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CHAPTER VI

SUMMARY, CONCLUSIONS AND

SUGGESTIONS

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CHAPTER VI

SUMMARY, CONCLUSIONS AND SUGGESTIONS

In this Chapter, a summary of all the five chapters discussed earlier in detail, and Chapter-wise

main conclusions and suggestions will be presented.

CHAPTER I : INTRODUCTION

Commercial Banks are the oldest, biggest and fastest growing financial intermediaries in

India. They are also the most important Depositories of public saving and the most important

disbursers of finance. Commercial Banking in India is a unique system, the like of which exists

nowhere in the world.

Commercial Banks ordinarily are simple business or commercial concerns which provide

various types of financial services to the customers in return for payments in one form or

another, such as interest, discounts, fees, commission, and so on. Their objective is to make

profits. However, what distinguishes them from other business concerns (financial as well as

manufacturing) is the degree to which they have to balance the principle of profit maximization

with certain other principles like Social Banking. In India, especially, banks are required to

modify their performance in profit making if that clashes with their obligations in such areas as

social welfare, social justice, and promotion of regional balanced development.

The Banking System in India works under the constraints that go with Social Control and

Public Ownership. The Public Ownership of banks has been achieved in three stages: 1955,

1969 and 1980. Not only the Public Sector Banks but also the Private Sector and Foreign Banks

are required to meet targets in respect of sectoral deployment of credit, regional distribution of

branches and regional credit-deposit ratios. Lead Bank scheme, Differential Rate of Interest

scheme, Credit authorization scheme, inventory norms and lending systems prescribed by the

authorities, the formation of the credit plans and service area approach, have determined the

operations of the banks.

Till the late sixties, Commercial Banks were mainly financing trade, commerce and

industry. Social Banking/lending was not given due importance and recognition. After the

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nationalization (1969) and re-nationalisation (1980) there was a sea change in the lending

operations of the Commercial Banks. Social Banking / lending became one of the thrust areas

under the poverty alleviation programmes in the country.

Social Banking was the term coined by Prof. D.R. Gadgil, Chairman, Committee for

Organisational Framework for implementation of Social Objectives (1968). Social Banking

comprised Priority Sector Lending and Branch Expansion in the rural and semi-urban areas.

Later, Financial Inclusion became a component of the Social Banking in the year 2008 after the

Committee on Financial Inclusion submitted its Report.

The key components of Social Banking are:

iv. Skewing of bank lending towards ‘Priority Sectors’ – agriculture, small businesses and

entrepreneurs which were viewed as deserving as they contained large numbers of the

poor and had restricted access to formal credit.

v. Skewing of bank branch placement towards un-banked rural and semi-urban locations –

this constituted the centerpiece of social banking. State control of bank placement is used

to reach population that had previously had no access to formal financial institutions.

vi. Financial inclusion – It is the availability of banking services at an affordable cost to

disadvantaged and low-income groups. In India the basic concept of financial inclusion is

having a saving or current account with any bank.

Indian Banking has performed impressively in achieving social goals, extending the

geographical reach and functional spread of financial services, especially for the rural poor.

NEED FOR THE STUDY

The massive and speedy quantitative growth as well as the unprecedented growth in

social lending/banking has created a number of strains. However, since the mid 1980’s, banks

entered a phase of consolidation and enhanced sophistication. The commercial principles of

viability, efficiency, prudence and profitability are now receiving much attention.

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Indian economy is through a difficult phase of deregulation, where decisions are guided

by the market forces taking into account the target for profit maximization, whereas, Social

Banking/lending has its own target of upliftment of the poor people in the society with a

provision of concessions. In this context, there is a need to understand how far can these two

extremes, viz., profit maximization and social banking/lending will/can co-exist in the

deregulated market, particularly in a developing economy like ours. Hence, the study is

undertaken to evaluate the various aspects relating to Social Banking of Public Sector

Commercial Banks in general and State Bank of Hyderabad in particular and also the financial

viability of Social Banking.

OBJECTIVES OF THE STUDY

The Objectives of the study are

To analyse the components of Social Banking and to examine the policy towards Social

Banking.

To make an analysis of the performance of SBH in general and from the point of view of

Social Banking/lending in particular.

To examine the effect/impact of Social Banking on Profits of SBH.

To analyse the perceptions of the beneficiaries and the Bank Officials towards the

performance of the SBH in terms of Social Banking.

To examine the problems and prospects of Social Banking.

SCOPE OF THE STUDY

The Scope of the study is limited to Social Banking of the State Bank Hyderabad.

For the purpose of the study, STATE BANK OF HYDERABAD (SBH) is selected as it is

amongst the first group of banks, which was nationalized in the year 1955, and it has completed

a little more than six decades and has celebrated its diamond jubilee. STATE BANK OF INDIA

(SBI) and its ASSOCIATE BANKS together known as STATE BANK GROUP, account for a

larger portion of the banking business. SBH claims significantly a larger portion of the business

of State Bank Associates. In view of the important share of SBH, it was felt necessary to focus

the study on SBH.

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PERIOD OF THE STUDY

The period of the study for evaluation of the performance from the point of view of

Social Banking is from 1997 to 2012. The starting period is chosen as 1997 for the reason that

the II Phase of Reforms based on Narsimham Committee Report on Financial System were

implemented in the same year.

METHODOLOGY

The following are the details of the Methodology used.

Sources of Data

Both Primary and Secondary Sources are used for collecting the Data for the Study.

Primary Data

Primary Data are collected from the beneficiaries and Bank Officials by administering a

Schedule / questionnaire. The Sample of the beneficiaries is taken from the Nalgonda Region

and the Sample of the Bank Officials is taken from the Emlpoyees working at various Branches

of SBH operating in the 54 Mandals of Nalgonda District.

Secondary Data

Secondary Sources include the publications of RBI, SBI, annual reports of the SBH and various

Banking Reports.

Sample Selection

The following is the procedure used for the selection of the Stratified Sample of Beneficiaries.

