Appendix I

Summary of the Narasimham Committee Report

A Committee consisting of Shri. M. Narashimham, former Governor, Reserve Bank of India, Deputy Gover­nor, Reserve Bank of India, Chairman, SBI, Chairman, IDBI, Chairman, ICICI, Shri Manu Shroff, Shri Y.H. Malegam, Shri Mrinal Datta Chaudhuri and Additional Secretary (Banking) as member Secretary was appointed on 14th August 1991 to examine all aspects relating to the structure, organization, functions and procedures of the financial system. The Committee submitted its report to the Finance Minister of India on 16th Novem­ber 1991. The recommendations of the Committee in brief are given below:

The Committees' approach to the issue of financial sector reform was to ensure that the financial services*industry operates on the basis of operational flexibil­ity and functional economy. The aim is to achieve a higher efficiency, productivity and profitability. Despite the geographical spread and functional reach achieved by the banking system during the last 2 dec­ades, there has been a sharp decline in productivity, efficiency and profitability of the banking sector. The major factors responsible for these are,-

a) Directed investments andb) Directed Credit programmes. There has also been a

deterioration in the quality of the loan portfo­lio. The profits have come down and both manage­

ment weaknesses and trade union pressures have contributed to this. There has also been deterio­ration in internal house keeping. The solutions proposed by the Committee are:

1. Statutory Liquidity Ratio (SLR)

SLR may be brought down from 38.5% to 25% over a period of 5 years. The original intention of SLR was to use it as a prudential requirement and not as an in­strument for financing public sector.

2. CRR (Cash Reserve Ratio)

Reserve Bank of India should have flexibility to operate CRR (Cash Reserve Ratio) to serve its monetary policy objective. The committee proposed that interest rate on SLR and CRR should be increaseiand it should be fixed at the level of one year deposit rate.

3. Priority Credit to be lowered from 40% to 10% over 3 year3

The contribution of bank credit to the growth ofagriculture and small * industry has already made animpact. The Committee, therefore, suggested that the priority sector be redefined to comprise the small and marginal farmer, the tiny sector of the industry, small business and transport operators, village and cottage industry, rural artisans and other weaker sections.Priority sector may be fixed on 10 per cent of ag­gregate credit.

4. Interest on deposits

The Committee has recommended that for the pres­ent, interest rates on bank deposits may continue to be regulated. The concessional interest rate should be

phased out. We may provide for what may be called a Prime Rate.

5. Capital Adequacy

The adequacy of capital in the banking system is the cause for concern. The banks and financial institu­tions should achieve a minimum of 4% capital adequacy ratio in relation to risk weighted assets by March 1993 and %% by March 1996.

6 . Uniform Accounting practices

Uniform accounting practices should be followed by the banking system in Income Recognition and Loan Provisioning. The uniform accounting practices as laid down by the international body of Chartered Accountants may be followed.

7. Assets which are overdue for a period exceeding 180 days will have to be treated as non performing assets. Any loan, bill, cash credit and any other account which remains due for 180 days will be treated as non performing.

*

8. For the purpose of provisioning, the banks should classify their assets as under:

a) Standardb) Sub-Standardc) Doubtfuld) Loss

Standard Assets represent regular performing asset. Sub standard assets could be those which exhib­it problems and would include assets classified as nan performing for a period not exceeding 2 years, doubtful assets are those non performing assets which remain as

such for a period exceeding 2 years and would include loans where instalments are overdue for a period ex­ceeding 2 years. Loss assets are accounts where loss has been identified but the amount has not been written off. In respect of sub standard account, there should be 10% provision. In respects of doubtful account there should be 100% provision to the extent of shortfall in security. In respect of loss account, assets should either be fully written off or provision created to the extent of 100%.

9. Balance sheet of banks should be transparent and contain full disclosures as recommended by the international accounting standards Committee.

10. Special Tribunals should be set up for recovery of loans and enforcement of security.

11. Assets Reconstruction Fund(ARF) should be set up. The ARF should be provided with special powers for recovery. To begin with all consortium accounts should be transferred to ARF. Gradually all bad & doubtful debts should be transferred to the ARF. The ARF should issue bonds to the banks which>should be eligible for SLR purposes. This exercise should be undertaken as a one time emergency measure.

