IJRIM Apirl 2012 Issue

7/28/2019 IJRIM Apirl 2012 Issue

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IJRIM Volume 2, Issue 4 (April 2012) (ISSN 2231-4334)

International Journal of Research in IT & Management 1

http://www.mairec.org

ROLE OF REGIONAL RURAL BANKS IN GROWTH,

EMPLOYEMENT, INCOME AND DEVELOPMENT OF RURAL

POPULATION

Suman*

ABSTRACT

Evolution of an effective institutional credit structure, which can meet the credit needs of the

rural economy, has been one of the basic objectives of credit policy in India. Commercial

banks have little interest in rural areas, these banks concentrated on deposits rather than

credits. The nationalization of major commercial banks also did not improve the situation to

any great extent. Less than 1% villages availed financial facilities from commercial banks.

So there was strong need for the establishment of Regional Rural Banks. The rapid

expansion of Regional Rural Banks has helped in reducing substantially the regional

disparities in respect of banking facilities in India. Generation of additional sources of

income and employment in rural population has been the main objective of Regional Rural

Banks. Regional Rural Banks are setup to take banking to door steps of rural households, to

avail easy and cheaper credit to weaker rural section and to generate employment in rural

areas. The banks are striving hard to provide best banking service in its command area.

Government should take some effective remedial steps to make Gramin Banks viable.

Keywords: Growth; employment; income; development.

*Haryana College of Education, Ellenabad.


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INTRODUCTION

Evolution of an effective institutional credit structure, which can meet the credit needs of the

rural economy, has been one of the basic objectives of credit policy in India. The reserve

bank of India has policy of institutionalization of rural credit in India. All India rural creditsurvey report recommended the three tier cooperative credit system, viz. state cooperative

bank , district central cooperative bank , and primary cooperative societies, at state , district ,

and village level respectively. The cooperative credit societies, over a period of time,

emerged as the main stay of rural credit structure and made substantial progress in terms of

volume loan advanced and territorial coverage. The subsequent nationalization of 14 major

commercial banks in June 1969 carried the process further. The nationalization of major

commercial banks also did not improve the situation to any great extent. Less than 1%

villages availed financial facilities from commercial banks. The cooperative movement

suffers from a number of weaknesses and inadequacies. Due to inadequate working of

Primary Agricultural Cooperative Societies suffers from over dues, limited coverage of rural

areas, less mobility of resources, improper management, biased interests, poor progress,

inadequate coverage to the small and marginal farmers and limited assess to weaker sections

of rural and remote areas. Commercial banks have little interest in rural areas, these banks

concentrated on deposits rather than credits. Thus they provide for the flight of funds from

the rural to the urban. So there was strong need for the establishment of Regional Rural

Banks. The government had stipulated that public sector banks should strive to achieve a

credit deposit ratio of at least sixty percent in their rural and semi urban branches. In 1975

government of India appointed a working group under the chairmanship of Shri M.

Narasimham to review the flow of institutional credit especially to the weaker sections of the

rural community. M. Narasimham commission recommended the setting up of state

sponsored, regionally based and rural oriented Regional Rural Banks. The government

established by ordinance & then legislation rural financial institutions called Regional Rural

Banks. RRBs are setup under the REGIONAL RURAL BANKS ACT OF 1976. Out of

which 50% capital share owned by government of India, 35% owned by sponsored

commercial bank 15% owned by state govt.

OBJECTIVES

To take banking to door steps of rural house holds particularly in banking deprived rural area,

to avail easy and cheaper credit to weaker rural section who are dependent on private lenders,


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to encourage rural savings for productive activities, to generate employment in rural areas

and to bring down the cost of purveying credit in rural areas.

GROWTH PERFORMANCE

The number of branches has been substantial increase during last few years. The reason forslow expansion of branches Gramin Bank can be traced to the better banking facilities

provided by commercial Banks. The progress of deposit mobilization can be attributed to the

pace of branch expansion. A comparatively better indicator of deposit mobilization is

deposits per branch as deposits can simply be increased by opening more branches in rural

areas. Moreover, promotion of the culture of good customer services will help in mobilizing

the deposits. The high rates of growth in credit deployment are due to rapid growth in its

branches. Moreover, much of the lending by the Gramin Bank is confined to the I.R.D.P.

schemes which highlight its involvement in rural development programme. Decline in

Credit-Deposit Ratio can be attributed to the unfavorable environment created by political

parties by announcing the waiving of loans. This has created an environment of uncertainty

for the financial institutions due to which their lending operations have declined.

Performance of the Gramin Bank clearly reveals that they have made satisfactory progress in

carrying out their social objectives i.e., to take banking to door steps of rural households

particularly in banking deprived rural area, to avail easy and cheaper credit to weaker rural

section who are dependent on private lenders, to encourage rural savings for productive

activities, to generate employment in rural areas and to bring down the cost of purveying

credit in rural areas. Pattern of expenditure comprise of interest paid on deposits and

borrowings, salary, provident fund and gratuity contribution and other establishment

expenses, comprising of rent, taxes, insurance, electricity, stationery, allowances, law

charges, postages, telegram and stamps, telephone and internet bills, repair, auditor fees,

depreciation etc. total income is divided into three components viz. interest and discount,

commission, exchange and brokerage and other receipt. The main source of income is the

interest earned on loans and advances and on deposits kept with the sponsoring and other

banks.Share capital and reserve fund form part of the owned resources of the Gramin banks

and depend upon the adequacy of the net profits earned by these banks.This is the important

source of finance available to the RRBs. The higher the percentage of savings and current

deposits in total deposits, the better will be the impact on banks profitability. Most cheapest

source of funds are current deposits but require high liquidity whereas fixed deposits are

costly source of finance as the highest rate of interest is required to be paid on them.


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Borrowing is obtained from the financial institutions like NABARD, IDBI and from

sponsoring banks. Productivity could be augmented by controlled branch expansion, proper

man power planning, exercising control over operating costs and through improving the

quality of credit business.

EVALUATION

Misutilisation of Credit:

Three major type of Misutilisation:

No purchase of asset Resale of the asset Sanction of loan on borrowers own asset

Participation Cost: Participation cost consists of payment made or expenses incurred atvarious stages of filling of application form to the stage of formally joining into the scheme.

Each and every beneficiary has to pay participation costs in one or the other. The form and

cost varied from scheme to scheme and beneficiary to beneficiary.

Factor Responsible for Non-repayment:

Inadequacy of income, unwillingness to repay, higher family consumption, prefer repayment

of private borrowing over repayment of bank loans, lack of efforts by Bank staff has been

found to be the basic reason for non-repayment of the loan, death of animals, borrowers

illness and dispute with bank staff respectively. Nowadays political announcements become

major reason for non-repayment.

Impact on income: Thus supply of bank finance has proved to be a means of increasing

income in the post loan period as compared with that of pre loan period.

Impact on employment: Generation of additional sources of income and employment has

been the main objective of RRB. The various schemes financed by bank help in providing

employment to the beneficiaries either for the full year or seasonal.

SUGGESTIONS

Government should encourage & support banks to take appropriate steps in ruraldevelopment.

Involvement of panchayats, SHG, NGO and other local bodies. Efforts should be made to ensure that the non-interest cost of credit to small

borrowers is kept as low as possible.

Policy should be made by government for opening more branches in weaker andremote areas of state.


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The interest paid ratio can also be reduced by changing the composition of deposits infavour of the savings and current deposits.

Productivity can be improved by controlling the costs and increasing the income. To participation cost, subsidy should be adjusted towards the end of the transaction

for which loan assistance is sanctioned.

Government should take firm action against the defaulters and shouldnt makepopular announcements like waiving of loans.

