Chapter 2

FINANCIAL INSTITUTIONS OF NORTH EAST INDIA WITH REFERENCE TO BANKS

2.1 Introduction

Finance, considered to be the life-blood of business is the essential pre-requisite of

every productive activity. In fact, no business enterprise can reach its full potential of

growth and success without adequate finance. It keeps the enterprise dynamic, develops

products, keeps men and machines at work, encourages management to make progress and

creates value. As Mathur stated, “Every problem of the small producer concerning

production or materials, quality or marketing is in the ultimate analyses, a financial one”

(Mathur: 1979: 129) In other words “shortage of finance is in most cases a symptom of other

problems such as poor planning, outmoded technology, ineffective marketing, bad product

design, lack of cost accounting and so on” (Stanley, Morse: 1965: 372). Finance thus is an

indispensable element in any business activity.

Financial Institutions are business Organisations serving as a link between savers and

investors and so help in the credit-allocation process. Good financial institutions are vital to

the functioning of an economy. If finance were to be described as the circulatory system of

the economy, financial institutions are its brain. They make decisions and tell scarce capital

where to go and ensure that it is used most efficiently. It has been confirmed by research that

countries with developed financial institutions grow faster and countries with weak ones are

more likely to undergo financial crisis. They also provide various financial services to the

community. Financial Institutions are divided into the banking and non-banking ones. The

banking institutions have quite a few things common with the non-banking ones, but their

distinguishing character lies in the fact that, unlike other institutions, they participate in the

economy’s payments mechanism, that, is they provide transactions services, their deposit

31

liabilities constitute a major part of the national money supply, and they can, as a whole,

creates deposits or credit, which is money. Banks, subject to legal reserve requirements, can

advance credit by creating claims against themselves, while other institutions can lend

money only out of resources put at their disposal by the savers. Thus, the role of financial

system is to accelerate the rate of economic development, and thereby improve the general

standard of living, and increase the social welfare.

In a developing country, the role of these institutions as mobilizers of savings

becomes more essential in view of the fact that there are a large number of savers, each with

small amount of savings. These savers are generally reluctant to invest their surplus income

because of their lack of adequate knowledge about complicated investment systems.

Moreover, their resources are small, and they can hold securities of one or two or a few

industrial units, and the prospects of earnings therefrom are tied to the fate of such units

only. Thus, they are exposed to great risks which impel them to abstain from investing their

savings. Financial Institutions take care of both these problems.

North Eastern Region of the country is comprised of eight states namely, Assam,

Arunachal Pradesh, Manipur, Meghalaya, Mizoram Nagaland Tripura and Sikkim. But the

proposal of my study was made prior to inclusion of Sikkim in N E States. Hence Sikkim is

excluded in the study. Though all states are common in terms of their geographical location

and face uniform problems such as low infrastructure, high employment, insurgency and

frequent natural calamities, they do differ from one another in terms of level of development

and nature of economic activities. Despite having substantial natural resources, this region is

still remained industrially backward as compared to other regions of the country.

32

Development of financial institutions is interlinked with the planned economic development

of the country. There is no exaggeration to say that these financial institutions have made

positive contribution to the industrial development of the region. Different institutions have

been set up over a period of time to meet diverse needs and achieve specialision in the field

of institutional financing. The need for institutional finance has assumed special importance

with the transformation of small industries from conventional lines of manufacture using a

few machines to a modem mechanized sector capable of producing quality consumer and

producer goods and thereby warranting a high order of investment. As Kucchal observed,

“institutional finance assumes considerable importance in the developing countries because

of law capital information, gaps between ill-organised capital market, gaps between the need

and supply of finance in small scale industrial units” (Kucchal: 1962: 368).

33

A diagrammatic presentation of the financial system is cited below.

Financial System

Primary Secondary

Capital Markets Money Markets

Fig. 2.1

Source: Bhole,L.M. The Financial Institutions And Markets, 1994,Tata McGraw-Hill, New Delhi

34

It is with a view to meet their requirements that the government has floated a number

of Organisations to meet the long term as well as short term financial requirements.

A number of Financial Institutions are now functioning in the North Eastern Region

for its all round development. The Financial Institutions, which have their branches in

Guwahati, look after the development work of the North Eastern Regions in their specific

area of operations concerned. All these Organisations, as well as the state Financial

Corporation and State Industrial Development Corporations are taken in to consideration for

the present study.