Nalgonda, as shown in Table 1.1, is one of the six lead districts of the SBH and of the six lead

districts (Hyderabad, Nalgonda, Karimnagar, Nizamabad, Adilabad and Khammam) it is having

percentage wise highest Rural Population. The beneficiaries include the borrowers under the

Priority Sector Lending – Agriculture, Small Scale Industries, Small Business and SHG Account

Holders under the Financial Inclusion.

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TABLE 1.1

URBAN-RURAL CLASSIFICATION OF POPULATION OF LEAD DISTRICTS OF

SBH IN A.P.

District Total

Population

Rural

Population

Percentage of Rural Population to Total

Population

Adilabad 24,79,340 18,23,000 73.52

Hyderabad 36,86,460 Nil Nil

Karimnagar 34,77,070 27,98,130 80.47

Khammam 25,65,410 20,57,360 80.19

Nalgonda 32,38,440 28,08,990 86.74

Nizamabad 23,42,800 19,20,270 81.96

Rangareddy 35,06,670 16,38,530 46.72

Source: APonline, www.aponline.gov.in

The selection of beneficiaries and Bank officials is as follows:

The total number of beneficiary accounts in the 59 mandals of Nalgonda district is 987 for Small

Scale industries, 6,777 for Small business and 1,00,504 for Agriculture as on March 2010

records of the bank. The two mandals having highest and lowest accounts under SSI, SBF and

Agriculture are chosen for the sample which is as follows.

A sample 20 per cent from the mandals having highest number of accounts in case of Small

Scale Industries and Small Business and 1 per cent in case of Agriculture are taken. In case of

mandals having lowest number of accounts total beneficiaries are taken for the sample. Thus a

sample of 53 beneficiaries from SSI segment, 104 from SBF and 130 from Agriculture segment

totaling 287 is taken. However, the total number of beneficiaries are taken as 300 (as shown in

the table below) as shown in Table 1.2.

The parameters chosen for the evaluation of Beneficiary satisfaction levels is adapted from “A.

Parasuraman, Valarie A. Zeithaml, and Leonard Berry, ‘SERVQUAL: A Multiple Item Scale for

Measuring Consumer Perceptions of Service Quality’, Journal of Retailing 64 (1988): 12 – 40”

(Appendix I).

Out of a total of about 150 employees working in the 54 branches giving service in 59 mandals

of the Nalgonda District a sample of 100 bank officials (Officers and Clerks in the Ratio of 1:2)

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are taken to ascertain their attitudes and perceptions on Social Banking activities undertaken by

the SBH.

TABLE 1.2

SEGMENT WISE AND MANDAL WISE SAMPLE OF BENEFICIARIES

Segment Mandals having

Maximum/Minimum

Number of Accounts

Total Number of

Accounts and

Name of

The Mandal

Sample

Size

Percentage

to Total

Small Scale

Industries

(987)

Highest 262

MSME

Miryalaguda

52 20

Lowest 01

Chandur

01 100

Total 53

Small Business

(6,777)

Highest 486

Suryapet

97 20

Lowest 07

College Complex

07 100

Total 104

Agriculture

(1,00,504)

Highest 12,833

ADB Miryalaguda

128 + 13 20

Lowest 02

Maithri Women

02 100

Total 130

Grand Total 300

Note: Figures in parentheses are total number of beneficiary accounts under that segment

for the year 2009-10

Source: Records of Nalgonda Regional Branch of State Bank of Hyderabad.

Hypotheses

H0 – There is no Significant Difference in the Satisfaction Levels of the different Beneficiary

Groups

H1 – There is a Significant Difference in the Satisfaction Levels of the different Beneficiary

Groups

Tools for Analysis

Data are analysed by using simple tools such as Ratios, Averages, Percentages, Trend

Percentages and Compounded Annual Growth Rate. The responses of the beneficiaries and

employees are analysed with the help of Chi-square test, Factor Analysis and ANOVA. Multiple

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Likert Question Responses are summed together in interval data and ANOVA test has been used

to test whether there is any significant difference in the Satisfaction Levels of the Beneficiaries

Group-Wise. To check the appropriateness of the application of Factor Analysis, Preliminary

tests like Kaiser-Meyer-Olkin & Bartletts’ Measure of Sampling Adequacy, Test of Sphericity,

Communalities, Eigen Value and Scree Plot and Component Matrix and Rotated Component

Matrix are applied.

Limitations

The following are the limitations of the study:

8. Since sampling itself suffers from certain inherent limitations, likewise the present study,

which is based on sample, may also suffer from certain limitations on account of the

sample procedure. Limitations of the sample may affect the quality of results.

9. The quality of the service varies from region to region, from branch to branch and even

within a branch from person to person. The study is confined to 6 branches of SBH

functioning in the Nalgonda district as it is not possible for an individual researcher to

conduct an exhaustive survey covering all the regions and branches.

10. Data are collected from those customers who happened to be present in the branch on the

days visited to the branch for data collection. The customers were not selected on a

random sample basis as the bank does not give information of their account holders as

they have to maintain strict confidentiality about their customer’s information.

11. Data are collected from those employees who happened to be present in the branch and

were willing to express their perception about the Social Banking activities. The sample

size is 100 only. The employees were not selected on random sample basis.

12. The total responses may be equal to the total sample of 303 customers as some of them

may not have certain transactions.

13. The scope of the study as regards to customers is limited to the ‘farmers, Small

Businessmen, Small Scale Unit owners, members of the Self help groups’ at the six

mandals of the Nalgonda district and who have availed loan from the branches of the

SBH for their specific activity.

14. The scope of the study as regards to the employees is limited to the employees presently

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(in the financial year 2011-12) working at the various branches of SBH at Nalgonda

district in the clerical and officer cadres.

Review of Literature

The study of earlier research work will certainly help the researcher in presenting the

report in a clear and precise manner with valuable suggestions and conclusions. In fact, a brief

history of yesteryear’s reports, surveys and research articles in the similar area helps as a

‘backbone’ for the present study. Therefore a review of the past, related studies in the field are

as important as the present study.

Research Gap

The above review of literature points out that many studies have been made on commercial

banks in general and on individual aspects of Social Banking like Lead Bank Scheme, Service

Area Approach, Rural Banking, Rural lending etc. But no study having a holistic approach of

Social Banking has been made. It would therefore be appropriate to make such a study to

address the gap.