CONCLUSION

To conclude, the rapid expansion of RRB has helped in reducing substantially the regional

disparities in respect of banking facilities in India. The efforts made by RRB in branch

expansion, deposit mobilization, rural development and credit deployment in weaker section

of rural areas are appreciable. RRB successfully achieve its objectives like to take banking to

door steps of rural households particularly in banking deprived rural area, to avail easy and

cheaper credit to weaker rural section who are dependent on private lenders, to encourage

rural savings for productive activities, to generate employment in rural areas and to bring

down the cost of purveying credit in rural areas. Thus RRB is providing the strongest

banking network. The banks are striving hard to provide best banking service in its command

area. Government should take some effective remedial steps to make Gramin Banks viable.

REFERENCE

1. Annual report of Haryana Gramin Bank 2007-08.2. Chippa, M.L., Commercial Banking Development in India A study in regional disparity ,

Printwell publishers, Jaipur, 1987.

3. Various issues of RBI. Monthly bulletins.4. Dantawala, M.L., Regional Rural Banks: A Classification, Economics and Political

Weekly, Vol.13, No.42, Oct.21, 1978.

5. Gariwala, Bharat, Performance by Regional Rural Banks, Financial Express, 1988.6. Government of Haryana, Economic and Statistical Organization, Statistical Abstract of

Haryana, Chandigarh, 1976-90

7. Government of India, Report of the Working Group on Regional Rural Banks (1986), NewDelhi.

8. M. Narasimhan. Report of the committee on the financial system. Technical report, ReserveBank of India, 1991.

9. Malhotra, Rakesh (2002): Performance of Indias Regional Rural Banks (RRBs): Effect ofthe Umbilical Cord. URL: http://www.alternativefinance.org.uk/rtf/rrbsmalhotra.rtf.

10.Pai, Panandikar, V.A., Regional Rural Banks, Economics Times, June 26, 1982


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11.Ramanaa Murty, D.V., Regional Rural Banks: An Assessment of Performance, SouthernEconomist, No.16 (7), August 1, 1977. RBI, All India Rural Credit Survey, Vol. II, Chapters

VIII and IX, Bombay, 1954.

12.RBI: Monthly Bulletin.13.Report of the committee to Review Arrangements for Institutional Credit and Rural

Development (CRAFICARD) (1981), RBI, Bombay.

14.Report of the expert committee on consumption credit, New Delhi, April, 1976.15.Reserve Bank of India, Report on the Functioning of Public Sector Banks, 1978, Bombay.16.Sinha, D.P., Role of Regional Rural Banks in Rural Development, Khadi Gramodyog,

24(9), June, 1978.

17.Varde and Singh, 1982 Profitability Performance of RRBs. pp. 247-56.18.Wadhwa, charan, D.,Rural Banks for Rural development, Macmillan India Ltd.,1980.


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A STUDY FOR PERISHABLE INVENTORY CONTROL SYSTEM

WITH THE HELP OF A MODEL BASED ON FUZZY DYNAMIC

PROGRAMMING

Saloni Srivastava*

Dr. R.K. Shrivastava**

ABSTRACT

In this paper, we consider a model in which backlogging is not allowed, since the items in the

inventory are perishable. To analyze perishable inventory system with crisp transformation

function, we apply fuzzy dynamic programming technique. In this paper we consider both

objective function and constraints are as fuzzy sets. By applying fuzzy dynamic programming,

the existence of optimal solution for perishable inventory system approach is studied. In a

fuzzy environment, to illustrate the optimal decision, numerical examples and sensitivity

analysis are discussed.

*Department of Applied Science and Humanities, Sachdeva Institute of Technology, Farah,

Mathura.

**Department of Mathematics, Agra College, Agra.


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1. INTRODUCTIONIt is found that the decision making problems such as inventory control systems and service

facility systems, metaheuristic algorithm [6] and fuzzy dynamic programming have been used

in a good amount. Bellman and Zadeh in 1870, considered the classical decision model andsuggested several models for decision making in a fuzzy environment. The application of

fuzzy set theory in mathematical programming was done by Bellman R.E. and L.A. Zadeh [2]

and Zimmermann H.J. [9]. Development and applications in the field of fuzzy dynamic

programming deal by Kacprzyk [4], Esogbul and Bellman [3] and Zimmerman [8, 10,11]. In

fact the traditional economic criterion i.e. maximization of profit or minimization of cost

models are useful in many real inventory problems. On the other hand there are many

inventory problems for which the economic criterion model are not applicable including

reservoir operation problems as well as some retail inventory problems. To incorporate the

expert knowledge with fuzzy membership function only fuzzy criterion models are used, and

therefore these models are closer to the spirit of modern decision-making thinking [7], than

the existing inventory models. Let us consider a multistage decision making inventory control

system in which reorder quantities

are the decision variables and are the different states inventory level at the

beginning of the period k of the system. At the beginning of each stage, a reorder of for

items is to be done and the decision maker should be able to evaluate the final state. Since

items in the inventory are perishable, we assume that backlogging is not allowed. The

following questions should be able to be answered by the decision maker, which states are the

best?, which states are qualified and which states are too bad? Another important issue in

perishable inventory control system is due to the nature of the stock. The objective of the

problem is to minimize the stock almost zero at the end of the planning horizon. In this paper,

our aim is to concentrate on inventory systems having perishable items and also to construct a

fuzzy dynamic programming model for these types of inventory systems. We also focus on

the optimal inventory control for this kind of inventory system is obtained as a natural

extension of ordinary inventory control system. For different values of perishable parameter

are obtained by optimal schedules, the final inventory with low or zero level.

2. DEPICTION OF THE MODEL (FUZZY)For developing the model we have to consider the following notations and assumptions. Let

be the state variable representing the inventory level at the

beginning of period k, where . Considering an inventory model of n


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periods then the order quantity in each period k is assumed to be fuzzy variable , where

is the set of values permitted for the decision. Most of the cases ,

where and are the fundamental units of inventory. is the crisp

transformation function where for is the deterministic demand in period k

and denotes the quantity of perished items in period k. are

fuzzy constraints on the decision variables representing the goal reordering quantity that

should decrease as steadily as possible. , i.e., the perished quantity is

proportional to inventory on hand at each period k, where is the perish ability parameter

, is the fundamental unit of inventory (pocket). Let us consider and

denotes round off value of z. Let be the fuzzy goal,

representing the decision that the inventory is very low at the end of the planning horizon. To

solve the problem we propose the fuzzy dynamic programming technique of Bellman and

Zadeh (1970). They explained that th basic type of fuzzy dynamic programming problem

based on symmetric decision model is one in which the objective function as well as the

constraints are fuzzy. The fuzzy objective function is characterized by its membership

function and so are the constraints. To optimize the objective function subject to the

constraints defined in the fuzzy environments, we use an optimal decision as a selection of

activities that simultaneously satisfy the objective function and constraints. Here we assumed

that the constraints are non-interactive and hence the logical and corresponds to the

intersection (of fuzzy sets). The intersection of fuzzy constraints and objective function

which is fully symmetric can be obtained under the decision in a fuzzy environment in this

model.

2.1. EXPLANATION AND NOTATIONS [ BELLMAN AND ZADEH ] (1970)

In a space of alternatives Z, consider a fuzzy goal and fuzzy constraints . Let and

be combined to form a decision which is a fuzzy set given by and

correspondingly . This definition can be extended to r goals

and s constraints in a logical manner. On the other

hand . The intersection of fuzzy

seta is defined in the possibility sense by the min-operator. Traditional dynamic program was

introduced by Bellman in 1957, which is actually contain the problem as a multistage

decision process with n stages and the optimal policy has to be determined recursively. Let us


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Subject to the fuzzy constrain ts and , has the optimal maximizing

decision .

Proof : Let be the crisp state variables where

is the set of values permitted for the state variables and

be the crisp decision variables where is the set of possible

decisions. For each stage , let the fuzzy constraints have the

membership function . Similarly the fuzzy goal be

characterized by the membership function . As we know that the logical operator

and is used a intersection in the statement of the theorem, the fuzzy decision set is given

by . The membership function of the fuzzy set by using the min-

operator for the aggregation of the fuzzy constraints and the goal can be obtained as:

Hence the membership function of the maximizing set is given by:

Since, , where C is a constant and f is

an arbitrary function of , the above membership can be also be written as:

s

By the use of above recursive function, the optimal decision set can be obtained.