The institutions directly covered under the study are:

Assam Financial Corporation (AFC)

Assam Industrial Development Corporation (AIDC)

Assam Small Industries Development Corporation (ASIDC)

Industrial Development Bank of India (IDBI)

Industrial Finance Corporation of India (EFCI)

Industrial Reconstruction Bank of India (IRBI))

National Small Industries Corporation Limited (NSIC)

North Eastern Development Financial Corporation Limited (NEDFi)

Rastriya Gram in Vikas Nidhi (RGVN)

Small Industries Development Bank of India (SIDBI)

However, keeping in view the coverage of different banks and financial institutions in

the region and also the scope of the study, discussion has been made here taking into

account the following institutions only:

35

Central Bank of India (CBI) Zonal Staff Training Centre

Indian Intitute of Bank Management (IIBM)

Rastriya Gramin Vikas Nidhi (RGVN)

State Bank of India (SBI) Staff Training Centre

United Bank of India (UBI) Staff Training Centre

2.2 Financial Institutions of NE India: a study

Of the above financial institutions, Assam Financial Corporation (AFC), Assam

Industrial Development Corporation (AIDC) and Assam Small Industries Development

Corporation (ASIDC) are statutory corporations under the State Government of Assam.

With their reporting authority being the Department of Finance, Government of Assam, all

these three institutions have their head offices in Guwahati. The other financial institutions

with their head offices elsewhere, have their branch offices in Guwahati. While the two

institutions viz, AIDC and ASIDC have their area of operation confined to the state of

Assam, others look after the entire of the North Eastern Region.

The objective of opening the offices of the various financial institutions in the region

with a view to achieve a purposeful role in the development of the area are given below :

2.2.1 Assam Financial Corporation

The Assam Financial Corporation (AFC) was established in 1954 in pursuance of the

State Financial Corporation’s Act 1951 with its headquarters at Guwahati. It is also named

as a Joint Financial Corporation as it caters to the financial requirements of 3 other states of

the NER namely, Meghalaya, Tripura and Manipur. Among the four states, Assam has

36

cornered the largest share of assistance with 90% of the total assistance going to the state

(Kaveri: 2003: 36). Thus it is dominantly a financial corporation of the state promoting

industries through provision of financial support.

The Corporation was set up to:

■ Accelerate industrial growth of the region through financial assistance on

concessional terms to industrial units in small and medium scale sectors;

* Promote self employment;

■ Proper utilization of local resources of raw materials in the production of

consumers’ goods towards socio-economic and industrial development of the

region;

■ Encourage new and technical entrepreneurs towards industrial products;

■ Provide assistance for promotion or expansion of industry by rural and urban

artisans.

The Corporation operates through a network of 3 Regional Offices at Bongaigaon,

Tezpur and Tinsukia and 11 branch offices located at Agartala, Imphal, Shillong, Silchar,

Nagaon, Jorhat, North Lakhimpur, Dibrugarh, Nalbari and Dhuburi.

2.2.2 Assam Industrial Development Corporation

Assam Industrial Development Corporation (AIDC) was established in 1965 under the

supervision of Industries Department Government of Assam, Its name was originally “The

Assam Major Industrial Enterprises Corporation Limited” which was changed into “Assam

Industrial Development Corporation Ltd.” (AIDC). It has been conferred to the right of state37

l e v e l f i n a n c i a l i n s t i t u t i o n u n d e r t h e I D B I A c t i n D e c e m b e r 1 9 7 6 . I t b e c a m e a p r i m a r y

l e n d i n g i n s t i t u t i o n f o r f i n a n c i n g m e d i u m s c a l e p r o j e c t s o f t h e s t a t e t h r o u g h o p e r a t i o n o f t h e

R e f i n a n c e a n d S e e d C a p i t a l S c h e m e o f I D B I . O v e r a n d a b o v e l e n d i n g m o n e y , A I D C

d e v e l o p s p r o j e c t i d e a s , i n v e s t m e n t p r o p o s a l s , u n d e r t a k e s f e a s i b i l i t y s t u d i e s , p r e p a r e s r e p o r t s ,

e t c .