CHAPTER II: TRENDS AND PROGRESS OF COMMERCIAL BANKING IN INDIA :

WITH SPECIAL REFERENCE TO SOCIAL BANKING

In this chapter, the origin of Commercial Banks in India, its progress before and after

nationalization, recent developments in the banking industry in India are discussed. For the

purpose of the study, the concept of ‘Social Banking Concept’ and the performance of the Banks,

particularly the performance of the Public Sector banks, is also discussed.

While Section – A dealt with the historical perspectives, progress and emerging trends of

commercial banks in India, Section – B dealt with the Concept of Social Banking and the

performance of the Banks.

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Post Reform Progress of the Commercial Banks

The volume of the operations, profitability and soundness position are definite indicators of the

performance of any business activity.

The Deposits and Advances of all Scheduled Commercial Banks have registered a growth rate of

15.568% and 15.766% for the period 1950-51 to 2011-12. During the period 1998-99 to 2011-

12 Private Sector Banks ranked first in terms of Deposits and Advances with a CAGR of 20.45

per cent, 24.94 per cent respectively. In case of Profits the Foreign Banks outperformed the

other Bank Groups by registering a CAGR of 28.78 per cent. However, Public Sector Banks

performed better with regard to arresting the NPAs in Priority and Non Priority Sector Advances

with a CAGR of (11.77) per cent and (14.26P per cent respectively.

Priority Sector Lending

Priority Sector lending policy identifies those sectors of the economy and sections of the

society which are crucial for the development of the nation but were hither-to-neglected by the

Commercial Banking Institutions. The Priority Sector includes Agriculture, SSIs, Small road

and water transport operators, Small Business, Retail Trade, Professional and self employed

persons, State sponsored organization for Scheduled Castes / Scheduled Tribes, weaker sections,

Funds provided to RRBs, Education, Housing loans, Consumption loans, Micro-credit, Self-Help

Groups, Loans to the software industry, Loans to the specified industries in the food and agro-

processing sector, investment by banks in venture capital etc. The broad classification of these

sectors is done as Agriculture, Small and Medium Enterprises and other Priority Sectors.

The Priority Sector Advances by Public Sector Commercial Banks registered a CAGR of

20.422 per cent – Total Agricultural Advances, 24.00 per cent – Direct Agricultural Advances,

17.80 per cent – Indirect Agricultural Advances, 18.62 per cent - SSI, 24.32 per cent – Other

Priority Sector Advances during the period 1969-2012.

The CAGR of Priority Sector Advances is highest in case of Private Sector Banks with a CAGR

of 26.10 per cent followed by Public Sector Banks (19.40%) and Foreign Banks(18.72%)

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Branch Expansion

With the objective of increasing banking penetration and financial inclusion rapidly

banks were advised to allocate at least 25 per cent of total number of branches proposed to be

opened during the year in unbanked rural (Tier 5 and Tier 6) centres in their Annual Branch

Expansion Plan (ABEP). An unbanked rural centre would mean a rural (Tier 5 and Tier 6) centre

that does not have a brick and mortar structure of any scheduled commercial bank for customer

based banking transactions.

The Branch Expansion during the period 1969-2012 has registered a CAGR of 5.40 per

cent for Total Branches, 7.67 per cent for Rural Branches and the (4.31) for the decrease in

Population per Bank Office. The Population per Bank Office decreased from 63,800 to 9,399.

Private Sector Banks registered a highest CAGR of 7.03 per cent for the increase in Total

number of Branches, 2.08 per cent for Rural Branches, 7.08 per cent for Semi-Urban Branches

and 10.03 per cent for the Metro Branches. Foreign Banks dominated the scenario with 8.31 per

cent CAGR for Urban Branches.

Financial Inclusion

The progress made by banks under the FIPs (April 10 – March 13) for key parameters,

during the three year period is as follows:

2, 68, 000 banking outlets have been set up in villages as on March 13 as against 67,694

banking outlets in villages in March 2010

Nearly 109 million Basic Savings Bank Deposit Accounts (BSBDAs) have been added,

taking the total number of BSBDAs to 182 million. Share of ICT (Information and

Communications technology) based accounts have increased substantially – Percentage

of ICT accounts to total BSBDAs has increased from 25% in March 10 to 45% in March

13.

With the addition of nearly 9.48 million farm sector households during this period, 33.8

million households have been provided with small entrepreneurial credit as at the end of

March 2013

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With the addition of nearly 2.25 million non farm sector households during this period,

3.6 million households have been provided with small entrepreneurial credit as at the end

of March 2013.

About 4904 lakh transactions have been carried out in ICT based accounts through BCs

(Business Correspondents) during the three year period.

Conclusion:

Indian Banking, especially the Public Sector Banks, has performed impressively in achieving

social goals, extending the geographical reach and functional spread of financial services,

especially for the rural poor. The massive and speedy quantitative growth as well as the

unprecedented growth in social lending/banking has created a number of strains. However since

the mid-1980’s, banks have entered a phase of consolidation and enhanced sophistication. The

commercial principles of viability, efficiency, prudence and profitability are now receiving much

attention. The new banking scenario has called for more efficiency on the part of the banks

simultaneously with shouldering the responsibility of developing the backward regions and

neglected social sectors. The Indian Banking system has responded positively for this call by

improving the quality of the assets and the profitability. At the same time, the Reserve Bank has

been making consistent efforts to strengthen credit delivery, improve customer service and

encourage banks to provide banking services to all segments of the population. Despite

considerable expansion of the banking system in India, large segments of the country’s

population are not adequately served, some as savers and others as borrowers. The expansion of

banking services that are designed to serve all potential customers efficiently is, therefore,

emerging as a major concern that is engaging the attention of the authorities: Reserve Bank of

India/Government.

CHAPTER III: PERFORMANCE OF STATE BANK OF HYDERABAD : WITH

SPECIAL REFERENCE TO SOCIAL BANKING

In this Chapter it is proposed to present a brief profile of the State Bank of Hyderabad. It is also

proposed to discuss about the Performance of the State Bank of Hyderabad in general and Social

Banking in particular.