3. SOLUTION PROCEDUREThe general solution procedure of solving inventory control problem by fuzzy dynamic

program [5] approach is described

STEP 1: Using the forward calculation, we can calculate the lower and upper as:

STEP 2 : From backwardcalculation the bounds and are computed as:


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STEP 3 : The final bounds are computed as follows:

STEP 4 : From the above, compute

STEP 5 : For the specific , observing the table for , we get the optimal pairs

with positive values. For each pair select the corresponding pairs

from the table for and continuing this process, till to get all possible optimal

schedules.

4. NUMERICAL EXAMPLEThe general procedure explained in the above mentioned theorem is applied for the periodic

review perishable inventory problem with number of periods n = 4. Assume the demandoccurs in each be . At the beginning of

each period, the inventory on hand is of perishable in nature. The number of items perished

in each period k may be directly proportional to the inventory on hand in that period.

Therefore, we consider , where is the perishable factor i.e. & is the

fundamental unit of inventory. Here, we take for non-perishable inventory

system, and case is a perfect perishable inventory system which is non-existence. We consider

that it is necessary that the value of lies between 0 & 1, i.e. .

Case 1:In our problem, if we assume that , let the membership function of the fuzzy

constraints on the decision variable is given as:

; where k = 1, 2, 3, 4

The membership function of fuzzy goal representing the decision to have a low stock at the

end of the planning horizon is given by:


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Let be the initial stock or level at the beginning. The inventory level which is supposed to be zero

and the permitted state values for the reorder quantities , be given by and

that of the possible inventory levels be given by . We are only concerned

the support of fuzzy constraint set . In the following table, the bou-

nded decision variables i.e. lower-bound and upper-bound are obtained. Here

k

1 55 85

2 45 75

3 35 65

4 25 55

For the different intermediate stages we find upper and lower bounds using the

transformation function by the following three steps:

Step1:Calculation of the and for the state variable are as follows

k

1 ---- ----

2 10 40

3 0 55

4 0 60

5 ---- ----

Table 1

Step 2 :Assuming and stating with , we get the upper and lower

bounds as:

k

1 0 120

2 0 105

3 0 80

4 5 55

5 ---- 15

Table 2


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With the help of step 3 and above two tables, we have the following upper and lower bounds

are:

k

1 0 0

2 10 40

3 0 55

4 5 55

5 ---- 15

Table 3

Within the lower and upper bounds, the optimal and are as follows:

Stage1:

25 30 35 40 45 50 55

5 0 0 0 0 0 0 0 0

10 0 0 0 0 0 0 0 0

15 0 0 0 0 0 0 1/4 1/4

20 0 0 0 0 0 1/2 1/4 1/2

25 0 0 0 0 3/4 1/2 1/4 3/4

30 0 0 0 0 3/4 1/2 1/4 3/4

35 0 0 0 3/4 1/2 1/4 0 3/4

40 0 0 3/4 1/2 1/4 0 0 3/4

45 0 1/2 1/2 1/4 0 0 0 1/2

50 0 1/2 1/2 1/4 0 0 0 1/2

55 1/4 1/2 1/4 0 0 0 0 1/2


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Stage 2:

35 40 45 50 55 60 65

0 0 0 0

5 0 0 0 0

10 0 0 0 0

15 0 0 0 0

20 0 0 0 0

25 0 0 0 0 0

30 0 0 0 0 0

35 0 0 0 0 0 0

40 0 0 0 0 0 0 0 0

45 0 0 0 0 0 0 0 0

50 0 0 0 0 0 0 0 0

55 0 0 0 0 0 0 0 0

Stage 3:

45 50 55 60 65 70 75

10 0 0 0 0

15 0 0 0 0

20 0 0 0 0 0

25 0 0 0 0 0 0

30 0 0 0 0 0 0

35 0 0 0 0 0 0 0 0

40 0 0 0 0 0 0 0 0


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Stage 4:

55 60 65 70 75 80 85

0 1/4 1/4 0 0 0 0 0 1/4

Case 2: If the perishable factor , then we have

k

1 0 0

2 10 40

3 0 45

4 5 20

5 ---- 15

By the above way

Stage 1:

25 30 35 40 45 50 55

5 0 0 0 0 0 0 0 0

10 0 0 0 0 0 0

15 0 0 0 0 0 0 1 1

20 0 0 0 0 0


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Stage 2:

35 40 45 50 55 60 65

0 0 0 1 0 1

5 0 0 1 0 1

10 0 0 0

15 0 0 0

20 0 0 0 0

25 0 0 0 0

30 0 0 0 0

35 0 0 0 0

40 0 0 0 0 0

45 0 0 0 0 0

Stage 3:

45 50 55 60 65 70 75

10 0 0 0

15 0 0 0

20 0 0 0 0

25 0 0 0 0

30 0 0 0 0 0

35 0 0 0 0 0

40 0 0 0 0 0 0 0 0


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Stage 4:

Case 3: Let the perishable factor be , then we get

k

1 0 0

2 10 40

3 0 35

4 5 30

5 ---- 15

By the above way:

Stage 1:

25 30 35 40 45 50 55

5 0 0 0 0 0 0 0 0

10 0 0 0 0 0 0 0 0

15 0 0 0 0 0 0

20 0 0 0 0 0 0 0 0

25 0 0 0 0 0 0

30 0 0 0 0 0 0

55 60 65 70 75 80 85

0 0 0 0 0 0


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Stage 2:

35 40 45 50 55 60 65

0 0 0 0

5 0 0 0

10 0 0

15 0 0 0

20 0 0

25 0 0

30 0 0

35 0 0 0

Stage 3:

45 50 55 60 65 70 75

10 0 0 0

15 0 0 0

20 0 0 0

25 0 0 0

30 0 0 0

35 0 0 0 0

40 0 0 0 0

Stage 4:

55 60 65 70 75 80 85

0 0 0 0 0 0


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It is to be noted that, we could get the optimum schedule for each for various values of

perishable parameter in other way the cases with inventory level low or zero gives the

optimal inventory.

5.

PERCEPTIVE ANALYSISA range of perishable rates have been compared by the optimal schedules. We have shown

that the final inventory position become zero for . This indicates that as increases,

the optimal schedule become more accurate and crisp.

6. RESULTWe consider only those problems which are perishable inventory control decision problems,

further which are solved by using fuzzy dynamic programming. Perceptive analysis done by

determining the appositively of different schedules . This also

extended to solve inventory control problems with partial and full backlogging.

7. REFERENCES[1] Bellman, R., 1957, Dynamic programming Princeton.

[2] Bellman, R., and Zadeh, L.A., 1970, Decision makin in a guzzy environment management

science 17, B 141-164.

[3] Esogbue, A. O., and Bellman, R. E., 1984, Fuzzy dynamic programming and its

extensions, In Zimmermann et al 147-167.

[4] Kacpizyk, J, 1983, Multi stage decision-making under fuzziness, vertag TUV Rheinland,

Koln, Germany.

[5] Kacpizyk, J and Esogbue, A.O., 1996, Main development and applications, Fuzzy

dynamic programming, Fuzzy sets and systems, 81, 31-45.

[6] K. Thangavel, M.Karnan, P.jaganathan, Pethalakshmi, R.Siva Kumar And Geetha

Ramani, Ant Colony Algorithms In Diverse Combinational Optimization Problems A

Survey, International Journal on Automatic Control System and Engineering, vol.6, no. 1,

pp 7-26, 2005.

[7] Turban, E, 1998, decision support and expert systems, second edition, Macmillan,

Newyork.

[8] Zimmermann, H.J., 1983, Fuzzy mathematical programming Computational operation

Research, 10, 291-298.