T h e p r i m a r y o b j e c t i v e s o f A I D C i s t o p r o m o t e a n d e n c o u r a g e t h e g r o w t h o f l a r g e a n d

m e d i u m s c a l e i n d u s t r i e s w i t h i n t h e s t a t e u s i n g , u t i l i z i n g a n d e x p l o r i n g i t s v a s t n a t u r a l w e a l t h

t h e r e b y c o n t r i b u t i n g t o t h e o v e r a l l e c o n o m i c d e v e l o p m e n t o f t h e s t a t e , i d e n t i f i c a t i o n ,

p r o m o t i o n a n d i m p l e m e n t a t i o n o f m e d i u m a n d l a r g e s c a l e i n d u s t r i a l p r o j e c t s , b o t h i n t h e

s t a t e a n d j o i n t s e c t o r s , p r o v i d i n g f i n a n c i a l a s s i s t a n c e i n t h e f o r m o f e q u i t y p a r t i c i p a t i o n i n

p r i v a t e s e c t o r a n d p u b l i c s e c t o r u n d e r t a k i n g s , i m p l e m e n t a t i o n o f p a c k a g e s c h e m e o f

i n c e n t i v e s l i k e d i s b u r s e m e n t o f C a p i t a l S u b s i d y a n d T r a n s p o r t S u b s i d y f o r t h e b e n e f i t o f

e n t r e p r e n e u r s , p r o v i d i n g t e r m l o a n a s s i s t a n c e t o m e d i u m s c a l e e n t r e p r e n e u r s u n d e r

I n d u s t r i a l D e v e l o p m e n t B a n k o f I n d i a ( I D B I ’ s ) R e f i n a n c e S c h e m e , r e h a b i l i t a t i o n a n d

m a n a g e m e n t o f s i c k i n d u s t r i e s e t c .

2 . 2 . 3 A s s a m S m a l l I n d u s t r i e s D e v e l o p m e n t C o r p o r a t i o n

W i t h a v i e w t o u s h e r i n a n i n d u s t r i a l c u l t u r e i n t h e s t a t e t h r o u g h a p r o v i s i o n o f d i v e r s e

p r o m o t i o n a l a c t i v i t i e s , t h e A s s a m S m a l l I n d u s t r i e s D e v e l o p m e n t C o r p o r a t i o n ( A S I D C )

L i m i t e d w a s s e t u p i n t h e y e a r 1 9 6 2 w i t h i t s h e a d q u a r t e r s a t G u w a h a t i . T h e C o r p o r a t i o n

c a m e i n t o e x i s t e n c e a s o n e o f t h e p r o m o t i o n a l e f f o r t s o f t h e G o v e r n m e n t t o w o r k i n c o h e s i o n

w i t h t h e a l r e a d y e x i s t e n t D i r e c t o r a t e o f I n d u s t r i e s o f t h e G o v e r n m e n t o f A s s a m .

38

Established under the companies Act, 1956 this premier Organisation was set up as a

primary development agency to cater to the needs of small, tiny and cottage industries in the

state.

Not being an exception, the ASIDC was set up in consonance with the rational and

objectives of Small Industries Development Corporations (SIDCs) of other states which

have been set up to promote and quicken the growth of SSIs in their respective states. With a

mandate to play a catalytic role in the promotion of small-scale industries, the Memorandum

of Association of ASIDC has laid down its objectives pertaining to all round development of

the Small Scale Industry (SSI) sector in the state. Some of the main objectives of the

Corporation which form the basis for achieving its envisaged are:

• to act as a catalytic agent for small scale industrial growth in the State

by establishing and running small scale industries;

• to provide infrastructural facilities;

• to make available scarce and essential raw material;

• to facilitate early establishment of small scale industries by making

available machinery on hire purchase;

• to provide financial assistance in the form of seed money and equity

participation for helping capital formation;

• to help develop entrepreneurship amongst the people of the state.

Ever since the scheme has been introduced, The Corporation has assisted a large

number of entrepreneurs. This is evident from the volume of transactions made since39

inception until March 1999, which had been to the tune of Rs 96.14 crores (Bandopadhay,

Mali: 1993; 54).