The following is the gist of the Progress made:

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The State Bank of Hyderabad is now the largest Associate Bank of SBI with over 1500

branches, about 14,000 employees and Assets worth of Rs.767 billion;

SBH has the third largest branch network of 963 branches in the State of Andhra Pradesh;

SBH has outperformed State Bank Group and the Scheduled Banks in terms of CAGR for the

growth in number of branches, Amount of Deposits and Advances for the period 1942 to

2012. SBH registered a CAGR of 2.67%, 18.67% and 20.05% for the Branches, Deposits

and Advances respectively.

The CAGR registered for the period 1999 to 2012 are: Paid up Capital & Reserves –

21.604%, Deposits – 19.467%, Net Advances – 23.985%, Investments 19.18%, Net NPAs as

per centage to Advances decreased by 16.24%.

The Trends of Profitability of SBH for the period 1997-98 to 2011-12 are: Net Profit –

21.33%, Return on Assets – 4.06%, Earnings per Share – 20.35%, Profit per Employee –

20.90%;

Recognising the importance of the Customer Satisfaction, the SBH has designed policy for

achieving Customer Satisfaction and have constituted the following committees to oversee

the level of Customer service in the Bank – Head Office Customer Service Committee,

Standing Committee on Customer Service, Customers Grievances Redressal, Business

Process Re-engineering, Specialised Branches, Lead Bank Scheme, Rural Institute for Self

Employment Training and Feed Back Policy.

Gallup inc & IBA, in their 2008 National survey of Banks have rated the SBH as #1 in

Customer Satisfaction in Savings Bank account amongst 23 midsized Banks.

SBH is striving hard for continuous Technology up gradation through implementing core

banking solutions since 2005, is a member of all payment settlement systems, provides

facilities for Inter-Bank Remittances to Customers through RTGS, NEFT & ECS at all its

branches. Additionally Bank also provides State Bank Group Payment facility (SBGRT) for

remittances to branches belonging to entire SB Group, covering more than 15,500 branches.

SBH has been adjudged as the #1 Tech Savvy Bank in India in a survey conducted by the

Business World Magazine in association with Pricewaterhouse Cooper in December 2009.

The Bank has accorded due primacy to Human Resources Development (HRD) as a

Corporate Philosophy. The HRD Process is directed towards Providing skill-based Training,

Job Enrichment Programmes, Introduction of Distance Learning, Arranging Workshops,

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overseeing Effective functioning of Quality Circles, implementation of Employee Welfare

Schemes etc.

SBH is imparting continuous training to its employees for improving their efficiency. About

50 per cent of the total employees of all Cadres each year (since 2000-01) undergo the

training.

The Bank’s Progress in terms of Social Banking for the period 1997-98 to 2011-12 is –

Total Priority Sector Lending 18.57%, Agricultural Advances – 18.94%, SSI Advances –

15.70%, Small Business Advances – 14.98%, Advances to Other Priority Sectors – 36.45%.

The Population group-wise share of branches of the SBH over the years 1997-98 to 2011-12

have registered a CAGR of 1.614 per cent for Rural Branches, 3.921 per cent for Semi-Urban

Branches, 5.673% for Urban Branches, 4.133 per cent for Metropolitan Branches and 3.650

per cent growth in overall branches. SBH outperformed against the growth rates of the

industry, State Bank Group and Nationalised Banks averages.

SBH is playing its due role towards the achievement of the Financial Inclusion. It achieved

100 per cent Financial Inclusion in four lead districts – Nizamabad, Ranga Reddy, Koppal

and Raichur.

It achieved 207.20% CAGR in the increase of number of beneficiaries under Social Security

Pensions and NREG scheme, 128.16% in the issue of smart cards, 223.82 per cent growth in

number of villages covered and 3900 per cent growth in appointing Business Correspondents

under the Financial Inclusion Programme.

SBH sponsors Deccan Grameena Bank (RRB). The performance of DCB may be considered

as an indirect factor for the Social Banking Performance of SBH. The sponsored RRB has

recorded very healthy growth rates – 2.677 per cent for Branch Expansion, 17.529 per cent

for Deposits, 21.27 per cent for Advances, 27.11 per cent for Net Profit, 32.55 per cent for

the Number of Beneficiaries in SHGs, 106.96 per cent for Aggregate limit of Kisan Credit

Cards for the period 1997-98 to 2011-12.

SBH registered a 29.04 per cent growth rate for total Donations towards Community

Services.

Conclusion

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Efficiency, Excellency, Effectiveness other such words are not superlative and hence they do not

have given measures. They are all comparative terms. In that sense it can be said that the State

Bank of Hyderabad is able to achieve efficiency, for, compared to the past it is showing

improvement in the bench marks which it has fixed for itself in its mission statement. Compared

to the industry averages and other Banks-group wise State Bank of Hyderabad is a little behind

in the Priority Sector Lending. However it is ahead than the State Bank Group and the industry

average in accepting Deposits and giving Advances and Branch expansion in Rural and Semi

Urban Areas. The Bank is duly giving its services in the Financial Inclusion area and has well

sort out Financial Inclusion Plan. The Bank has Policies for improving Customer satisfaction,

Technology Upgradation and Human Resource Development. Therefore it can be said that the

State Bank of Hyderabad is able to achieve the efficiency and the journey is still on.

Suggestion: It can be said that the State Bank of Hyderabad is able to achieve the efficiency.

However, Social Banking is not just achieving the targets. It is not just a scheme, but it is the

right approach, perhaps the properly oriented attitude of the banker is Social Banking in the true

sense. Therefore State Bank of Hyderabad needs to imbibe the spirit of Social Banking in true

sense and should become the torch bearer.

CHAPTER IV: SOCIAL BANKING AT SBH : PERCEPTIONS OF THE

BENEFICIARIES AND EMPLOYEES OF SBH

In this chapter, an attempt is made to assess the Beneficiaries (basically availing the Priority

Sector Advances in the rural areas) level of satisfaction of services offered at the retail banking

in the branches of SBH in the District of Nalgonda and solicit their suggestions for the

improvement of customer service. It is also attempted to assess the employee’s perceptions

towards the Social banking activities taken up by the Bank.