[9] Zimmermann, H.J., 1985, Applications of Fuzzy set theory to mathematical program,

Information Science, 36, 29-58.


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IMPACT OF PERFORMANCE APPRAISAL ON EMPLOYEES

ATTITUDE

Dr. U.S.S. Shrivastav*

Nimisha Sapra**

ABSTRACT

Performance appraisal is a widely recognized process, yet efforts to study and examine its

effect on attitudinal outcomes are scarce. The present study addresses this research gap. The

study is based on secondary research which involves reviewing and critically analysing the

scholarly literature that addresses issues similar to this research problem. The study will

contribute to the body of knowledge on performance appraisal and thus will benefit the HRM

practitioners and HRM scholars.

*Supervisor, Ph.D. (Finance), M.B.A. International Trade, Executive Director International

Institution of Management Delhi.

**Nimisha Sapra, Research Scholar, Department of Management, Singhania University,

Pacheri Bari, Distt. Jhunjhun, Rajasthan.


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Employee Evaluation: I t s a dir ty job, but somebody s got to do it .

Jerr y Jensen

INTRODUCTION

Performance appraisal (PA) has remained an important topic of investigation amongorganizational researchers (Poon, 2004:322). It is an unavoidable element of organizational

life (Brown, 1988; Longenecker & Fink, 1999). There are many decisions in modern

organizations that depend on performance appraisals, and they are widely used in most

organizations (Burkhalter & Buford, 1989; Davis, 2001; DeNisi, 1996; Wanguri, 1995). They

are an important piece of the process by which organizations attempt to direct themselves

(Kreitner, 1998; Landy and Farr, 1983), and they have been considered a key component in

the success of organizations for most of the twentieth century (Grote, 2002; Pettijohn, &

Kent, 2001; Rasch, 2004; Starcher, 1996). Performance appraisal allows organizations to

inform their employees about their rates of growth, their competencies, and their potentials. It

enables employees to be intentional in creating their individual developmental goals to help

in their personal growth. There is little disagreement that if performance appraisal is done

well, it serves a very useful role in reconciling the needs of the individual and the needs of

the organization (Cleveland, Landy, & Zedeck, 1983; Conry & Kemper, 1993; Grote, 1996).

If used well, performance appraisal is an influential tool that organizations have to organize

and coordinate the power of every employee of the organization towards the achievement of

its strategic goals (Grote, 2002; Lewis, 1996). However, if performance appraisal is not done

well, Grote suggests the process can become the object of jokes and the target of ridicule.

This paper identifies the impact of performance appraisal on employees attitude and

identifies challenges facing the existing appraisal system.

EFFECT OF PERFORMANCE APPRAISAL FEEDBACK ON

EMPLOYEES ATTITUDE

An attitude could be defined as a learned predisposition to respond in consistently

favourable or unfavourable manner with respect to a given object (Kreitner and Kinicki,

1992, p.98) [14]. Attitudes are formed throughout the time, can be changed and may be

influenced by a manager. One of tools for initiation of attitude change is performance

appraisal.

Performance appraisal process is incomplete without the feedback given to the employee

about his appraisal and his performance. But the way of giving as well as receiving the


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feedback differs from person to person and their way of handling and their outlook towards

the issue.

According to a popular saying:

A successful man is one who can lay a firm foundation with the bricks others have thrown at

him.

Archer North suggests that mere individual recognition, that is to say appraising performance,

can lead to higher job satisfaction and reduced absenteeism and turnover rates. In fact, there

is evidence that human beings will even prefer negative recognition in preference to no

recognition at all.

To show effects of performance appraisal on employee attitudes, a study by Gabris and

Mitchell, made in an organization with a quarterly performance appraisal system, which

focused on Matthew effect, will be used. Matthew effect is said to occur where employees

tend to keep receiving the same appraisal results, year in and year out. That is, their appraisal

results tend to become self-fulfilling: if they have done well, they will continue to do well; if

they have done poorly, they will continue to do poorly. They explored an extent of

frustration rising from biased performance appraisal. The workforce was divided into two

groups: thosewho had been given high appraisal results consistently, and those who had low

results consistently.

When the groups were asked if the appraisal system was fair and equitable, 63 per cent of the

high performers agreed, compared to only 5 per cent of the lower performers. The groups

were asked if their supervisors listened to them. Of the high performers, 69 per cent said yes,

while among the low performers, 95 per cent said no. Finally, when asked if their supervisors

were supportive, nearly half of the high performers agreed that they were, while none of the

low performers agreed.

It is a cardinal principle of performance appraisal that employees should have the chance to

improve their appraisal results especially if their past results have not been so good. It is a

very serious flaw in the process of appraisal if this principle is denied in practice.

EFFECT OF GOOD PERFORMANCE APPRAISAL ON EMPLOYEES

ATTITUDE

Organisational development and personal development are both served when reasonably high

goals are set. People feel good about themselves and their employer when they do things that

stretch their abilities and when they get recognition for those achievements. A performance

appraisal system is a means for both setting and recognizing the achievement of goals or


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standards and also helps individuals in planning their own career development. Performance

appraisals that genuinely encourage career growth demonstrate that an organisation is doing

its share to help individuals advance, which further boost the employee morale.

Performance appraisal if effectively done offers an excellent opportunity perhaps the best

that will ever occur for a supervisor and subordinate to recognize and agree upon individual

training and development needs. During the discussion of an employees work performance,

the presence or absence of work skills can become very obvious even to those who

habitually reject the idea of training for them. Performance appraisal can make the need for

training more pressing and relevant by linking it clearly to performance outcomes and future

career aspirations. Thereby, helping employees in identifying areas of weaknesses and

strengths, increasing awareness of job requirements and finally helping them in improving

their performance.

IMPACT OF POOR PERFORMANCE APPRAISAL ON EMPLOYEES

ATTITUDE

Oberg warns, negative feedback from performance appraisal not only fails to motivate the

typical employee, but also can cause him to perform worse. Only those employees who have

a high degree of

self-esteem appear to be stimulated by criticism to improve their performance. According to

study by Baron, destructive criticism, which is vague, ill-informed, unfair or harshly

presented will lead to problems such as anger, resentment, tension and workplace conflict,

as well as increased resistance to improvement, denial of problems, and poorer performance.

Mentioned implications should be dealt with big attention. It may be suggested that an

appraiser should delineate performance appraisal process to a person appraised not as an

opportunity to criticize him, but primarily as a way for explaining what could be done better

and how could he (and thus the whole company) perform better in future.

Bannister notes, it is important that the appraiser be well-informed and credible. If it is so,

employees are more likely to view the appraisal process as accurate and fair. They also

express more acceptances of the appraisers feedback and a greater willingness to change.

Bacal recommends that when talking to an employee about a problem, one should phrase his

comments in terms of preventing the problem from recurring, by using the inappropriate

performance as a jumping off point, explaining why it is problematic, and then quickly

moving on to preventing re-occurrence. This moves the focus from blame to improvement .

He also suggests a cooperative, dialogue approach for managers. This approach puts the


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manager and employee on the same side, and working towards the same goals is getting

better and better. Employee may feel noticed, more self-confident, proud that he or she is

working with the boss, and thus may be motivated to perform even better. Mere fact of

talking with his supervisor might be very important.

CONCLUSION

The above discussion reveals that performance appraisal is an important part of an

organisation but the performance appraisal process is incomplete without the feedback given

to the employee about his appraisal and his performance. The positive performance appraisal

feedback involves, inform and motivates employees and also helps in creating improved

supervisor employee communications. An effective performance appraisal feedback also

helps in integrating the employee personal and organizational goals but on the other hand

poor performance appraisal not only fails to motivate the employee but also can cause him to

perform worse. The management of those staff who fails to meet the identified and

communicated performance standards expected by the organization is one of the most

challenging aspects of management (Goodhew et al, 2007). To overcome the challenge,

Armstrong and Baron (2005) went on to outline five steps which should be identified as part

of the appraisal process for managing poor performance;

1. Identify and agree the problem,2. Establish the reasons for underperformance,3. Decide and agree on the action required,4. Resource the action via training as required,5. Monitor performance and provide feedback.