2.2.4 Industrial Development Bank of India

Industrial Development Bank of India (IDBI) has opened their regional office at

Gauhati, is a statutory body under Govt, of India and was established on July 1st, 1964. With

a globally skilled management team, focus on technology driven retail banking and

emphasis on superior credit quality, IDBI bank has been also able to build a customer­

centric banking franchise on the principles of profitability, growth and quality. For the year

ended March 31, 2003, IDBI Bank recorded 36% growth in net profit to reach Rs. 71.1

crore. IDBI Bank’s distribution now extends to 68 cities across 97 banking outlets and 264

ATMs serving eight lakh customers. IDBI Bank’s total deposits grew by 15.2% in 2002-03

to reach Rs. 1032 crore, while saving deposits grew by 53% to Rs. 953 crore. IDBI Bank’s

customer assets grew by 26% to cross Rs. 5000 crore, while retail assets grew four times to

reach Rs. 1608 crore.

Some of the main objectives of the corporation are:

• provide resource support to financial intermediaries.

• strengthening the institutional structure of industrial finance in the country

• undertaking a variety of promotional activities with a view to stimulating

industrial investment in the economy.

40

2.2.5 Industrial Finance Corporation of India

Industrial Finance Corporation Of India (IFCI) has opened their regional office at

Gauhati, was established in 1984 under the Industrial Finance Corporation Act, 1984. Under

the Project Financing Operations, IFCI provides direct financial assistance for the setting up

of new industrial projects as also for expansion, diversification and modernization of

existing ones. In its promotional role, the thrust of IFCI’s endeavour is on providing

supportive measures to improve the productivity of human and material resources and to

accelerate the process of industrialization in its multi-faceted form. The objectives in details

are as follows:

• Providing financial assistance (under project Finance) to eligible industrial concerns in

corporate and cooperative sectors for establishment of new units, also for their

expansion, diversification and modernization programmes in the form of rupee loans,

foreign currency loans, underwriting and direct subscription to share/debentures

guarantees for deferred payments and foreign currency loans etc.

• Providing financial services viz. Marchant Banking and Allied Services, Equipment

Financing, Equipment Leasing, Equipment Procurement Credit, Suppliers’ Credit and

Buyers Credit.

• Providing Promotional Services viz. fund support for technical consultancy, risk capital,

technology development, tourism development and finance, housing development and

finance, development of rural and urban poor through voluntary organisation etc. etc.

41

2.2.6 Industrial Reconstruction Bank of India

Industrial Reconstruction Corporation of India (IRBI) was founded in 1971, which

was converted into Industrial Reconstruction Bank of India in 1985. North Eastern Regional

Office was established in 1986. The main objectives of IRBI are:

■ to assist in reconstruction and rehabilitation of sick and closed industrial units.

■ to function as the principal credit and reconstruction agency for industrial revival

and provide resources for industrial growth on a large scale.

* to provide financial support for modernization of normally running, healthy

industrial units as well,

■ to link industrial units and the banks or other financial institution and agencies to

make available powerful and packages and schemes.

■ to design and implement schemes of amalgamation, merger, financial

reconstruction and even role for industrial revitalization.

2.2.7 North Eastern Development Financial Corporation Limited

The need for a special financial institution in addition to the existing institutions to

cater to the specific requirements of the NER has been deeply felt which lead to the

formation of North Eastern Development Financial Corporation (NEDFi) in August 1995.

NEDFi has been set up to provide financial and other facilities for promotion, expansion and

modernization of industrial and infrastructure projects in the region. It aims to provide

assistance in the form of term loans, direct subscription/underwriting of equity, financial

guarantees, issuing letters of credit, participating in different payment guarantees and

42

providing consultancy and research facilities. The Corporation finances Small Scale Industry

(SSIs) ordinarily with a minimum term loan component of Rs. 25 lakhs and assemble a

consotorium of commercial banks/institutions for projects exceeding Rs. 25 lakhs.

With NEDFi’s initiative the North East Databank projects has been launched which

attempts to cover a wide spectrum of business related information. In addition, in view of

the potential which micro credit holds for a backward region like North East, modalities for

such a programme have been worked out for its implementation by NEDFi.