A customer (also known as a client, buyer, or purchaser) is the recipient of a good, service,

product, or idea, obtained from a seller, vendor, or supplier for a monetary or other valuable

consideration.

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A Beneficiary is a person who gains as a result of some Policy, Scheme, Activity or such other

similar gain. Therefore a customer (who is the recipient of the banking service) who is availing

the Advances under the Priority Sector Lending and is a Customer to the Rural or Semi-Urban

branches of the Bank can be defined as the beneficiary of the SBH.

The Nalgonda District Profile

The Nalgonda District is one of the poorest of the Districts having acute problem of drinking

water. In its ground waters a high degree of floride is concentrated. Agriculture is still a major

bread winner for the inhabitants of the Nalgonda District. Most of the Nalgonda is dry, inspite of

some irrigation projects.

The Financial requirements of the district are taken care by 222 branches of various Banking and

Non-Banking financial institutions of the Organised Sector. SBH has outperformed these

financial institutions in the Nalgonda District in terms of Deposits, Advances and Priority Sector

lending for the years 2008-09,2009-10,2010-11.

Profile of the Respondent Farmers : Majority of the farmers are in the age group of 40 and

above years, have no formal education, are completely dependent upon farming, belong to

Backward Class, are small and marginal farmers, and are growing paddy twice a year.

Profile of the Respondent Small Business / Service Enterprises Persons: These are not

professionals and have taken up business for their livelihood with a meager capital of Rs.50,000

to 1,00,000. Small Kirana Stores, Milk Vending, Mechanic Shop, Mirchi bandi are the examples

of the small businesses taken up by the respondents. Majority of the respondent Small Business

Persons are in the age group of 31-41 years, are graduates, belong to Backward Class, are

earning between Rs.50,000 – 1,00,000.

Profile of the Respondent Small and Medium Enterprises: Majority of the respondents

running SMEs are graduates, are owning Rice Mills, have less than 10 Crore turnover, earning

profits in between 5-10 crores and are employing 10 – 50 people.

Profile of the Respondent Self Help Groups: A self-help group (SHG) is a village-based

financial intermediary usually composed of 10–20 local women. Members make small regular

savings contributions over a few months until there is enough capital in the group to begin

lending. Funds may then be lent back to the members or to others in the village for any purpose.

All the respondent Self Help Groups were started in Between the year 2005 – 2010; 12 out of

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13 SHGs are SHGs for Women; Number of members for each SHG is ranging from 30 to 150,

majority of the SHG leaders are Primary School Pass, and are in the age group of 31-41.

Perceptions of the Beneficiaries:

1. Reasons for becoming Customer/Beneficiary: Majority of the respondent customer

beneficiaries became the customer of the Bank because of the nearness of the Branch

either to the Place of their work or their residence.

2. Frequency of Visits: Majority of the Farmers and SHGs are visiting the Branch once in

a month, majority of the Small Business and SMEs are visiting the Bank daily.

3. Availing of the Various Services/Products: All the respondents are availing Savings

Deposit, remittance facility and ATM facility, few are availing Personal Advances and

Term Deposits.

However none is using Term Deposit qualifying for income tax benefit, NRI Services and

International Banking and Merchant Banking Services.

4. Satisfaction levels: The satisfaction levels for each of the services used is compared

within the groups by using Chi-Square test. There is a significant difference in the levels

of the satisfaction amongst the groups

One way ANOVA test and multiple comparisons are applied to further analyse the

satisfaction levels. The tests revealed that there is no significant difference amongst the

satisfaction levels of the SHGs and Small Business. However there is a significant

difference amongst the satisfaction levels of the Farmers, SMEs with SHGs and Small

Business.

SMEs are better satisfied followed by SB/SHGs. Farmers are the least satisfied amongst

the four groups. Illiteracy and lack of awareness could be the major reason.

5. Factor Analysis: Factor analysis grouped the 19 determinants influencing the

satisfaction levels into four factors – Service Delivery, Behavioural Aspects, Product

Features, Facilities Apparent.

6. Bank Services: Future Utilisation: Majority of the respondents felt that they shall

continue to use the services of the SBH in the near future.

7. Bank Services: Recommendation to Others: Majority of the respondents said that they

would recommend SBH to their friends and relatives.

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8. Repayment of Advances: Majority of the respondents said that they are repaying their

Loan instalments regularly.

9. Types of Transactions: Display of timings: Most of the respondents said that time to

be taken for various types of transactions is not displayed in the branches.

10. Time-taken: Reasonability: Majority felt that the time taken for banking transactions is

not reasonable.

11. Formalities or Procedures:Nature: Majority felt that the formalities are not simple.

12. Products/Services of the Bank : Economic Status: Most of the respondents felt that

their economic status bettered by using banking services.

13. Products/Services of the Bank: Social Status: Majority of the respondents were neutral

on this aspect.

14. Customer Grievance Redressal Mechanism: Majority respondents were not satisfied

with the grievance redressal mechanism.

15. Customer Rights: Awareness: Majority of the respondents are not aware about their

rights.

16. Grahak Mithra Service: Respondents are not satisfied with the service.

17. Single Window Service: Not happy with the service.

18. SBH Website: Majority do not know about the service, and even those who know did

not use the SBH Website.

19. Customer Feedback: Awareness: Majority are not aware and even those who are

aware are indifferent about it.

20. Non Banking Products: Awareness: Expressed their ignorance.

21. Help Line: The respondents who know about the service are very low, however none

have used the service.

22. Overall Opinion about the SBH: Out of 300 respondent customers majority of them are

satisfied with the services provided by the Bank. However, only 30 per cent of the

customers say that SBH is giving better services compared to other banks. 36 percent

said that it is giving the same services. But 24 per cent of them said it is giving poor

services when compared to other banks.