If performance continues to be below the standards agreed, then the process can be repeated

and the ultimate sanction of dismissal applied if required.

RECOMMENDATIONS

Based on the above literature, the following recommendations have been suggested:

1. Training should be provided to both the evaluators and the employees.2. Transparency in the implementation of the system.3. Provision of continuous feedback to employees on their performance.4. Disciplinary measures should be taken on supervisors who do not provide continuous

feedback to employees.


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5. Companies should consider adoption of a new system of assessing performance suchas multi rater feedback or 360 degree feedback, to remove the biasness and

subjectivity reported on the part of the supervisors.

BIBLIOGRAPHY1. Allan, P.1994. Designing and implementing an effective performance appraisal

system, Review of business, Vol. 19 No.2, p.2 and 6.

2. Boice, D.F. and Kliener, B.H. 1997. Designing effective performance appraisalsystems, Work Study, Vol.46 No. 6, pp. 197-203.

3. Brown, M. And Heywood, J. 2005. Performance appraisal systems determinants andchange. British journal of industrial relations, Vol. 43 No. 4, pp.659-79.

4. Cintron Rosa and Forrest Flaniken, Performance appraisal: A supervision orleadership tool, International Journal of Business and Social Science, Vol.2 No.17.

5. Longenecker, C.O. and Fink, L.S. (1999), Creating effective performanceappraisals, Industrial Management, Vol. 41 No.5, pp. 18-24.

6. M Strebler, Tackling poor performance, Institute for employment studies, 2004.7. Poon, J.L.M., 2004, Effects of performance appraisal politics on Job satisfaction and

Turnover, Personnel Review, Vol. 33 No.3


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COMBINING CAPTCHA AND GRAPHICAL PASSWORDS FOR USER

AUTHENTICATION

T. S. Ravi Kiran*

Y. Rama Krishna**

ABSTRACT

Text passwords have been widely used for user authentication, however, it is well-known that

text passwords are insecure for a variety of reasons .Graphical password schemes are

believed to be more secure and more resilient to dictionary attacks than textual passwords,

but more vulnerable to shoulder surfing attacks. Many recognition-based graphical password

schemes alone, in order to offer sufficient security, require a number of rounds of

verification, introducing usability issues. In this paper we suggest a hybrid user

authentication approach combining CAPTCHA (Completely Automated Public Turing tests

to tell Computers and Humans Apart) and graphical passwords to provide increased

security.

Keywords: CAPTCHA, Graphical Passwords, User Authentication, Phishing, Security

*Lecturer, Department of Computer Science, P.G.Centre, P.B.Siddhartha College of Arts &

Science, Vijayawada.

**Assistant Professor, KITE Womens College of Professional Engineering Sciences,

Shabad, India.


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INTRODUCTION

Authentication is indeed at the heart of any secure system; a user has to be authenticated

before he/she can be involved in online transactions, enter a secured vault, open a safe or

reach his/her email account[1]. If sensitive information or unauthorized access is given to awrong identity, the entire security of one system will collapse. Generally, the most common

and convenient authentication method is the traditional alphanumeric password. However,

their inherent security and usability problems [2, 3] led to the development of graphical

passwords as an alternative. To date, there have been several graphical password schemes,

such as [4, 5, 6, 7, 8]. They have overcome some drawbacks of traditional password schemes,

but most of the current graphical password schemes remain vulnerable to spyware attacks.

Most current graphical password schemes require users to enter the password directly,

typically by clicking or drawing. Hence, passwords are easily exposed to a third party who

has the opportunity to record a successful authentication session CAPTCHA (Completely

Automated Public Turing tests to tell Computers and Humans Apart) is a program that

generates and grades tests that are human solvable, but beyond the capabilities of current

computer programs [9]. CAPTCHA is now almost a standard security mechanism for

addressing undesirable or malicious Internet bot programs and major web sites such as

Google, Yahoo and Microsoft all have their own CAPTCHAs. The rest of the paper is

organized as follows. Section 2 briefly reviews related work. Sections 3 present our scheme.

Conclusions and future work are addressed in section 4.

RELATED WORKS

There are many different ways a user can be authenticated by a system. This section looks at

a number of different authentication systems to analyze their strengths and weakness.

Alphanumeric Passwords

An alphanumeric password is an authentication mechanism that utilizes letters, upper and

lower case, numbers and some special characters such as exclamation marks and pound signs.

A combination of all of these is used to form a string the user enters into a computer to

authenticate themselves. Passwords of this nature are generally held to follow two guidelines;

they must be memorable allowing the user to authenticate quickly and easily and that they

must be secure [10].Alphanumeric passwords utilize recall which from the statement above is

much harder for a user to remember their password. This means that in general users will be

inclined to create an easily remembered password, which again reduces the security of the


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system. This point is further highlighted by the need to regularly change passwords to

effectively 'reset' any attempts to steal a user's password

Biometrics

One alternative to the use of alphanumeric passwords is the use of biometrics. Biometrics is

the utilization of uniquely and personally identifiable biological and physical information

[11]. This authentication method does not rely on user password selection so does not fall

foul of the failings described above. Also, as this mechanism makes use of the personal

attributes of the user as opposed to a password it is not possible to shoulder surf this

technology. There are many biometric systems in place today such as the use of finger prints

or voice recognition. Authentication takes place by comparing previously stored information

against the information a user provides when they wish to authenticate. To many this may

seem like the logical choice when it comes to replacing alphanumeric passwords with a far

more secure system, but it too has flaws

Graphical Passwords

Graphical passwords can be largely classified into three categories: recognition-based, cued-

recall, or recall-based. In recognition-based graphical passwords, users are required to

recognize and then select a set of preselected images from a larger set. In cued-recall, the

images cue the user, for example, to click a set of points on an image. In recall-based, users

are required to recall a password without any cues, a graphical password is the use of a

picture, a part of a picture or several pictures together to authenticate a user. Graphical

passwords have by in large been attributed to Blunder [12, 13] his system required a user to

click several points on an image, the points were then compared with the stored version and

the user was authenticated or the authentication failed and the user was rejected. Whilst

alphanumeric passwords rely on a single stage many graphical passwords systems require the

user to pass a number of stages or challenges to authenticate. This raises an important issue

relating to how long it takes to authenticate and how long a user feels is too long to

authenticate.

PassFaces

This system was developed by Real User Corporation [14] and makes use of the human

ability to recognize faces. To register with the system the user selects four faces from a large

bank of available choices. When a user wishes to authenticate themselves they are presented

with an array of nine faces, arranged in three rows of three. One of the faces is part of the

user's password while the other eight all act as decoys. The user then touches the face to

select it and the system then displays the next set of faces. The challenges continue until the


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user has selected four faces, it is at this point that the user passes or fails authentication.

There are a number of issues with this system; some relate to security and others relate to

usability. The main usability concern, which is becoming more and more redundant as

network speeds increase, is the time it could take to load the faces. This issue is particularly

relevant when the authenticating server is based in a remote location, as is likely to be the

case with public space interactions.

Draw-a-Secret

Unlike the PassFaces system this is a recall based authentication method. To log in using this

method the user must reproduce an image on a grid which is displayed on the screen. The

system registers pen down and pen up events and the order in which the parts of the grid are

touched between these events occurring which the author of refers to as a stroke [15]. The

'password' that is stored by the system is not the drawing itself but is instead the record of

strokes the user has performed. As the system does not record the exact drawing but instead a

representation of the drawing it is possible to inexactly reproduce the image but still achieve

authentication.