2.2.8 National Small Industries Corporation Limited

The International Planning Team (1954) had recommended establishment by the

centre with branches in the states or regions the need of a corporation devoted to servicing

of small industry in the field of government indents in all its purchases from industry. On the

basis of this recommendation the National Small Industries Corporation (NSIC) was set up

in February 1955 with the objective of supplying machinery and equipment to small

enterprises on a hire purchase basis and assisting them in procuring government orders for

various items of stores. In the North East Region a Branch Office was established in 1972

which was upgraded to a Regional Office on 2nd April 1984. The major activities of the

Corporation in the North Eastern Region include:

■ Supply of plant and machinery both indigenous and imported to small scale

units both existing and prospective on Hire Purchase Basis;

* Supply of raw material under Raw Material Assistance Scheme;

43

Enlisting competent units and facilitate their participation in the

Government Stores Purchase Programme;

« Bill fmancing/discounting under Integrated Marketing Support Programme;

* Working capital assistance;

* Technical training in a number of industrial trades at its Demonstration-

cum Training Centre.

Other activities include registration of small scale units (SSUs) under Single Point

Registration Scheme, participation in tenders on behalf of SSUs, organizing buyer-seller

meets and several others all aiming at promoting SSIs. In order to promote the interest of the

bell metal industry in Assam, the NSIC has set up a Bell Metal Rolling Plant at Sarthebari,

the centre of bell metal craft in the state. The Corporation has had its share in contribution to

women entrepreneurship by sponsoring exhibitions and organizing seminars / workshops. It

has sponsored women entrepreneurs to participate in the Industrial Trade Fair held at

Birmingham.

As on March 1999, an amount of Rs 173.43 lakhs was distributed under the Raw

Material Assistance Scheme, Rs 76.92 lakhs under Bills Discounting scheme, Rs 68.52

lakhs under Higher Purchase and Rs 9.85 lakhs for Leasing from its North East Regional

Office.

2.2.9 Rastriya Gramin Vikasta Nidhi

Rastrya Gramin Vikash Nidhi (RGVN) was established in April 1990 vide societies

registration Act 1860 with its quarter in Guwahati (Assam). RGVN is presently working

with non-government Organisations (NGO’s) in the North Eastern Region including Sikkim.

44

RGVN’s funding philosophy is based on the intrinsic worth and enterprise inherent in

individuals, communities and forms of social action. The main objectives of RGVN are to

promote, support and develop voluntary organisation engaged in social and economic

upliftment of the rural and urban poor, physically and socio-economically handicapped

people. Other Objectives are:

■ To improve the pace and quality of economic development, especially Relating

to the village and decentralized sector.

■ To focus attention on groups which are disadvantageous^ placed in Society, but

have the potential for pursuing socially and economically productive activities

■ To assist the urban and rural poor especially tribals, schedule castes, women

and children for their economic self-sustenance.

* To work for spreading productive assets more equally among and within various

regions and amongst the poor.

2.2.10 Small Industries Development Bank of India

The Small Industries Development Bank of India (SIDBI) was set up by an Act of

Parliament on 2nd April 1990 as a wholly owned subsidiary of IDBI by taking over the

outstanding portfolio and activities of IDBI pertaining to the small scale sector. SIDBI is

designed to function as a principal financial institution for promotion, financing and

development of industries in the small scale sector and to co-ordinate the functions of

institutions engaged in similar activities.

45

In addition, SIDBI has evolved special schemes tailored to meet the needs of

particular target groups, A special scheme for refinance to United Liberation Front of Assam

(ULFA) surrenders at concessional rates of interest has been initiated. Moreover,

development programmes specially for the NER have also been evolved. Important among

them are Technology Upgradation Programmes for the brass and bell metal industries at

Hajo and blacksmith units of Myllieum, Skill and Technology Upgradation Programmes,

development of sericulture, sponsoring EDPs and Rural Industrialization Programme for

creating employment opportunities.

2.3 Role of Financial Institutions with special reference to Bank

The role of financial institutions and banks in the process of economic development

was felt long back. In India, several financial institutions have been set up for specific

development of different sectors of the economy from time to time. The banking sector took

up a new role of “catalytic agent” in the economic development of various sectors through

nationalization of 14 major commercial bank in 1969. At the time of nationalization, the

Prime Minister of India gave an explanation in her broadcast: “An institution, such as the

banking system which touches and should touch-the lives of millions has necessarily to be

inspired by a larger special purpose and has to subverse national priorities and objectives”

(BTC: 1991:12). The government wanted that it should play a positive role in the

development of the economy. Thus, the main purpose behind bank nationalization was to

make the banks to serve as engines of social betterment.

