 16 Mar’ 17 Mar’ 18 Mean S.D. (in t-value
14 (in %)
%)

ICICI Bank 47035 53279 62095 91405 146163 195865 99307.00 54493.19 54.87 35.16 0.163*

% change 13.28 16.55 47.20 59.91 34.00

AXIS Bank 5352 7180 9363 15603 22314 36876 16114.67 10885.58 67.55 47.33 2.031*

% change 34.16 30.40 66.65 43.01 65.26

HDFC Bank 6814 11755 17744 25566 35061 46945 23980.83 13758.06 57.37 46.21 1.394*

% change 72.51 50.95 44.08 37.14 33.90

SBI 120806 1E+05 157933 202374 261641 337336 202974.67 75860.31 37.37 23.22 0.626*

% change 14.03 14.65 28.14 29.29 28.93

65
PNB 34369 40228 47224 60412 74627 96596 58909.33 21437.33 36.39 23.07 0.287*

% change 17.05 17.39 27.93 23.53 29.44

CITI Bank 11385 12629 15259 18111 24455 32861 19116.67 7474.02 39.10 23.74 2.808

% change 10.93 20.83 18.69 35.03 34.37

66
 Advances are the major product of banking system. The advances must gain momentum
if the banks are to improve its operating performance. A bank sanctions advances in various
forms like: a) bank overdrafts, b) cash credits, c) discounting of bills, d) term loans and others.

The analysis of data contained in table 4.8 indicated that the mean total deposits of
Rs.2,02,974.67 crores was recorded highest in case of State Bank of India followed by, ICICI
Bank Rs.99,307 crores, and Punjab National Bank, Rs.58,909.33 crores, respectively and lowest
has been noticed in case of AXIS Bank i.e. Rs.16,114.67 crores. The maximum standard
deviation of total deposits was noticed in State Bank of India followed by ICICI Bank and
Punjab National Bank. The minimum standard deviation was noticed by CITI Bank. The
coefficient of variation of 67.55 per cent was highest in case of AXIS Bank followed by the
HDFC Bank (57.37%) and ICICI Bank (54.87%), respectively. The least coefficient of variation
was noticed in case of Punjab National Bank (36.39%), and it also showed the maximum
consistency. The analysis of compounded annual growth rate revealed that AXIS Bank and
HDFC Bank are leading by recording a growth rate of 38.03 per cent followed by ICICI Bank
(26.90%) and CITI Bank (19.37%), respectively and the minimum growth rate has been noticed
by State Bank of India i.e. 18.71 per cent. ICICI Bank was showing highest growth rate because
it was focusing on growth, taking on slightly more risk than other banks. The t-values in the table
4.8 revealed that only CITI Bank was having significant difference between their performances
and the banking industry on account of various indicators, and rest of the banks under
consideration showed no significant difference. In Table 4.8, the growth in percent of trend has
shown that all the banks, under consideration, performances increased and decreased over the
period of the study and the fluctuations were very minute in all the banks over the time period
taken under study. In the year 2012-13 highest growth in percent of trend was recorded by the
AXIS Bank (458.42%) followed by the ICICI Bank (194.71%) and HDFC Bank (166.36%),
respectively and the least was recorded by Punjab National Bank i.e. 121.14 per cent. The reason
for huge growth in percent of trend of AXIS Bank in the year 2012-13 was because of huge
growth 589.01% of total advances during the period of study. From the year 2013-14 to 2017-18,
all the public sector banks i.e. State Bank of India and Punjab National Bank, foreign banking
sector i.e. CITI Bank and the private sector banks i.e. ICICI Bank, AXIS Bank and HDFC Bank
showed similar growth in percent of trend.