PassPoints

This system is a direct descendant of Blonder's system where the user has to touch several

points on the screen in order to gain access to the system. As with Draw-a-Secret a

background image is used to help the user remember the location of their points. This again is

a recall based method of authentication, with the twist that the image acts as a cue to assist

with the task of recollection [16]. This system effectively falls between a pure recognition

based and a pure recall based system. To register with the system the user must select an

image they wish to use and then select the points they wish to authenticate with. This again

brings the issue of allowing user selection as it has been shown that here too users are

inclined to choose images that they associate with. The other major issue is that the image

must not be too cluttered or too sparse.

PROPOSED SCHEME

The proposed scheme is a combination of CAPTCHA and recognition-based graphical

password which is less subjective to phishing attack. Password can be created during user

registration or after registration and be changed any time after creation. A graphical password

policy is defined by displaying an interface which contains Random text CAPTCHAs and

images. Figure 1 illustrates the proposed interface.


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Figure 1 Interface of proposed scheme

The users choose combination of CAPTCHA and images as their graphical passwords. For

each round of verification, the specified number of text CAPTCHAs and images are

randomly selected by the system from a database. A user then chooses a specified number of

text CAPTCHAs and images as her graphical password .This process repeats for the specified

number of rounds. If the user does not like a particular set of images, he may request a new

one or upload her own images to be included in the selection process. In the register phase,

users are required to select and remember CAPTCHAs and images as their password. To be

authenticated, users need to distinguish his/her CAPTCHA-images .The user must correctly

select all images (one or more) pre-registered for this account in each round of graphical

password verification. The user as usual enters a user name and authentication begins. In

password verification, the proposed scheme displays the interface of CAPTCHA and Images

and the user chooses out her preregistered combination of CAPTCHAs and Images. After the

user completes verification, if correct he is granted account access. Otherwise, access isdenied.

CONCLUSION

Our proposed scheme offers some advantages in countering common attacks against text

passwords, such as naive key logging and phishing. In this paper, we have presented a new

approach to protect users password against spyware attack. Our main contribution is that we

introduce CAPTCHA into the realm of graphical passwords to resist spyware programs.

From a security viewpoint, this exploration is expected to advance the development of


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graphical passwords. Our future work concentrates on improving the login time and

memorability.

REFERENCES

[1] L. V. Ahn, M. Blum, Nicholas J. Hopper and J. Langford, CAPTCHA:CAPTCHA: Usinghard AI problems for security, In the Proceedings of Eurocrypt03, pp. 294-311, 2003,

available at: http://www. captcha.net/, Visited on Sep. 27, 2005.

[2] M. Akao, S. Yamanaka, G. Hanaoka, et al., Personal entropy fromgraphical passwords:

Methods for quantification and practical keygeneration, IEICE Trans. On Fundamentals of

Electronics Communications and Computer Sciences, E87A (10), pp. 2543-2554, Oct. 2004.

[3] D. Davis, F. Monrose, and M. K. Reiter, On User Choice in Graphical Password

Schemes. In the 13th USENIX Security Symposium, 2004.

[4] R. Dhamija and A. Perrig, Deja Vu: A User Study Using Images for Authentication. In

the 9th USENIX Security Symposium, 2000.

[5] I. Jermyn, A. Mayer, F. Monrose, M. Reiter, and A. Rubin, The Design and Analysis of

Graphical Passwords. In the 8th USENIX Security Symposium, 1999.

[6] D. Klein, Foiling the Cracker: A Survey of, and Improvements to, Password Security. In

the 2nd USENIX Security Workshop, pp. 514, 1990.

[7] M. Orozco and A. El Saddik, Signature Identification with Haptic devices, In proceedings

of the IEEE International Conference on Virtual Environments, Human-Computer Interfaces,

and Measurement Systems, Giardini Naxos, Italy, Jul. 2005.

[8] J. Ortega-Garcia, J. Bigun, D. Reynolds, J. Gonzalez-Rodriguez, Authentication gets

personal with biometrics. In Signal Processing Magazine, IEEE Volume 21, Issue 2, pp. 50-

62, Mar. 2004.

[9] J. Ortega-Garcia, J. Fierrez-Aguilar, J. Martin-Rello, and J. Gonzalez-Rodriguez,

Complete signal modeling and score normalization for function-based dynamic signature

verification, In Proc. 4th Int. Conf. Audio and Video-Based Person Authentication, AVBPA

2003, LNCS 2688, pp. 658-667, Jun. 2003.

[10] B. Pinkas and T. Sander, Securing Passwords Against Dictionary Attacks. In

Proceedings of the ACM Computer and Security Conference (CCS 02), pp. 161-170. ACM

Press, Nov. 2002.

[11] R. Plamondon and S. N. Srihari, On-line and off-line handwriting recognition: A

comprehensive survey, IEEE Trans. Pattern Anal. MachineIntell.,vol. 22, no. 1, pp. 63-84,

Jan. 2000.
http://www/http://www/


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[12] Reachin Technologies, available at: http://www.reachin.se, Visited on Jan. 3rd, 2006.

[13]S. Chiasson. Usable Authentication and Click-Based Graphical Passwords. PhD thesis,

Carleton University, Ottawa, Canada, January 2009.

[14]S. Chiasson, A. Forget, R. Biddle, and P.C. van Oorschot. Influencing Users Towards

Better Passwords: Persuasive Cued Click-Points. In Proc. of HCI08, September 2008.

[15]S. Chiasson, P.C. van Oorschot, and R. Biddle. Graphical Password Authentication Using

Cued Click Points. In Proc. of ESORICS07, volume 4734, pages 359374, September 2007.

[16]D. Davis, F. Monrose, and M. Reiter. On User Choice in Graphical Password Schemes.

In Proc. of 13th USENIX Security Symposium, August 2004.


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LIBERALIZATION OF BANKING SECTOR AND ITS IMPACT ON

INDIAN ECONOMY

Pankaj Mishra*

Dr. Surender Kumar Gupta**

ABSTRACT

The banking sector reforms in India were started as a follow up measures of the economic

liberalization and financial sector reforms in the country. The banking sector being the life

line of the economy was treated with utmost importance in the financial sector reforms. The

reforms were aimed at to make the Indian banking industry more competitive, versatile,

efficient, productive, to follow international accounting standard and to free from the

government's control. The reforms in the banking industry started in the early 1990s have

been continued till now. The paper makes an effort to first gather the major reforms measures

and policies regarding the banking industry by the govt. of India and the Central Bank of

India (i.e. Reserve Bank of India) during the last fifteen years. Secondly, the paper will try to

study the major impacts of those reforms upon the banking industry. A positive responds is

seen in the field of enhancing the role of market forces, regarding prudential regulations

norms, introduction of CAMELS supervisory rating system, reduction of NPAs and regarding

the up gradation of technology. But at the same time the reform has failed to bring up a

banking system which is at par with the international level and still the Indian banking sector

is mainly controlled by the govt. as public sector banks being the leader in all the spheres of

the banking network in the country.

Keywords:Liberalisation of Banking Sector, Indian Economy, Banking Sector Reforms

Corporate Governance, Operational Flexibility, Functional Autonomy

*Research Scholar, Manav Bharti University Solan.

** Associate professor, Maharaja Agrasen Institute of Management and Technology,

Jagadhri.


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INTRODUCTION

In the early 1990s, the then Narasimha Rao government embarked on a policy of

liberalization, licensing a small number of private banks. These came to be known as New

Generation tech-savvy banks, and included Global Trust Bank (the first of such newgeneration banks to be set up), which later amalgamated with Oriental Bank of Commerce,

Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the

rapid growth in the economy of India, revitalized the banking sector in India, which has seen

rapid growth with strong contribution from all the three sectors of banks, namely,

government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the

norms for Foreign Direct Investment, where all Foreign Investors in banks may be given

voting rights which could exceed the present cap of 10%, at present it has gone up to 74%

with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were

used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new

wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.

All this led to the retail boom in India. People not just demanded more from their banks but

also received more.