46

Banks are the dominant intermediaries in a developing economy like India. From the

economic point of view, the major tasks of banks are to act as intermediaries channeling

savings to investment and consumption: through them the investment requirement of savers

are reconciled with the credit needs of the investors and consumers. Banks accept deposits

from the public-secured or unsecured which are usually easily accessible to the depositors

and hence become the principal means of making payments. They are thus, at the heart of

the payment system. Even when corporate or government approach households directly with

new instruments, those payments are cleared through the banking system.

The process of financial intermediation supports increasing capital accumulation

through institutionalization of savings and investment and as such, fosters economic growth.

The gains of the real sectors of the economy thus depend upon how efficiently the financial

sector more specially the banking sector performs the basic functions of financial

intermediation.

2.4. Growth and Development of Banks and Financial Institutions in India: Historical background of Banking

Though commercial banking of the western type has been of recent development in

India, banking as such has not been unknown to India. From the very ancient days

indigenous banking, (The indigenous bankers have been variously called as Shroffs, Seths,

Sahukars, Mahajans, Chettis, etc. in different parts of the country. They vary in their size

from money - lenders to substantial Shroffs who carry out a large and specialized business

which at times exceeds that of the scheduled banks) different from modem western banking,

were in operation. With the establishment of Reserve Bank of India (RBI) in 1935,

47

indigenous bankers were asked to give up their traditional activities like trading and

commission business, switch over to western system of accounting and develop the

depository side of banking activities. The RBI took over the supervisory role to channelise

the short-term credit for business and production activities in the economy.

The banks and financial institutions play a vital role in the process of economic

development. Many economists stressed the importance of finance for productive purposes

and viewed that the banks and financial institutions should be the key agents in this process.

The Government of India also felt the need of these institutions and gave major emphasis for

their growth. The major steps in this direction were taken through nationalization of premier

banks and establishment of various purpose oriented financial institutions after

independence of the country.

Bank as an agent for development: Indian banks had a close association with trade

and commerce historically. For a long time, banks were unwilling to venture into a new field

of financing and therefore, they were concentrated mainly in commercial areas. In the recent

years, banks have moved away from the past traditional paths. They have widened their role

from acceptance of deposits and lending credit to development-oriented banking. Besides,

from serving a few well established large industrial and business houses, they are providing

assistance to small and weak industrial units, small and marginal farmers, small traders and

transport operators, artisans and other neglected groups in the country. The major

involvement of banks in development programme was the adoption of the “lead bank

scheme” under which all the districts of the country were allotted to some bank or the other.

48

Present Scenario of Banking System: The Indian Banking system has gone through

a series of crisis. With the failure of several banks in the first half of the century, the growth

of banking industry was very slow. The subsequent fast development was mainly attributed

to planned development and nationalization of banks in July 1969. Branch expansion gained

momentum after the nationalization of major commercial banks and with the introduction of

Lead Bank Scheme.

With the reform of financial sector started in 1990, several new Indian private banks

have come into existence. A number of foreign banks were also permitted to operate during

the era of liberalization. At the end of June 2004, there were 64,547 branches in all over

India (Kaveri: 2004: 43).

2.4.1 Bank Branch expansion in NE Region

The number of bank offices in the country increased from 61852 in 1999 to 64547 in

2004 witnessing a growth of 4.4 per cent. But in North East, banks maintained negligible

expansion of branches during the same period by just 2.3 per cent. The number of branches

in the region stood 2121 in 2004 as against 2072 in 1999 (Table 2.1)

49

Number of Offices in NE India

Item AP Assam Manipur Meghalaya Mizoram Nagaland Tripura NorthEast

a) location-wise2004 Rural 73 841 59 141 68 58 148 1388Semi-urban 26 277 18 23 9 34 34 421Urban - 183 27 52 10 - 40 312Total 99 1301 1040 216 87 92 222 2121-1999 rural 75 879 63 139 73 51 132 1412Semi-urban 23 261 159 29 11 45 20 404Urban - 153 26 42 6 - 29 256Total 98 1293 107 210 90 96 181 2072b) Bank-wise2004commercialbanks

49 828 56 128 29 64 60 12

RRBs 19 404 29 51 52 8 90 653Cooperative 31 68 19 37 9 20 41 225Total 99 1301 104 216 87 92 222 21211999Commercialbanks

49 819 58 128 24 63 92 1233

RRBs 19 404 29 51 54 8 43 608Cooperative 30 70 17 31 12 25 46 231Total 98 1293 104 210 90 96 181 2072