67
 4.9 TOTAL VOLUME

Table 4.9: Total Volume of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ C.G.R
Mar’ 13 Mar’ 15 Mar’ 16 Mar’ 17 Mar’ 18 Mean S.D. (in t-value
14 (in %)
%)

ICICI Bank 79120 1E+05 130204 191224 311246 426375 206602.83 124252.90 60.14 41.58 0.042*

% change 28.22 28.35 46.86 62.77 36.99

AXIS Bank 17639 24144 30317 47315 62427 95662 46250.67 26663.02 57.65 39.88 2.044*

% change 36.88 25.57 56.07 31.94 53.24

HDFC Bank 24468 34130 48152 61920 90857 115242 62461.50 31736.73 50.81 36.68 1.527*

% change 39.49 41.08 28.59 46.73 26.84

SBI 391366 4E+05 476552 569422 641687 772857 547627.50 130676.55 23.86 14.55 1.013*

% change 10.86 9.83 19.49 12.69 20.44

68
PNB 98942 1E+05 135140 153838 160739 185048 141624.67 28631.26 20.22 12.87 0.663*

% change 17.28 16.46 13.84 4.49 15.12

CITI Bank 26627 30372 35724 39595 52367 70736 42570.17 14988.85 35.21 20.56 3.728

% change 14.06 17.62 10.84 32.26 35.08

69
 Total Volume of the business refers to the sum total deposits and advances.
Mathematically, Volume of Business = Deposits + Advances. It is said high volume of business
leads to reduced cost per unit and improves profit. Those banks are efficient which create more
advances from a given volume of deposits.

The analysis of data contained in table 4.9 indicated that the mean total volume of
Rs.5,47,627.50 crores was recorded highest in case of State Bank of India followed by, ICICI
Bank Rs.20,602.83 crores, and Punjab National Bank, Rs.1,41,624.67 crores, respectively and
lowest has been noticed in case of CITI Bank i.e. Rs.42,570.17 crores. The maximum standard
deviation of total deposits was noticed in State Bank of India followed by ICICI Bank and HDFC
Bank. The minimum standard deviation was noticed by CITI Bank. The coefficient of variation
of 60.14% is highest in case of ICICI Bank followed by the AXIS Bank, 57.65%, and HDFC
Bank, 50.81%, respectively. The least coefficient of variation was noticed in case of Punjab
National Bank, 20.22%, and it also showed the maximum consistency. The analysis of
compounded annual growth rate reveals that AXIS Bank was leading by recording a growth rate
of 32.62% followed by ICICI Bank, 32.48%, and HDFC Bank, 29.54%, respectively and the
minimum growth rate has been noticed by Punjab National Bank i.e. 11.02%. The t-values in the
table 4.9 revealed that only CITI Bank was having significant difference between their
performances and the banking industry on account of various indicators, and rest of the banks
under consideration showed no significant difference.

In Table 4.9, the growth in percent of trend has shown that all the banks, under
consideration, performances increased and decreased over the period of the study and the
fluctuations were very minute in all the banks over the time period taken under study. In the year
2012-13 highest growth in percent of trend was recorded by the ICICI Bank i.e. 237.83%,
followed by the AXIS Bank and HDFC Bank, 196.68% and 144.74% respectively and the least
was recorded by Punjab National Bank i.e. 98.98%. The reason for huge growth in percent of
trend of ICICI Bank in the year 2012-13 was because of huge growth 438.89% of total advances
during the period of study. From the year 2013-14 to 2017-18, all the public sector banks i.e.
State Bank of India and Punjab National Bank, foreign banking sector i.e. CITI Bank and the

70
private sector banks i.e. ICICI Bank, AXIS Bank and HDFC Bank showed similar growth in
percent of trend.