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Profile of the Respondent Employees

The following is the brief profile of the respondent employees working at various branches of

SBH at the district of Nalgonda:

Employees working in the designation of clerk or officer are only considered for the

sample. Because only these employees usually come into the contact of the customers

for giving the services of the Bank;

Out of 100 respondent employees 20 per cent are women and 80 per cent are men;

37 per cent of the employee respondents are working in the officer cadre of which 5 are

women and 63 per cent are working in the clerical cadre of which 15 are women;

28 per cent of the employee respondents are in the age group of 21-30 years, 26 per cent

each are in the age group of 21-30 years and 31-40 years, and 20 per cent are in the age

group of above 50 years;

60 per cent of them are graduates and 40 per cent are post-graduates;

24 per cent of the respondent employees belong to Backward category, 40 per cent to

Other Category, 16 per cent of Scheduled Castes and 20 per cent to Scheduled Tribes;

22 per cent of the employees are having total service of 0-5 years, 10 per cent of them

have 6-10 years, 22 per cent of them have 11-20 years, 30 per cent of them have 21-30

years and 8 per cent of them have 31-40 years of service.

46 per cent of the respondent employees have worked 0-10 years in the rural and semi

urban branches, 16 per cent of them worked for 11-20 years, 32 per cent of them have

worked for 21-30 years and 6 per cent of them have worked for 31-40 years in the rural

and semi urban areas.

Perceptions of the Employees: The following are the perceptions of the Employees working in

various branches at Nalgonda District about the Social Banking Activities of the SBH.

1. Rural Customers/Beneficiary: Problems: Most respondent employees felt that the

Rural Customers are illiterate and lack awareness.

2. Training: Most of them felt that training programmes to impart specific skills to deal

with the rural customers should be organized.

3. Rural Customers/Beneficiary: Access to the Products: All the rural customers are

able to utilize the traditional products/services like deposits, advances, remittance facility

etc but unable to use the technology based products.

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4. Awareness Programmes: Rural Customers/Beneficiary: SBH is regularly organizing

awareness programmes.

5. Priority Sector Lending: Almost all the employees barring a few opined that the PSL is

not contributing to the NPAs. Therefore the Bank should continue to lend to the Priority

Sectors even if the policy of the lending to the Priority sector is done away.

6. Rural Branches: They felt that the Rural Branches are not contributing to the losses and

therefore the existing Rural Branches should be continued and even new branches also

should be opened.

7. Financial Inclusion: Bank is very actively taking up the programmes under Financial

Inclusion.

8. Recovery: Rural Customers/Beneficiary: Only some of the Customers are prompt in

their repayments. The reason being poverty, frequent crop failures or lack of marketing

skills. Therefore employees felt that some innovative solutions should be given to

address these issues.

9. Feed Back: Customers/Beneficiary: Many said that they are not getting any feed bank

from the customers.

10. Customer Grievance Redressal: They receive some complaints, but majority of the

complaints cannot be addressed in their arena.

11. Services Provided: Opinion: They felt that SBH is providing better service.

Conclusion

The customers expect quickness, courtesy and concern from the Bank. The rural

customers expect even advice and guidance from the Bank as these are mostly illiterate and lack

awareness. These are the important aspects of the customer service. Depositors, being the main

suppliers of the funds and Loanees, being the main seekers of the funds, assess the quality of the

services from these angles.

By and large, the customers of SBH are satisfied with services rendered by the Bank and

employees also carry a positive approach towards Social Banking.

CHAPTER V: SOCIAL BANKING AT SBH : PROBLEMS AND PROSPECTS

In this chapter it is proposed to understand the importance of Agriculture, Small &

Medium Enterprises and Rural Sector in terms of their contribution to the development of the

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economy and also the problems / challenges these sectors are facing, for, these sectors form the

major part of Priority Sector (as per the definition of Priority Sector Lending).

The Credit-Deposit Ratio of the Banks – Group wise, the Non Performing Assets of the

Banks – Group wise and Sector Wise are also examined to understand the problems and

prospects of carrying Social Banking Activity by SBH.

The Concept of Marginal costing is discussed and applied to the advances given to the

Agriculture and Small & Medium enterprises and other priority sectors to understand the net cost

or benefit of carrying Social Banking Activity by SBH.

The Problems and Prospects of Social Banking are also given.

Agricultural Sector: Agriculture has been a way of life and continues to be the single most

important livelihood of the Masses.

Growth: The following growth has been achieved in Agricultural Sector:

Considerable progress in achieving self-sufficiency and self-reliance in food grains

production,

The share of agriculture in real GDP, though decreased, is still at 14 per cent.

Gross Capital Formation (GCF) in agriculture and allied sectors rose to 20.1 per cent.

Challenges: The following are the challenges still to be addressed

The area under food grains has declined

In yield parameters, India is lagging behind the global levels in most crops

Access of small and marginal farmers to formal sources of agricultural credit is still

inadequate.

Mostly small and marginal farmers with small and fragmented landholdings,

Declining per capita availability of food grains,

Indian agriculture is still dependent on the monsoons,

Storage capacity is a major problem,

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Missing links of farmers with the markets.

Secondary food processing in India is very low.

The Challenges of the agriculture needs comprehensive and coordinated effort.

The Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in the economic and

social development of the country, often acting as a nursery of entrepreneurship. They also play

a key role in the development of the economy with their effective, efficient, flexible and

innovative entrepreneurial spirit. The MSME sector contributes significantly to the country’s

manufacturing output, employment and exports and is credited with generating the highest

employment growth as well as accounting for a major share of industrial production and exports.

Growth

The following are the highlights of the MSME sector

MSMEs account for about 45% of India’s manufacturing output.

MSMEs account for about 40% of India’s total exports.

The sector is projected to employ about 73 millionn people in more than 31 million units

spread across the country.

MSMEs manufacture more than 6,000 products ranging from traditional to high tech

items.

For FY11, total production coming from MSME sector was projected at ` 10,957.6

billion, an increase of more than 11% over the previous year

Challenges

The following are the challenges faced by the MSME sector.

Lack of availability of adequate and timely credit

High cost of credit

Collateral requirements

Limited access to equity capital

Procurement of raw material at a competitive cost

Problems of storage, designing, packaging and product display

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Lack of access to global markets

Inadequate infrastructure facilities, including power, water, roads

Low technology levels and lack of access to modern technology

Lack of skilled manpower for manufacturing, services, marketing, etc

Multiplicity of labour laws and complicated procedures associated with compliance of such

laws

Despite the various challenges it has been facing, the MSME sector has shown admirable

innovation, adaptability and resilience to survive the recent economic downturn and recession.