12. All banks should be classified into 4 groups:

a) 3 or 4 large banks could become international in character.

b) 8 or 10 banks with branches throughout the country should engage in "Universal Banking".

c) Local banks confining to specific region.d) The public sector banks should take over all its

rural branches and set up one or more rural bank­ing subsidiaries. The regional rural banks should

be allowed to engage in all types of banking business.

13. The Government should indicate that there would be no further nationalization of banks. There should be no bar to the setting up of new banks in the private sector. The branch licensing should be abolished and opening of branches or closing of branches be left to the commercial judgment of the banks.

14. Foreign banks may be permitted to open offices either as branches or as subsidiaries and Reserve Bank of India may take a liberal approach.

15 . The banks with largest presence abroad and m strong financial position may be allowed to set up subsidiaries to take over the existing branches abroad. The internal organization of banks should be best left to the judgment of the managements of individual banks. Rangarajan Committee report on computerization should be implemented. Banks should be allowed to recruit, on their own, for the officers posts. The guidelines issued by the Government or Reserve Bank of India relating to matters of internal administration such as crea­tion and categorization of posts, promotion pro­cedures etc. should, be revoked.

16. A Supervisory Board consisting of representatives from Reserve Bank of India, Government of India, Banks, and management experts should be set up to supervise the banks, financial institutions and other non banking financial institutions. Except - ing where it is absolute necessary, they should conduct off site inspections.

17 . The banking division in the Government of India should not be allowed to control the banking system and Reserve Bank of India alone should be the Primary Agency for the regulation of the banking system.

18. All appointments in the banks should be depoliti­

cized. A Committee consisting of eminent persons like Retired Governors of the RBI may be invited by the Governor of the RBI to suggest names for appointment of the Chief Executives of the bank and the Board members.

19. Development Financial Institutions

a) The posts of Chief Executive and Board members should be filled as suggested under item 18.

b) The consortium lending should be dispensed with.c) IDBI should retain only its apex and refinancing

role. Direct lending function should be trans­ferred to a company set up under the Indian Compa­nies Act.

d) The affected portion of the advance portfolio should be transferred to Assets Reconstruction Fund(ARF).

e) The financial institutions should not encourage take over where the existing management is manag­ing the affairs of the company in a manner benefi­cial to all the concerned.

f) The capital markets should be gradually opened to foreign portfolio investment. In order to facili­tate secrutisation of debts, necessary amendments may be made in tjie stamp Acts.

The above recommendations are aimed at impartingthe health and competitiveness of the Indian BankingIndustry.

1991- 92 1995-96A-Bank B-Bank A - Bank B-Bank(Rs. in crores) (R s . in crores)

1 Total Deposits 14852.00 13 21 0 0 24713.00 2 3 7 8.002 . Demand Deposits 1196.00 536.00 3617 . 00 495.003 . Total Advances 7660.00 690.00 11731.00 1207 . 004 . Total Business 22512.00 2011 . 00 34581.00 3585 . 005 . Working Funds 16716.00 1893.76 28707.00 2749 . 006 . Equity 327.00 51 . 90 1266.00 108 . 907 . Interest Income 1393 . 83 15 . 04 2554.00 26 . 258 . Interest

Expenditure 1014.60 6 . 72 1740.00 14 . 069 . Spread 379.00 8.32 814.00 12 . 1910 . Non Interest

Income 91. 15 0.41 237.00 1 .4611 . Operating Income 470.38 15 .45 2791 . 00 27.9112 . Operating

Expenditure 396.69 2 . 90 838 . 00 6 . 7913 . Operating Profit 43.69 12 . 55 321.27 20 . 9214 . Net Income 44 . 00 2 . 48 85 . 79 15 . 9815 . Investments 447.00 416.50 1137.00 791 . 0016 . N o . of

Employees 58824.00 4912.00 72154.00 5041 . 0C17 . No. of Branches 3268.00 325.00 4052 . 00 352.00

Source: Annual Reports of the Sample Banks.