71
 4.10 RETURN ON ASSETS

Table 4.10: Return on Assets of the Commercial Banks

(Rs. Crores)

Years

Banks C.V.
Mar’ Mar’ Mar’ C.G.R
Mar’ 16 Mar’ 17 Mar’ 18 Mean S.D. (in t-value
13 14 15 (in %)
%)

ICICI Bank 0.25 1.13 1.31 1.19 1.02 0.91 0.97 0.34 35.63 18.89 0.972*

% change 352.00 15.93 -9.16 -14.29 -10.78

AXIS Bank 0.93 0.98 1.12 0.86 0.97 0.89 0.96 0.08 8.72 -1.46 3.966

% change 5.38 14.29 -23.21 12.79 -8.25

HDFC Bank 1.24 1.44 1.42 1.66 1.52 1.52 1.47 0.13 8.68 3.89 4.076

% change 16.13 -1.39 16.90 -8.43 0.00

SBI 0.7 0.83 1.07 0.94 0.89 0.81 0.87 0.11 13.17 2.34 2.624

% change 18.57 28.92 -12.15 -5.32 -8.99

72
PNB 0.77 0.97 1.08 1.12 0.99 0.95 0.98 0.11 11.39 3.34 3.052

% change 25.97 11.34 3.70 -11.61 -4.04

CITI Bank 1.51 2.88 3.55 2.84 3.07 1.86 2.62 0.71 26.97 -1.57 1.134*

% change 90.73 23.26 -20.00 8.10 -39.41

73
 Return on Assets measures the relationship between the net profits and assets. It is
defines as the ratio of net profit after tax to total assets. It shows the efficiency with which banks
deploy their assets.

In the table 4.10, the mean analysis showed that the maximum return of 2.72% is
recorded by CITI Bank followed by HDFC Bank and Punjab National Bank, 1.47% and 0.98%
respectively. The maximum standard deviation was again recorded highest by CITI Bank
followed by ICICI Bank and HDFC Bank, respectively. The minimum was recorded by the AXIS
Bank. The reason for showing maximum mean return by CITI Bank was due to the bank’s
strategy of expanding its portfolio of services has paid off handsomely. The coefficient of
variation was maximum shown by ICICI Bank which revealed that there was more risk involved
and the minimum return was noticed by HDFC Bank and it also showed that it was more
consistent. The reason for the highest coefficient of variation in ICICI Bank was because from
the year 2012-13 to 2014-15, the return kept on increasing, then started decreasing from 2015-16
to 2017-18 and this is due to percentage increase in total assets was more than the percentage
increase in net profit in the later years of the study. The maximum compounded annual growth
rate is in case of ICICI Bank i.e. 24.08% followed by Punjab National Bank and CITI Bank,
3.57% and 3.54% whereas AXIS Bank recorded the least with negative growth rate, -0.73%,.
The reason for this was that percentage increase in total assets is much more than the percentage
increase in net profit during the period of the study. The t-values in the table 4.10 revealed that
only ICICI Bank and CITI Bank are having no significant difference between their performances
and the banking industry on account of various indicators, and rest of the banks under
consideration showed significant difference.

In Table 4.10, the growth in percent of trend has shown that all the banks, taken under
study, performances has increased and decreased over the period of the study and there were
huge fluctuations in all the banks over the time period taken under study. The maximum
fluctuation was recorded by CITI Bank and these fluctuations were all because of the change in
percentage of net profits is different from that of change in total assets in each time period.

74
 CHAPTER V

Conclusion findings and suggestion

1. The maximum average net profit is captured by State Bank of India followed by the ICICI
Bank and Punjab National Bank whereas, in case of compounded annual growth rate, ICICI
Bank recorded the highest value followed by AXIS Bank and HDFC Bank and the high
growth rate of ICICI Bank was due to sharp increase of 968 per cent in interest earned during
the period of the study and moreover, the bank is gaining market share in private banking,
retail banking, credit cards and most of the other verticals in which it is present. All the banks
showed insignificant difference.

2. The maximum average operating profit was recorded by State Bank of India and the
minimum was recorded by AXIS Bank. In case of compounded annual growth rate, the major
chunk was captured by ICICI Bank followed by HDFC Bank and AXIS Bank. This means
net profits in public sector banks have arisen on account of recovery of ‘provisions and
Contingencies’.

3. The interest earned growth rate was maximum in case of ICICI Bank followed by HDFC
bank and AXIS bank and the minimum was recorded by State Bank of India. This high
growth rate of ICICI Bank was all due to maximum increase in advances during the period of
the study than other banks. Only AXIS Bank and CITI Bank were having significant
difference between their performances and the banking industry on account of various
indicators.