Hence Banks also should provide the requisite support to the MSME sector by giving innovative

services.

Rural Sector

Recently, the rural sector (including agriculture) is being seen as a potential source of domestic

demand, a recognition that is even shaping the marketing strategies of entrepreneurs wishing to

widen the demand for goods & services.

Growth

The following growth is achieved in the rural areas:

Since 1999-2000, per capita GDP in rural areas has grown at a 150 basis points faster rate

than urban India,

75 per cent of the new factories in manufacturing sector came up in rural India,

Manufacturing GDP in rural India witnessed 18 per cent CAGR during 1999-09 and is

now 55 per cent of Indian Manufacturing GDP,

Indian villages are growing larger and are classified as towns.

Challenges

A major challenge bothering the India is existence of the poverty among India’s rural people,

both individuals and communities,

is lack of access to productive assets and financial resources.

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High levels of illiteracy,

inadequate health care and

extremely limited access to social services

Microenterprise development, which could generate income and enable poor people to

improve their living conditions, has only recently become a focus of the government.

Migration of Youth to Urban Areas in search for livelihood.

Women in general are the most disadvantaged people in Indian society, though their status

varies significantly according to their social and ethnic backgrounds. Women are

particularly vulnerable in the rural areas, because of twin causes of illiteracy and poverty.

Credit-Deposit Ratio of the Banks – Group Wise

‘Credit-Deposit ratio’ is the proportion of loan-assets created by banks from the deposits

received. Higher credit-deposit ratio may be understood as an indicator of optimum utilisation of

the funds by the Banks and vice-versa.

Private Sector Banks registered highest CAGR of 3.731 per cent for the growth in CD

ratio for the period 1998-99 to 2011-12 followed by Public Sector Banks with a growth rate of

3.968 per cent and Foreign Banks with 2.1429 per cent. However the actual CD ratio of the

Foreign Banks is the highest than the other Bank groups throughout the period.

Nonperforming assets of the banks – group wise and sector wise

The percentage of the Non Performing Assets to the Advances of the Public Sector Banks

for the Priority Sector Lending has decreased from 26.25 per cent in the Financial Year 1996-97

to 4.01 per cent in the Financial Year 2010- 11 and for the non priority sector lending it has

decreased from 20.61 per cent to 2.05 per cent for the same period. This can be attributed to the

Efficient Credit management of the Banks.

The percentage of the Non Performing Assets to the advances given by the Private Sector

Banks to the Priority Sector has decreased from 8.51 per cent for Financial Year 2000 - 01 to

1.93 per cent in the Financial Year 2010-11. For the Non Priority Sector it has decreased from

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12.30 per cent to 4.61 per cent for the same period. As against the general understanding or

belief, the NPAs as a percentage to the Advances for Non Priority Sector are higher when

compared to the NPAs as a percentage to the Advances for the Priority Sector throughout the

period.

The Percentage of Non Performing Assets to the Advances of the Foreign Banks for the

Priority Sector has increased from 0.87 per cent in the FY2007 to 1.72 per cent in the year 2011.

For the non priority sector lending the percentage of the non performing assets to advances has

increased from 2.81 per cent to 3.93 per cent. The Priority sector lending Nonperforming assets

percentage to advances is lesser than the non priority sector lending throughout the period.

The percentage of the nonperforming assets to the Advances of SBH has decreased from

15.27 per cent in FY2001 to 1.74 per cent in the FY2011 for the Priority sector and it has

registered a decrease from 13.56 per cent to 1.20 per cent for the Non Priority Sector. The

performance of the State Bank of Hyderabad in terms of the reduction of the percentage of the

Non Performing assets to the Advances is better than the Public Sector Banks and the Private

Sector Banks.

Thus, Sector-wise NPAs analysis shows that the NPAs in case of Priority Sector is less

than Non Priority Sectors in case of Private Sector Banks, both Indian and Foreign, whereas in

case of Public Sector Banks it is the other way. However, the CAGR of the decrease in the

percentage of the NPAs of the Priority sector is (12.61 per cent) and the CAGR of the decrease

in the percentage of the NPAs of the non priority sector is (8.53 per cent). Therefore it is an

encouraging trend.

The concept of Marginal Costing

Marginal Cost is the addition to the total cost due to the production of one more unit of

output (can be understood as one more unit of Loan in case of Banking Services).

The weighted average interest rate earned from advances given to the agricultural and

SME & Priority Sector Advances by 54 Branches of SBH in the Nalgonda District for the FY

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2009-10 to 2011-12 is positive for all the three years. The interest earned on the agricultural

advances registered an increasing tendency and increased from 8.02 per cent in Financial Year

2009-10 to 9.83 per cent in the Financial Year 2011-12. The interest earned on the SME & other

Priority Sector advances, though has dropped in the Financial Year 2010-11, has also increased

from 10.48 percent in the Financial Year 2009-10 to 12 per cent in the Financial Year 2011-12.

The Interest expended by the SBH during the years 2009-10 to 2011-12 have increased from

5.74 per cent (decreased in the year 2010-11 to 5.33 per cent) to 6.95 per cent. Thus Agricultural

Advances have positive Contribution of 2.28, 3.18 and 2.88 per cent respectively for the period.

The SME & Other Priority Sector Advances have a positive Contribution of 4.74, 4.47 and 5.05

per cent respectively for the period.

Therefore lending to these sectors (Priority Sectors), as against the popular belief, need

not be essentially on the negative side.

Rural Branches in Nalgonda District:

Barring a few branches (only 2 to 3 branches) almost all the branches have registered a

positive contribution for all the three consecutive years for the Advances given to the

Agricultural, SME and other Priority Sectors.

Problems of Social Banking

The following are problems for carrying Social Banking Activities:

1. Out of the total Priority Sector Lending a major portion (18 per cent out of total 40 per cent)

a major portion is towards agriculture which is carried on in rural areas. Therefore

beneficiaries of the Social Banking are mostly from the rural background with little or no

education. Therefore lack awareness regarding the products and services offered by the Bank

and about the formalities and procedures to be followed while availing the services. This is

posing a problem to reach the beneficiaries.