APRRBSources

Table 2.1Arunachal Pradesh Regional Rural BankSLBC Reports, Basic Statistics-1999 and 2004, RBI, report on Trend and progress of Banking in India 2003-04

The total nos. of scheduled commercial banks offices in the North East in the year

1999 was 2072 nos., which has risen to 2121 nos. in the year 2004. In the last 6 years the

total nos. has increased by 49, showing a growth rate of 2.4%. In India the total scheduled

commercial banks has increased from 6335S nos. in the year 1999 to 64920 nos. in the year

2004 i.e. in the last 6 years the total nos. of bank branches has increased by 1562 nos, with a

growth rate of 2.5% (RBI Bulletin: 2004:365).

50

In the year 1999, out of the total branches in the NE region, rural branches constituted

68.1% of it, semi-urban branches 19.0% and urban branches 12.4% and in India as a whole,

rural branches constituted 56% of it, semi-urban branches 19% and urban branches 25.1%.

In the year 2004, out of the total branches in the NE region, rural branches constituted

65.4% of it, semi-urban branches 19.9% and urban branches 14.8% and in India as a whole,

rural branches constituted 50.6% of it, semi-urban branches constituted 21.8% and urban

branches 27.6%.

In rural areas the total nos. of bank branches in the year 1999 was 1412 nos., which has

decreased to 1388 nos. in the year 2004 showing a declined growth rate of (-) 1.8%. In India

the total nos. of rural branches has decreased by 3509 nos. showing a declined growth rate of

(-) 9.6% in the last 6 years (RBI Bulletin: 2004:368).

In semi-urban areas the total nos. of bank branches in the North East has increased by 7

nos. showing a growth rate of 4.2% from the year 1999 to 2004. In India the semi-urban bank

branches has increased by 2080 nos. showing a growth rate of 17.3% (RBI Bulletin: 2004:

369).

In urban / metropolitan areas the total nos. of bank branches in the North East has

increased by 56 nos. with a growth rate of 21.9% in the last 6 years.

NE constituted 3.9% of the total rural branches in India during the year 1999 and 4.2%

in the year 2004, showing an increase of 10.3% in semi-urban areas, out of total branches

in India. NE constituted 3.4% of it during the year 1999 and 3.0% in the year 2004

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showing a declined growth rate of 0.4%. In urban areas NE constituted 1.6% of urban

branches out of the total urban branches in India during the year 1998 and 1.7% in the year

2004 showing an increase of 0.1% in the last six years

(a) Rural branches in the North Eastern States

In the year 1999 out of the total rural branches in the NE states Assam constituted the

highest percentage of branches of 62.3%, followed by Meghalaya (9.8%), Tripura (9.4%),

Arunachal Pradesh (5.3%), Mizoram (5.2%), Manipur (4.5%) and Nagaland (3.6%). In the

year 2004 out of the total rural branches in NE states Assam constituted the highest

percentage of branches of 60.6%, followed by Tripura (10.7%), Meghalaya (10.2%),

Arunachal Pradesh (5.3%), Mizoram (4.9%), Manipur (4.3%) and Nagaland (4.2%). So in

the last 6 years share of percentage of bank branches in rural areas has increased in three

states namely, Meghalaya (by 0.4%), Nagaland (by 0.6%) and Tripura (by 1.3%) and

decreased in four states namely, AP (by 0.1%), Assam (by 1.7%), Manipur (by 0.3%)

(Kaveri: 2004: 53)

(b) Semi Urban Branches in the NE states:

In the year 1999 out of the total branches in the NE states, Assam constituted the

highest percentage of branches of 64.6%, followed by Nagaland (11.4%), Meghalaya

(7.2%), Arunachal Pradesh (5.7%), Tripura (3.9%), Manipur (3.7%) and Mizoram (2.7%).

In the year 2004, out of the total rural branches in the NE states, Assam constituted the

highest percentage of branches of (65.8%), followed by Tripura and Nagaland (8% each),

AP 6.2%, Meghalaya 5.5%, Manipur 4.3% and Mizoram 2.1% (Kaveri: 2004: 56).

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So in the last 6 years the share of percentage of bank branches in semi-urban areas has

increased in four states, namely, AP (byO.5%), Assam (by 1.2%), Manipur (by 0.6%) and

Tripura (by 3.2%) and decreased in three states, namely, Meghalaya (by 1.74%), Mizoram

(by 0.6%) and Nagaland (by 3.0%) (Kaveri: 2004: 56).