1991-92 1995--96A-Bank B-Bank A-Bank B - Bank

A-Branch Productivity:1. Deposits per Branch

(Rs. Crores) 4.54 4 . 06 6 . 09 6 . 752. Advancer per Branch

(Rs. Crores) 2.34 2 .21 2 . 43 3 .423. Business per Branch

(Rs. Crores 6.88 6 . 18 8 . 53 10 . 18B-Financial Management:1 . Ratio of Demand

Deposits to total Deposits(%age) 8.05 40 . 57 14 . 63 20.18

2. Yield from Advances(%age) 18.19 2 . 17 25 . 88 0.21

3. Yield from Investments(%age) N/A 11 . 34 4.59 14 . 00

4. Spread Ratio(Intt.Income to Intt.Exp.)1 . 37 2 .23 1 .46 1 . 86

C-Profitability:1. Operating Profit to Working Funds

(%age) 0.26 0 . 66 1 . 11 0 .762. Nett Intt. to working Funds

(%age) 8.33 0 . 79 8 . 89 0 . 953. Net Income to Equity

(%age) >3.45 4 . 77 6 . 77 14 . 664 . Operating Expenditure to Operating Income

0 .11 4 .32 0 . 38 3 .025. Total Expenditure to Total Income

(%age) 94.45 62 . 26 92.36 28.656 . Capital Adequacy

(%age) 4.90 . 07 13.4 0D-Labour Productivity:1. Deposits per Employee

(Rs Crores) 0.25 0 . 26 0 . 34 0 .472. Advances per employee

(Rs. Crores) 0.13 0 . 14 0 . 13 0 . 233. Business per employee

(Rs. Crores) 0.38 0.40 0 -4 7 0 . 714. Net Profits per employee per annum

(in Rupees 5048.85 33448

Source: Annual Reports of the Sample Banks. N-A - Not (XxfaAajJtq

1. Income Recognition

The basis for treating a credit facility as non- performing is as follows:-

Nature of credit facility Basis for treating asNPA

1. Term loans A term loan is to betreated as NPA if inter­est remains past due for a period of 4 quarters for the year ended31.3.1993, 3 quartersfor the year ended31.3.1994 and 2 quartersfor the year ended31.3.1995 and onwards. Past due means an amount remaining outstanding or unpaid for 30 day s beyond due date. For example, interest due on 31.3.1993 becomes past due on 30.4.1993 if it is not received by that

II . Cash Credit & Overdrafts A cash credit or over­draft account should be treated as NPA if the account remains out of

order for a period of four quarters during the year ended 31-3-1993, three quarters during the year ended 31.3.1994 and two quarters during the year en^ed 31.3.95 and onwards.

An account may be treat­ed as out of order ii the following three conditions is met-

a)The balance outstand­ing in the account remains continuously m excess of the sanctioned limit or drawing power.

b)The balance outstand­ing is within the limit/drawing power, but there are no credits in the account continuously for a period of six months as on the date of the balance sheet of the bank.

c)There are some credits but the credits are not enough to cover the interest debited to the

Ill.

IV.

Bills Purchased & Discounted

Other Accounts

account during the same period.

An account should be treated as NPA if the bill remains overdue and unpaid for a period of four quarters during the year ended 31st March, 1993, three quarters during the year ended 31st March, 1994 and two quarters during the year ended 31st March, 19 95 and onwards .

It may be added that overdue interest should not be charged and taken to income account in respect of overdue bills unless it is realized.

Any other credit facili­ty should be treated as NPA if any amount to be received in respect of that facility remains past due for a period of four quarters during the year 31st March, 1993, three quarters during the year ended 31st March, 1994 and two quarters during the year ended 3lst March, 1995 and onwards.

As stated earlier, on all NPA's interest should not be charged and taken to the income account.

If interest income in respect of a borrowerbecomes subject to non-accrual; fees commission and similar income of the same borrower should also cease to accrue.

2. Asset Classification

Advances should be classified into following four categories keeping in view their status as NPA, avail­ability of security and other relevant factors forrecovering the dues:-

Category of assets Basis for deciding :hscategory

i. Standard Assets An asset which does notdisclose any problems and which does not carry more than normal riskattached to the busi­ness, it should not fallunder the category ofNPA,discussed earlier.

ii. Sub- standard Assets An asset which lias beenidentified as NPA for a period not exceeding two years.

m the ca:e of termloan, if installments of principal . are overdue for more than one yearbuc not: exceeding twoyears, it is to be

III.Doubtful Assets

treated as sub-standard asset.

An asset where the terms of the loan agreement regarding interest and principal have been re­negotiated or re-sched- uled, should be classi­fied as sub-standard and should remain in such category for at least two years of satisfac­tory performance under the re-negotiated or re­scheduled terms.