However, this problem is being tackled by the Bank by frequently organizing awareness

programmes.

2. The irregular repayments or the non-repayment of the loan instalments by the Rural

Customers due to crop failure or lack of awareness or political influence is a major problem

to the Bank as the Bank would be faced with a liquidity problem and low profits.

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This problem is being overcome by the Bank by regular follow up of each case individually

and by constant counseling.

3. Another problem faced by the Bank is relating to the diversion of funds from the purpose for

which the loans are taken to non productive activities like celebrations, personal

consumption, medical expenses, repayment of earlier loans (mostly taken from money

lenders) taken etc.

Hence the field officers are making regular visits to the site for careful assessment and for

giving constant counseling.

4. The Loan taken for the purchase of Agricultural equipment / Live Stock is misutilised and

the detection of this by the Bank officials is posing a big challenge as the quality products

would be shown at the time of inspection and later are replaced with inferior quality.

Therefore the field officers are visiting the site on regular basis for instilling discipline

among the beneficiaries.

5. The Rural Beneficiaries are not able to access Technology based Products/Services offered

by the Bank. As per the Policy guidelines of the Reserve Bank of India the Bank/s are

implementing several programmes under Financial Inclusion for providing ICT Information

and Communication Technology) based products / services to the under privileged.

6. Agriculture mostly is dependent on the monsoons. Climate changes and weather conditions

impact agriculture. These factors are uncontrollable and add to the risk of a farmer and the

Banker.

7. The Employees of the Bank do not posses complete knowledge of the activities taken up by

the Rural Customers, particularly the Farmers. Therefore they are finding it difficult to deal

with the rural customers.

Hence the Bank is implementing the Training Programmes to their employees to impart the

specific skills required to deal with Agriculture, Small and Medium Enterprises and such

other Priority Sectors.

Prospects of Social Banking

The following are the prospects available to the Banks for carrying out the Social Banking

Activities:

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1. Agriculture, SMEs, Small Businesses and Rural Sector are showing promising growth with

the continuous effort put by Government and other organizations and Departments since

independence, and therefore lending and recovery of loans under Social Banking would be

encouraging. This activity should be seen as an investment for converting marginal customer

into actual customer even for the other (other than Social Banking services like personal

loans, vehicle loans etc) Services / Products offered by the Bank.

2. Non-Priority Sector market is reaching to saturation, competition, also, is intensifying,

resulting in decreasing spreads. Hence the Banks have to tread new markets.

Therefore the Priority Sectors (including Rural Sector) are potential markets throwing

open big opportunity.

3. There is a general feeling that lending under Social Banking would pose a problem for the

profitability of the Banks as the rate of interest on loans would be low compared to the Non-

Priority Sectors and hence are loss making. But contrary to this belief the study proved that

Priority Sector is making positive contribution towards profits of the Bank.

4. The implementation of the reforms is encouraging as banks are able to bring down their non-

performing assets sharply. The CAGR decrease in the NPAs of the Priority Sector is higher

than the CAGR decrease of the non Priority Sector Advances for the period 1997-2012.

Hence there is an ample scope for the deployment of the funds in the Priority Sector.

5. The Credit Deposit Ratio of the Public Sector Banks in general and State Bank of Hyderabad

in particular is low when compared to the industry average. Instead of holding idle funds the

Bank can improve its profitability by lending under Social Banking and contribute to the

Economic Development of the country.

Conclusion:

The Agriculture, Small & Medium Enterprises and the Rural sector which form the core of the

Social Banking are all having immense potential for growth. These sector/s as a whole are

positively contributing to the economy. However these sectors are facing many challenges.

With the kind of Policy support the Government/s are extending to these sectors would soon

overcome their challenges and would achieve their full potential.

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The implementation of the reforms is encouraging as banks were able to bring down their non-

performing assets sharply. Capital position of banks also improved significantly. Competition

intensified during this phase as was reflected in the narrowing down of margins. Despite this,

however, banks slightly improved their profitability among others, due to increased volumes and

improvement in asset quality. Even for the Priority Sector Lending the Non Performing assets

have considerably reduced for all groups of the Banks – Public Sector, Private Sector, State Bank

Group and Foreign Banks. The asset quality for these advances also have shown improvement.

The State Bank of Hyderabad also has shown the improvement in the asset quality. The priority

Sector Advances have positively contributed to the incomes of the State Bank of Hyderabad for

the FY2010 to 2012. The Banks, particularly the Public Sector Banks, have enough liquidity as

CD ratio is less than 80 per cent.

The Commercial Banks, somehow, are not able to see the Agriculture or Small Business or other

Priority sectors as a profit making opportunity in spite of the positive contributions made by

these sectors to the GDP and the development of the economy. The Commercial Banks are

seeing the Priority sector lending and branch expansion to the unbanked areas as a mere

compliance function. This is evident from the fact that the priority sector lending is lingering

around the stipulated mark of 40 per cent for the Indian Banks and 32 per cent for the Foreign

Banks. With the liberalized policy for the branch expansion the CAGR of the Rural Branches

became negative. Despite all the attempts made by the Reserve Bank, the extent of financial

exclusion continued to be significant in India, when compared with some of the advanced as well

as developing countries.

Suggestions

For improving the quality of the Services given by the State Bank of Hyderabad Beneficiaries

suggested for the decrease in the interest rates of the Advances, increase in the interest rates of

the Deposits, no charging of the Security for giving advances, no Processing Fees to be charged

on Advances, simplification of the Procedures and Formalities, friendly and courteous behavior

of the employees, and special training imparted to the Employees.

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Employees have suggested the decrease in the interest rates on small and crop loans, quick

disposal of the complaints of the customers, proper training of the staff, to organize awareness

programmes frequently, improving the quality of the service given, opening of separate branches

for the low income groups and to provide crop insurance.

Areas for Further Research

Some of the areas for further research are given below:

A study on Social Banking in Private Sector Banks

A Comparative Study of Social Banking in Public Sector and Private Sector Banks

A Comparative Study of Social Banking in Indian Private Sector and Foreign Banks

Financial Inclusion – Role of Banks

Financial Inclusion – Role of RRBs

A Study on Evaluation of BC/BF Model