Performance Assessment & Role of Rural Banks in Rural Development: Special reference to SIDBI


Mr. Punit Kumar Dwivedi
Research Scholar
Faculty of Commerce
University of Lucknow

Dr. Dinesh Sharma
Faculty of Commerce
University of Lucknow

Mrs. Jailaxmi Mishra
Academic Associate
Indian Institute of Management


Papola (1985) has rightly observed: "In a way, industrialization is as much an essential ingredient of rapid and self-sustained development of rural areas as it is of the development of the entire country.India is the land of population. More than three-fourth of India's population (to be exact, 76.29 percent as per the Census Report of 1981 and 74.30 per cent as per the Census Report of 1991) still lives in villages; and therefore, realization of the dream of desired socio-economic development of the country depends upon the development of its villages. It does not need any proof to say that national development is synonymous with village development now the question is: how do we develop our villages? The experience gained all over the world has amply shown that industrialization is essential for development as it ensures the supply of goods and services required for improving the quality of life and provides opportunities for employment. This is equally essential for the development of rural areas as it is for the entire country.

We tend to agree that both rural development and industrialization are necessary for the economic development of our country. But, what should be the nature of this industrialization so that it does not harm the process of rural development but facilitates it? Should it emphasize on heavy industries or small scale and tiny industries? Should we go for decentralized industries or centralized ones? The experience from highly developed countries of the world suggests that heavy industries run by highly sophisticated technology create many problems endangering happiness and peace of people in the society and there is need for promoting small industrial units using intermediate technology, laying emphasis on human beings, having common ownership and utilizing locally available resources. There is a need for "production by masses, rather than mass production" (Schumacher, 1977). This dream of "production by masses" can be realized only if we develop decentralized, small-scale, tiny and cottage industries in our villages. In our country, prior to British rule there were highly developed units which used to produce the finest quality of goods, and our country was characterized by a system in which agriculture and household industries existed together and reinforced each other. During the seventeenth and eighteenth centuries, our country with its very well developed system of traditional handicrafts and village industries throughout its length and breadth was considered to be the industrial workshop of the world. Unfortunately, the network of such industries received a severe blow in the hands of alien rulers whose sole aim was to deliberately destroy our rural industries and thereby deal a death blow to our artisan's skills.

Literature Review

Schmitz, Hebert (1995) in their study are concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth. It focuses on the clustering of firms and the competitive advantage, which they derive from local external economies and joint action, captured in the concept of collective efficiency.

Rao (1995) reported that the potential for investment related to technology requisition and transfer in small scale and medium sector has assumed considerable significance in their interest to face the challenges of liberalization and globalization of markets.

The international prospective planning team (1995) which made an extensive study of India's small scale industries, was of the opinion that Government; effort for the promotion of this sector were largely scattered and dealt with only isolated segments of the problem.

Salim (1998) in his study proves that in most categories of industries there is more number of high performing units followed by moderate performing units. High performing units have more market orientation than low performing units. There is a strong positive correlation between market orientation and business performance.

Balasubrahmanyam (1998) in his study describes the elements of India's small industry policy with specific reference to protective measures, and reviews its impact on the growth and efficiency of the sector.

Datey (1999) in his study titled practice manual to small scale industries discusses the importance of small scale industries, clubbing of clearances of SSI and an overview of income tax, central sales tax, finance to SSI and management of SSI units.

Methew (2000) reports that small industry policy in India is ambivalent. Divergence of interest and their expression though lobbying is a characteristic of any democratic policy. It is also not correct to consider the government as a machinery to immune such influences.

Vasandhara Raje (2000) states that credit is an essential input for the working of small scale industries. Any delay or inadequate supply of credit is detrimental to the growth of the SSI units. Therefore timely and adequate availability of credit is of crucial importance for setting up and for expanding the existing SSI units.

Sunil George (2000) in his study observed that the policy of protection with privileges for SSI has induced this sector to remain small, to become more inefficient with poor product quality. It is not protection but competition should be the rule of the day.

Inderjith Singh & Gupta (1977) state that the expansion of the bank credit is not only desirable but also essential for the economic development of Jammu and Kashmir. Commercial banks have to take up this task of credit expansion on a challenging basis and should exploit the tremendous potentiality by establishing personal contact with small industrialist.

Kalchetty Eresi (1989) throws light on the various sources of long term and short term finance and the problem faced by the units in raising such funds. He also enquires into the policies procedures and practices of small units in managing their finance.

Ashok Arora (1992) in his study examines the role of various institutions at the state level responsible for rendering assistance for the growth of small scale industries in Punjab. This study also outlines a profile of the growth of small scale industries in Punjab.

James manalel (1994) reported that the working of banks and financial institutions showed that the total assistance made available in Kerala for SSI units was comparatively small. The effectiveness of any incentives packages, however well designed it may be, depends on the quality of the system of delivery. The state has comparable package on record, but the quality of delivery of the same was perceived by the entrepreneurs to be poor in relation to what units in other states get.

Performance of SIDBI:

During the FY 2008, SIDBI recorded better operational performance and strengthened its financial fundamentals. The Bank recorded the highest ever sanctions and disbursements during the year with sanctions increasing by 45.6 percent and disbursements by 47.5 percent over the previous year. While the Refinance support, which is a key function of Bank, was enhanced by 76.4 percent, the Direct Credit flows to MSMEs by SIDBI increased by 18.0 percent during the year under review. The aggregate outstanding portfolio of the Bank crossed the Rs.20, 000 crore mark for the first time and increased by 26.2 percent to Rs.20,226 crore as at March 31,2008. As a result, the total assets of the Bank increased sizeably to Rs.23, 887 crore at the end of FY 2008.