In other words, the classification of assets should not be upgraded merely as a result of re-scheduling unlessthere is satisfactory compliance of the above condition.

An asset which remains NPA for more than two years.

Here too, rescheduling does not entitle a bank to upgrade the quality of an advance automati­cally .

In case of a term loan, if instalments of prin-

cipal are overdue for more than two years, it is to be treated as doubtful.

IV.Loss Asset An asset where loss hasbeen identified by the bank or internal /exter­nal audits or by RBI inspection but the amount has not been written off, wholly orpartly. In other words,. such an asset is consid­ered unrealizable and of such little value thatits continuance as a bankable asset is not warranted although there may be some salvage orrecovery value.

The above classification is intended to providethe basis for determining provisions for losses. Italso helps in supervision and follow up of advances for recovery.

3. Provisioning

The provisioning requirements have been prescribed as under:-

Category Provision required

L o s s A s s e t s The entire ‘asset shouldbe written off. If it is not written off for some reason, provision should

be made for 100% of the balance outstanding.

Doubtful Assets a)100% in respect of theportion which is not covered by realizable value of security;

PLUS

b) 20% to 50% of the covered portion depend­ing upon the period for which the asset has remained doubtful, as under:-

Period of Percentage of Doubtful status Provi­sioningUpto 1 year 201 to 3 years 30More than 3 years 50

Sub-standard A general provision of10% of the total out­standing without making any allowance forDICCJC/ L'X '(<C ‘ju a L'cinl. ee

cover and securitiesavailable.

In case of loss asset, salvage value of the assetneed not be taken into consideration if it is of negli­gible value. However, if realizable value of the secur­ity is significant, it should be taken into considera­tion while making provision for it.

Appendix - IVFACULTY OF COMMERCE & MANAGEMENT STUDIES

UNIVERSITY OF KASHMIR, SRINAGAR

Top Level QuestionnaireName of your bank

Location of HQ

Number of regional/divisional/zonal offices

District/Area offices

Number of branches as on 31 st of March. 19%

Rural ___________________ Semi-urban

Urban____________________ Metropolitan __

Total deposits as on 31st of March (Rs. crores)

Total R s.______________________________ of which:-

Demand deposits Rs.______________________________ _

Term deposits R s .__________________________________

Deposits with:

Rural Rs. Semiurban Rs.

Urban Rs.__________________________ Metropolitan Rs.

4. Total advances as on 31st March, 1996 of which:

a) Food R s._______________________________________

b) Priority Sector Rs.____

c) Commercial sector Rs.

d) Consumer Loans Rs.

Starategic Planning

1 Do you have a long range planning and control system Yes □(say three years or more) in your bank?

Tick appropriate box. No □If yes, when was it initiated?

2. Do you formulate longterm objectives of your company Yes Din the process of long range planning? No □

3. I f yes, how much importance did you attach to the following environmental opportunities and threats prior to liberalization of Indian economy 1991-92. (Please assign rank 1 to the most important and 7 to the least important)i) Change in the govt policy ( )ii) Past performance o f the bank ( )iii) R.B.I. directions and guidelines ( )iv) Economic changes likely with regard to

agriculture, industry, population and technology ( )

v) Social responsibility and needs of society ( )vi) Performance of the financial system as a whole ( )vii) Any other factor (please specify) __________________ _______ ( )

How much importance do yon attach to the following environmental factors in formulating long range bank plans/ objectives post liberalization of Indian economy. Rank in order of importance)i) Change in government policy ( )ii) Past performance of the bank ( )m) R.B.I. directions and guidelines ( )iv) Economic changes likely with regard to

agriculture, industry, population and technology ( )v) Social responsibility and need of society ( )vi) Performance of the financial system as a whole ( )vii) Any other factor (please specify) ______________ ( )

What strengths and weaknesses of your bank you take into consideration while deciding a long range Plan? (Rank in order of priority)i) Trained and committed manpower ( )ii) Large branch net work ! >11) Financial strengthiv) Professional and experienced managementv) Central/Stategovemment being the major shareholdervi) Low staff costsvii) Bloated staff costsviii) Large non-performing assetsix) Any other (please specify) ________________________

What is your response to the delicencing policy of government regarding banking sector (Tick the box whichever applicable)1) Set up new branch □ii) Rationalise the operations of the bank □ni) Closed down unprofitable branches □iv) Diversify the business □