Currently (2010), banking in India is generally fairly mature in terms of supply, product

range and reach-even though reach in rural India still remains a challenge for the private

sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are

considered to have clean, strong and transparent balance sheets relative to other banks in

comparable economies in its region. The Reserve Bank of India is an autonomous body, with

minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is

to manage volatility but without any fixed exchange rate-and this has mostly been true. With

the growth in the Indian economy expected to be strong for quite some time-especially in its

services sector-the demand for banking services, especially retail banking, mortgages and

investment services are expected to be strong. One may also expect M&As, takeovers, and

asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its

stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an

investor has been allowed to hold more than 5% in a private sector bank since the RBI

announced norms in 2005 that any stake exceeding 5% in the private sector banks would

need to be vetted by them.
http://en.wikipedia.org/wiki/Narasimha_Raohttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Narasimha_Rao


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REVIEW LITERATURE

Reddy (2000) Competition is sought to be fostered by permitting new private sector banks

and liberal entry of branches of foreign bank. Competition is sought to be fostered in rural

and semi-urban areas also by encouraging Local Area Banks. Some diversification ofownership in select public sector banks has helped the process of autonomy and thus some

response to competitive pressures competition induced by the new private sector banks has

clearly re-energized the Indian banking sector as a whole: new technology is now the norm,

new products are being introduced continuously, and new business practices have become

common place. The principles underlying these guidelines would also be applicable as

appropriate to public sector. More important, this suggests that the competitive nature of the

Indian banking system is not significantly different from banking system in other countries,

particularly in view of the fact that nearly 75 percent of banking system assets is with state

owned banks. The validation of monopolistic competition during the second sub-period

suggests that the recent trends toward consolidation led to more rather than less competition

in the banking sector.

Dasgupta, Debajyoti (2001) analyses a comparative study of parameters like net profit and

net worth of selected banks to assess their profitability vis-a-vis liberalization. Slow

liberalization has so far given Indian corporate the luxury of learning slow and adapting

gradually. It would be a mistake to believe that this luxury will last long. Rather Indian

companies should use this breathing space to prepare themselves for the further changes that

lie ahead.

Saha, Gurudas (2001) in his study analyses that public sector banks have a better

competitive edge that gets lost because of poor governance leading to human resource

mismanagement and loss of productivity and profitability. The study analyses the major

financial parameters of public and private sector banks and highlights the strategic

importance of banking cost determination and cost management.

Shirai, sayuri (2002) in her study on assessing the gradual approach to banking sector

reforms in India reveals two important lessons. The first is that banks engagement in

nontraditional activities and consequent increase in profits from these activities have helped

to offset a decline in net interest income from advances. The second lesson is that banks

should be prohibited from connected lending. Thus from the above discussion it becomes

clear that most of the studies on profitability and efficiency of commercial banks in India are

made in the pre-reforms era. There are also a few studies during the period of reforms, which


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attempt to reveal some partial findings on this subject that may not be able to assess the

overall impact of banking sector reforms on efficiency and profitability of commercial banks

in Indian. It is against this backdrop that the present study is undertaken to fill up this gap and

make a modest contribution in the field of bank efficiency and profitability management.

Singh (2003) analyzed profitability management of banks under the deregulated environment

with some financial parameters of the major four bank groups i.e. public sector banks, old

private sector banks, new private sector banks and foreign banks, profitability has declined in

the deregulated environment. He emphasized to make the banking sector competitive in the

deregulated environment. They should prefer non-interest income sources.

Mohan (2004) The banking industry is transformed, global forces for change include

technological innovation; the deregulation of financial services at the national level and

opening-up to international competition and changes in corporate behavior, such as growing

disintermediation and increased emphasis on shareholder value. Indian banking system and

financial system has as a whole had to be strengthened so as to be able to compete. India has

had more than decade of financial sector reforms during which there has been substantial

transformation and liberalization of the whole financial system. It is an appropriate time to

take stock and assess the efficacy of our approach. It is useful to evaluate how the financial

system has performed in an objective quantitative manner.

There has been importance because India's path of reforms has been different from most other

emerging market economies: it has been a measured, gradual, cautious, and steady process,

devoid of many flourishes that could be observed in other countries. The Indian debt market

ranks third in Asia, after Japan and South Korea, in terms of issued amount. Outstanding size

of the debt floatation as a proportion of GDP, however, is not very high in India. Moreover,

although in terms of the primary issues Indian debt market is quite large, the Government

continues to be the large borrower, unlike in South Korea where the private sector is the main

borrower. The corporate debt market in the country is still at nascent stage. Factors such as

lack of good quality issuers, institutional investors, supporting infrastructure and high cost of

issuance, market fragmentation, etc. have been identified as the reason for lack of depth of

the corporate debt market in India

OBJECTIVES OF THE LIBERALIZATION OF BANKING SECTOR IN

INDIA

1. To develop a market-oriented, competitive, world-integrated, diversified,autonomous, transparent financial system.


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2. To increase the allocate efficiency of available savings and to promote acceleratedgrowth of the real sector.

3. To increase or bring about the effectiveness, accountability, profitability, viability,vibrancy, balanced growth, operational economy and flexibility, professionalism and

depoliticisation in the financial sector.

4. To increase the rate of return on real investment.5. To promote competition by creating level-playing fields and facilitating free entry and

exit for institutions and market players.

6. To ensure that the rationalization of interest rates structure occurs, that interest ratesare flexible, market-determined or market-related, and that the system offers to its

users a reasonable level of positive real interest rates. In other words, the goal has

been to dismantle the administered system of interest rates.

7. To reduce the levels of resource pre-emptions and to improve the effectiveness ofdirected credit programmes.

8. To build a financial infrastructure relating to supervision, audit, technology, and legalmatters.

9. To modernize the instruments of monetary control so as to make them more suitablefor the conduct of monetary policy in a market economy i.e. to increase the reliance

on indirect or market-incentives based instruments rather than direct or physical

instruments of monetary control.

Reforms have been liberalization, deregulation, marketisation, privatization, and

globalization, all of which convey reforms objectives in a clear manner. The basic premise

underlying the reforms has been that the state ownership and regulation have harmed the

financial system, particularly the banks and the investors, and that such regulation is no

longer relevant and adequate. To use the well-known academic terminology, the objective of

financial reforms has been to correct and eliminate financial repression; and to transform a

financially repressed system into a free system.

Financial sector reforms are said to be grounded in the belief that the competitive efficiency

in the real sectors of the economy cannot be realized to its full extent unless the allocative

efficiency of the private sector was improved. The main thrust of financial sector reforms

was on the creation of efficient and stable financial institutions and markets, the removal if

structural bottlenecks, introduction of new players and instruments, introduction of free

pricing of financial assets, relaxation of quantitative restrictions, improvement in trading,

clearing and settlement practices, promotion of institutional infrastructure, refinement of


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market micro-structure, creation of liquidity, depth, and the efficient price discovery process,

and ensuring technological up gradation

Impact of liberalization of banking sector reforms

Repo rate and Reverse repo rate increased by 25 bps to 5.25% and 3.75%

respectively, with immediate effect. Impact: Repo is the rate at which banks borrow

from RBI and Reverse Repo is the rate at which banks deploy their surplus funds with

RBI. Both these rates are used by financial system for overnight lending and

borrowing purposes. An increase in these policy rates imply borrowing and lending

costs for banks would increase and this should lead to overall increase in interest rates

like credit, deposit etc. The higher interest rates will in turn lead to lower demand and

thereby lower inflation. The move was in line with market expectations

Cash reserve ratio (CRR) increased by 25 bps to 6.00%, to apply from fortnightbeginning from 24 April 2010. Impact: When banks raise demand and time deposits,

they are required to keep a certain percent with RBI. This percent is called CRR. An

increase in CRR implies banks would be required to keep higher percentage of fresh

deposits with RBI. This will lead to lower liquidity in the system. Higher liquidity

leads to asset price inflation and also leads to build up of inflationary expectations.