4. The interest expended was also increased at fastest rate in private banks viz.; ICICI Bank,
AXIS Bank and HDFC Bank because the growth rate in deposits was highest in private
sector banks as compared to public sector banks and foreign banking sector. AXIS Bank,
State Bank of India and CITI Bank were having significant difference between their
performances and the banking industry on account of various indicators.

5. Establishment expenses being major item of expenses has grown at a lesser rate in public
sector banks than in public sector banks and foreign banking sector and this is because

75
 private banks are employing personnel with professional skill and experience in large number
whereas, in public sector they are about to overstaffed. AXIS Bank and CITI Bank were
having significant difference between their performances and the banking industry on
account of various indicators, and rest of the banks showed no significant difference

6. As regards total deposits, though State Bank of India because of its vast network, was leading
in total deposits but the growth rate analysis revealed that ICICI Bank topped the chart
followed by AXIS Bank and HDFC Bank whereas, least growth has been recorded in case of
State Bank of India. The reason for high growth in ICICI Bank was due to its prima facie
focus on growth, taking on slightly more risk than other banks and same was the case with
total advances.

7. The maximum average return on assets has been noticed in CITI bank. The reason for
showing maximum mean return by CITI Bank was that the bank’s strategy of expanding its
portfolio of services has paid off handsomely and moreover, bank is investing huge in
computers and infrastructure. ICICI Bank and CITI Bank showed insignificant difference.

76
 5.2 SUGGESTIONS

1. As the growth in total deposits, total advances and total volume was very low in case of
public sector banks viz.; State Bank of India and Punjab National Bank, it is recommended
that public sector banks should adopt the policies and practices of private sector banks.

2. The growth rate of public sector banks viz.; State Bank of India and Punjab National Bank
were the lowest in every performance indicator taken under consideration. It is recommended
that these banks must go for higher disposable incomes, higher consumption and they must
have greater appetite for risk.

3. Banks that are able to innovate to keep up with emerging market trends are likely to be more
successful and will establish long-term leadership positions. So every bank must do this.

4. To attain higher growth, the banks must focus on every segment especially, rural, retail and
agri credit areas because there are ample of opportunities lying for one’s growth.

77
 5.3 CONCLUSION

By now, there is substantive evidence which suggests that financial literacy can improve
the efficacy of financial decision-making. However, there is limited evidence as to whether better
financial decision-making is manifested in improved financial outcomes. Empirically, it is
challenging to disentangle this effect since other unobserved factors could be driving both these
observables.

Three important findings of this study are.. First, the FLCs are more useful in influencing
the use of bank accounts as compared with access. Importantly as well, the FLCs established at a
later period were more effective in positively affecting the use of bank accounts as compared to
those established initially. Second, well-capitalised banks with lower problem loans are better
placed to deliver financial inclusion through their FLCs. Interestingly, neither bank size nor
branch network appear to significantly influence financial inclusion. Third, notwithstanding the
growing importance of electronic channels, traditional channels still remain relevant in impacting
financial inclusion positively. Correspondingly, the analysis raises useful policy pointers. First,
that financial literacy has played an important role in improving account activity, but its impact
on the access to bank accounts has been less compelling. This needs to be viewed in the context
of the 60 percentage point gap between access to and use of finance for India (Demirgüç-Kunt et
al 2018). Second, the growing efficacy of financial literacy during the latter stages suggests that
addressing the impediments which plagued the process during the initial phase played an
important role in furthering financial inclusion. It, therefore, becomes important to address the
specific micro-level impediments that can further enhance its efficacy. Third, while there is no
gainsaying the growing importance of electronic channels towards acquiring financial literacy,
the role of traditional channels such as bank agents highlights their importance in augmenting
financial literacy. Identifying appropriate “teachable moments” at various levels can enhance
financial capabilities, make the financial literacy process more relevant and, in turn, the promise
of a better outcome in the medium term.

78
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