(c) Urban Branches in the NE States:

Till now, Arunachal Pradesh and Nagaland have recorded no urban branches of

scheduled commercial banks. In the year 1999 out of the total urban branches in the NE

states Assam constituted the highest percentage of branches of 59.8%, followed by

Meghalaya (16.4%), Tripura (11.3%), Manipur (10.2%) and Mizoram (2.3%). In the year

2004 out of the total urban branches in the NE states Assam constituted the highest

percentage of branches of (58.7%), followed by Meghalaya (16.7%), Tripura (12.8%),

Manipur (8.7%) and Mizoram (3.2%) (Kaveri: 2004: 57).

So in the last 6 years share of percentage of bank branches in the urban areas has

increased in 3 states namely, Meghalaya (by 0.3%), Mizoram (by 0.9%) and Tripura (by

1.5%) and decreased in two states namely, Assam (by 1.2%) and Manipur by (1.5%)

(Kaveri: 2004: 57).

2.5. Manpower Training Needs

The need for training of manpower in financial institutions has increased owing to the

complexities of ever growing activities and the compulsions for periodic transfer and

promotion of staff. Some of the areas for which training needs are prima facie visible

include: slow business growth, declining market share, declining profitability and

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increasing Non Performing Asset (NPAs), erosion of moral values and business ethics

getting reflected in increasing involvement of staff in frauds, slow understanding of the

imperatives of the changing environment, new business strategies and schemes formulated

for the region and its traditional industries not yielding the desired results. Most of the new

industries/business ventures started by youths are prematurely fading out, partly due to lack

of tenacity and partly due to lack of clear understanding of market dynamics, lack of

customer orientation in service providers and system and processes, lack of motivation and

proper work culture required to create synergies, teamwork and professional approach

among employees and absence of congruence in organisational goals and then goals of the

Associations and Unions.

The employees, on appointment, need detailed instructions to enable them to

understand the goals of the organisation in the over all social and national set up, as also the

role played by them and to acquire certain amount of knowledge and skills, etc. needed for

their job. Training needs also arise when employees are transferred or promoted to a higher

cadre, or when compelled by change in function or role consequent upon a change in the

policy. Sometimes training becomes necessary as a refresher course to enable the employees

to update knowledge and skills.

To achieve these objectives, these training centres need to be equipped with adequate

infrastructure to undertake the following activities:

a) to develop managerial competence among personnel of financial institutions

through training;

b) to conduct training programmes for trainers who will, in turn be responsible for

imparting pre-recruitment training to the candidates from the region;

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c) to offer consultancy to banks and financial institutions in the region;

d) to carry out studies /surveys /research in the field of banking, management and

economic development of the region

e) to conduct seminars and workshops to facilitate exchange of views among

development agencies and financial institutions.

2.6 Summing Up

In meeting the long-term financial requirements of small enterprises, an important

intervention in industrial promotion has been establishment of State Financial Corporations

in the state level. In Assam, the Assam Financial Corporations has been set up to serve this

pivotal role. The corporations has since inception assisted a large number of units both in

grounding as well as in modemization/expansion of existing ones and has thereby been able

to create its own visibility. It has ventured to lend to a variety of industry groups and have

pioneered in new areas in recent times. All these attributes display the brighter side of the

above institutions. Going deeper into the analysis of performance of the institutions shows

that its volume of assistance has increasingly declined over the years. This has been so

particularly due to its poor financial performance. On one hand it is facing a shortage of

funds and on the other a poor recovery performance.

The points above sums up the role played by the financial institutions as identified

from the findings of this particular study. While for the country as a whole institutional

finance has played a vital role in the process of economic and industrial development, the

position in North Eastern Region is far from satisfactory.

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The financial agencies need to play a more development oriented role rather than

being mere credit institutions. They can take upon themselves the responsibility of educating

their entrepreneur clients about various aspects of financing like complication of loan

formalities, managing their finances rates of interest for each and every loan, methods of

repayment etc.

In the light of the socio-economic background of the North Eastern Region, banking

industry witnesses several problems in expansion and diversification of business. To sum-

up, banking in North East is unique in several respects. In particular, banks and financial

institutions are fortunate for having been in the region, which has vast potential.

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