Before the policy, market participants were divided over CRR. Some felt CRR should

not be raised as liquidity would be needed to manage the government borrowing

program, 3-G auctions and credit growth. Others felt CRR should be increased to

check excess liquidity into the system which was feeding into asset price inflation and

general inflationary expectations. Some in the second group even advocated a 50 bps

hike in CRR.

By increasing the rate by 25 bps, RBI has signalled that though it wants to tighten

liquidity it also wants to keep ample liquidity to meet the outflows. Governors

statement added that in 2010-11, despite lower budgeted borrowings, fresh issuance

will be around Rs 342300 cr compared to Rs 251000 cr last year.


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Table 1: RBIs Indicative Projections (All Fig In %, YoY)

2009-10 targets

(Jan 10 Policy)

2009-10

Actual Numbers

2010-11 targets

(Apr 10 Policy)

GDP 7.5 Expected at 7.2 by

CSO

8 with an upward

bias

Inflation (based on WPI, for

March end)

8.5 9.9 5.5

Money Supply (March end) 16.5 17.3 17

Credit (March end) 16 17 20

Deposit (March end) 17 17.1 18

Source: RBI

Growth:RBI revised its growth forecast upwards for 2010-11 at 8% with an upward bias

compared to 2009-10 figure of 7.5%. It said Indian economy is firmly on the recovery

path. RBIs business outlook survey shows corporates are optimistic over the business

environment. Growth in industrial sector and services has picked up in second half of 2009-

10 and is expected to continue. The exports and import sector has also registered a strong

growth. It is important to note that RBI has placed the growth under the assumption of a

normal monsoon. India could have achieved a near 8% growth in 2009-10 itself, if monsoons

were better. Table 2 looks at growth forecasts of Indian economy for 2010-11 by various

agencies.

Table 2:Projections of GDP Growth by various agencies for 2010-11 (in %, YoY)

2009-10 2010-11

RBI 7.5 with an upward bias 8 with an upward bias

PMs Economic Advisory Council 7.2 8.2

Ministry of Finance 7.2 8.5 (+/- 0.25)

IMF 6.7 8

Asian Development Bank 7.2 8.2

OECD 6.1 7.3

RBIs Survey of Professional

Forecasters

7.2 8.5

Source: RBI


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Inflation:RBIs inflation projection for March 11 is at 5.5% compared to FYMarch-10 estimate of 8.5% with an upward bias (the final figure was at 9.9%). RBI

said inflation is no longer driven by supply side factors alone. First WPI non-food

manufactured products (weight: 52.2 per cent) inflation, increased sharply from (-)

0.4%in November 2009, to 4.7% in March 2010. Fuel price inflation also surged from

(-) 0.7 per cent in November 2009 to 12.7% in March 2010. Further, contribution of

non-food items to overall WPI inflation, which was negative at (-) 0.4% in November

2009 rose sharply to 53.3% by March 2010. So, overall demand pressures on inflation

are also beginning to show signs. These movements were visible in March 2010 itself,

pushing RBI to increase rates before the official policy in April 2010.

Monetary Aggregates:RBI has increased the projections of all three monetaryaggregates for 2010-11. These projections have been made consistent with higher

expected growth in 2010-11. Higher growth will lead to more demand for credit. Then

management of government borrowing program will remain a challenge as well. High

growth coupled with the borrowing program will need higher financial resources.

Therefore, projections for money supply, credit and deposit are raised to 17%, 20%

and 18% respectively. However, higher growth in money supply would also lead to

build up of higher inflation and inflationary expectations.

The policy stance remains unchanged from January 2010 policy.


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Table 3: Comparing RBIs Policy Stance

October 2009 Policy January 2010 Policy April 2010 Policy

Watch inflation trend andbe prepared to respondswiftly and effectively

Monitor liquidity to meetcredit demands of

productive sectors while

securing price and financial

stability

Maintain monetary andinterest rate regime

consistent with price and

financial stability, and

supportive of the growth

process

Anchor inflationexpectations, while being

prepared to respond

appropriately, swiftly and

effectively to further build-

up of inflationary pressures.

Actively manage liquidityto ensure that the growth in

demand for credit by both

the private and public

sectors is satisfied in a non-

disruptive way.

Maintain an interest rateregime consistent with

price, output and financial

stability.

Anchor inflationexpectations, while being

prepared to respond

appropriately, swiftly and

effectively to further build-

up of inflationary pressures.

Actively manage liquidityto ensure that the growth in

demand for credit by both

the private and public

sectors is satisfied in a non-

disruptive way.

Maintain an interest rateregime consistent with

price, output and financial

stability.

Source: RBI

Given the economic outlook, policy ahead is going to remain challenging. There are many

trade-offs RBI has to manage. It needs to manage high inflation without impacting the growth

process. The recent inflation numbers show rising demand side pressures on inflation. The

market participants are already looking at an increase of around 100-150 bps by March 2011

end. The higher interest rates would make it difficult to manage the government borrowing

program and also invite more capital flows. High interest rates could also lead to higher

lending costs for the corporate sector. The challenges are not limited to domestic factors

alone. The concerns remain on future outlook of advanced economies which complicates the

policy process further.

Other Development and Regulatory Policies

In its Annual (in April) and Mid-term review (in October) of monetary policy, RBI also

covers developments and proposed policy changes in financial system.

Some of the developments announced in this policy are:

New Products/Changes in guidelines


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Currently, Interest rate futures contract is for 10 year security. RBI has proposed tointroduce Interest rate futures for 2 year and 5 year maturities as well.

RBI has permitted recognised stock exchanges to introduce plain vanilla currencyoptions on spot US Dollar/Rupee exchange rate for residents

Final guidelines for regulation of non- convertible debentures of maturity less thanone year by end-June 2010

RBI had proposed to introduce plain vanilla Credit Default Swaps in October 2009policy. RBI would place a draft report on the same by end- July 2010

Earlier, banks could hold infrastructure bonds in either held for trading or availablefor sale category. This was subject to mark to market requirements. However, most

banks hold these bonds for a long period and are not traded. From now on, banks can

classify such investments having a minimum maturity of seven years under held to

maturity category. This should lead banks to buy higher amount of infrastructure

bonds and push infrastructure activity.

The activity in Commercial Papers and Certificates of deposit market is high but thereis little transparency. FIMMDA has been asked to develop a reporting platform for

Commercial Papers and Certificates of deposit.

Setting up New Banks

Finance Minister, in his budget speech on February 26, 2010 announced that RBI wasconsidering giving some additional banking licenses to private sector players. NBFCs

could also be considered, if they meet the Reserve Banks eligibility criteria. In line

with the above announcement, RBI has decided to prepare a discussion paper on the

issues by end-July 2010 for wider comments and feedback.

In 2004 seeing the financial health of urban cooperative banks, it was decided not toset up any new UCBs. Since then the performance of these banks has improved. It has

been decided to set up a committee to study whether licences for opening new UCBS

can be done.

In February 2005, the Reserve Bank had released the roadmap for presence offoreign banks in India. The roadmap laid out a two-phase, gradualist approach to

increase presence of foreign banks in India. The first phase was between the period

March 2005 March 2009, and the second phase after a review of the experience

gained in the first phase. In the first phase, foreign banks wishing to establish

presence in India for the first time could either choose to operate through branch

presence or set up a 100% wholly-owned subsidiary (WOS), following the one-mode


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presence criterion. Foreign banks already operating in India were also allowed to

convert their existing branches to WOS while following the one-mode presence

criterion. However, because of the global crisis the second phase which was due in

April 2009, could not be started. The global financial crisis has also thrown some

lessons for policymakers. Drawing these lessons RBI would put up a discussion paper

on the mode of presence of foreign banks through branch or WOS by September

2010.

CONCLUSION

The Indian banking sector has witnessed a remarkable shift in its operational envir

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