During the year, with focused attention on business growth and better pricing of loan products, total income of the Bank increased by 38% to Rs.1,638 crore from Rs.1,187 crore during FY 2007. However, due to treatment of earlier / current year's cumulative contribution to the corpus of CGTMSE of Rs.317 crore as expenditure and providing for interest expenditure of Rs.174 crore on SIDBI Bonds held by Govt. of India which was waived in the previous year, net profit for the current year was lower at Rs.198 crore as against Rs.298 crore in the previous year. The total Reserves and Funds of the Bank increased from Rs.4,691 crore as on March 31, 2007 to Rs.4,810 crore as on March 31, 2008 and the Capital Adequacy Ratio was higher at 41.7 percent. Micro Finance, by reaching out to the poor, has emerged as a powerful tool for inclusive growth, poverty alleviation and women empowerment. At the same time, it is also a business opportunity for enlarging the credit portfolio of the Bank. The total credit sanctions under Micro finance during FY 2008 surged by 93.8 percent to Rs. 745.95 crore and disbursements by almost 100 percent to Rs.695.80 crore. The Micro credit outstanding as on March 31, 2008 was Rs.950.38 crore which showed a higher growth of 73.3 percent over the previous year. The Bank's Micro Finance support so far has benefited more than 50 lakh persons, mostly women.

Fig. 1.1 Sanctions by SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

The performance of a financial institution/ Banks can be measured by seeing their contribution to the particular sector they deal with or society as a whole. SIDBI as an apex institution in the field of rural development has plays a major role and its contribution is a landmark in the rural industrial development.  Figure 4.1 exhibits the assistance sanctioned by SIDBI during five financial years viz. 1990-91, 2004-2005, 2005-06, 2006-07, and 2007-08.  In the first year (1990-91) of its working the bank has sanctioned assistance worth Rs. 2413 cr for the industrial development. During the fiscal year 2004-05 the assistance sanctioned by the bank was stood at Rs. 9091 cr. During the fiscal year 2005-06 there was hike in the amount and the Bank has sanctioned Rs.11975 cr. assistance. In the fiscal year 2006-07 there was slight reduction in the assistance and the bank has sanctioned Rs. 11102 as assistance. But again there was good growth in the fiscal year 2007-08 when bank has sanctioned assistance worth Rs.16164 cr.

Fig. 1.2 Disbursements by SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

While seeing the above Fig. 4.2 we can estimate the performance of SIDBI in disbursement of assistance to various industries.  In the first year (1990-91) of its working the bank has disbursed assistance worth Rs. 1839 cr for the industrial development. During the fiscal year 2004-05 the assistance disbursed by the bank was stood at Rs. 6188 cr. During the fiscal year 2005-06 again there was hike in the amount and the Bank has disbursed Rs.9100 cr. assistance. In the fiscal year 2006-07 again there was hike in the assistance and the bank has disbursed Rs.10225 cr. as assistance.  In the fiscal year 2007-08 the bank has disbursed assistance worth Rs.15086 cr.

Fig. 1.3 Net-Worth of SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

Coming to the Net Worth of SIDBI, Fig. 4.3 explore the position of bank during the different financial years. Like, in the establishment year 1990-91 SIDBI was functioning with a net worth of Rs. 480 cr. In the fiscal year 2004-05 net worth was Rs.4119 cr. In the financial year again there was good growth and the Net Worth stood at Rs.4268cr. In the next fiscal year 2007-07 again there was good hike in the net worth of the bank and was Rs.4436 cr. During   the period 2007-08 the bank was functioning with a Net-Worth of Rs.4713cr. 

Fig. 1.4 Portfolio Size of SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

Figure 1.4 expresses the portfolio size of the bank. In the beginning of its functioning during the year 1990-1991 the portfolio size of the bank was Rs.5177cr. During the fiscal year 2004-2005 portfolio size was worth Rs. 10862 Cr. In the fiscal year 2005-06 there was hike and the portfolio of the bank was Rs. 13891 cr. Similarly, in the financial year 2006-07 and 2007-08 the portfolio position of the bank was Rs. 16031 cr. and Rs. 20226 cr. respectively.    

Fig. 1.5 Income & Profits of SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

While going through the above Fig. 1.5 which explores the Income and Profitability position of the Banker, we are finding that in the fiscal year 1990-91 the income of the bank was Rs. 425 cr. while the profit was Rs.36 cr. During the financial year 2004-05 there was good position of the bank because the income of the bank during this period was Rs.948 cr. and profit Rs.225 cr. In the subsequent next year during 2005-06 the total income of the banker was Rs.964cr. with a profit of Rs.270 cr. In the fiscal year 2006.07 there was a hike in the income of the bank around Rs 2 crores and the income in this period was Rs.1187 cr. with a profit of Rs. 298cr.In the fiscal year 2007-08 there was good growth in the total income and the income during this period was Rs.1638 cr. but there was reduction in the profit during this period as compared to previous year's profit and the profit was. Rs.198 cr.

Fig.1.6 Standard Assets and Net NPAs of SIDBI

Source: 18tth. SIDBI, Annual Report 2007-08

Coming to (fig. 1.6) Standard and Net Non-performing assets of SIDBI. Standards assets during the fiscal year 2004-05 were around 96.1 percent, while the Net non-performing assets were at 3.9 percent. In the next fiscal year the bank has reduced its Net non-performing assets to 1.9 percent where there was growth in standard assets and their percentage was 98.1. During the fiscal year 2006-07 again bank has successfully reduced the share of non-performing assets. In this period their share was only 0.14 percent and standard assets were at 99.86 percent. Again, during the fiscal year 2007-08 there was slight increase in the share of Net Non performing assets and share during this period was 0.25 percent where as the share of standard assets were 99.75 percent.

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Source: E-mail March 27, 2011


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