What is your response to the capital adequacy norms fixed by the RBI (tick the box which ever is

applicable)i) Clean up the advance portfolio nii) Optimal utilization of bank resources □m) Augment resources through public issues □iv) Access to budgetary allocations to correct □

under-capitalisation

How you responded to the new private sector bank competition started recently? (Tick the box which­ever is applicable)i) Upgrade technology □ii) Innovate □iii) Adopt □iv) Attain a global base in the long run Ov) Any other (please specify) ___________________________ □

What kind of technology you introduced in your bank in the wake of recent competition.i) Computerization □ii) Electronic funds transfer □

iii) Automatic Teller Machines (ATM )iv) Any other (please specify)_______

a□

How you responded to the recent cheap money policy? ( Tick the box whichever is applicable)i ) Cut down costs Oii) Increase non-fund assets Oiii) Any other (please specify)_____________________________ O

How you responded to recent reduction in minimum lending rate?i) Make pre-emptive moves to make gams and avoid losses.ii) Any other (please specify)__________________________ □

Have you opened specialised branches to augment your business for bettor customer service'7

1) Yes ( ) ii) K O ( )

Which new products/product lines/services followmc-

did you introduce after liberalization? Give details in the

i) Consumer credit cardsti) Farm credit cardsiii) Traveller's chequesiv) Investors clubv) Home loan accountsvi) Industrial finance branchvii) Import creditviii) Export creditix) Bill financingx) Treasure products - Futures/Options/

swaps/currency switchesxi) Bid bondsxn) Any other (please specify)

Year of Business ProfitsIntroduction Last year Last year

Winch products/line of products/business did you drop in the wake of liberalization'7 Please mention with reasons of dropping.

Which new businesses your bank started after liberalization? (Tick the box w

i) Merchant Banking

ii) Leasing

iii) Factoringiv) Mutual Funds

v) Portfolio Management

vi) Venture capitalvii) Bought/share dealsviii) Secaitisation of debt

Year of Introduction

Business Last year

uchever is applicable) Profits Last year

|6. How often is performance in relation to long range planning reviewed (Tick the appropriate box)Not applicable □H alf yearly □Annually □Never □

17. In formulating long term plans, what levels of management are involved9 (Please rank 1 to 7 in order totine degree of involvement)i) Board of Directorsii) Chairman/Management Directorlii) Executive directorsiv) General Manager(s)v) Chief of functionsvi) Zonal Managersvii) Divisional Managersviii) District/Area mangers

IS. Do you formulate separate business plans for alternative business scananos,:i (Please tick appropriate box) Yes D

No □

19. I f answer to Q.. No. 17 is yes, please mention below some of the reasons for it.

20. Do you develop written business plans that grow out of strategic planning ’Yes □No □

21. I f yes, when last business plan was prepared?1996 □1995 □1994 □1993 □1992 □1991 □Earlier □Never □

22. The written business plans are developed/.used (tick the box/boxes whichever is applicable)i) To guide company operations □ii) To measure company performance □iii) To guide operations and measure company

performance □iv) To establish incentives for managers □v) To assist in attracting major customers □

23. Strategic plans are communicated throughout the organisation throughi) Company wide meeting once a year □ii) in writing □iii) through hierarchical levels □iv) Any other way (please specify)________________ □

cable)i) Time constraints □ii) Market uncertainty □iii) Lack of expertise □iv) Budget constraints □v) Resistance to change □vi) Anv other, please specify □

Performance Budgeting

25 Is the performance budgeting system in use in your bankYes □No □

If yes, since when? 19______

26. What use performance budgeting system has in your bank (please assign rank I to the most important and 4 to the least importanti) Performance budgeting enables the bank to

plan the business and work out its financialand manpower implications. ( )

ii) It promotes the involvement of the branches/ districts/divisions/regions/zones in echnacingthe business of the bank ( )

iii) It helps the bank in analysing its performancein relation to budgeted levels and deciding on the corrective measures to be taken ( )

iv) It improves communication between head office and zonal/regional/divisional office and headoffice and branch office ( )

27. In drafting a bank budget do you issue any policy guidelines to branches/division/regions/zones'1Yes □No □

2S. I f answer to Question no. 26 is yes., indicate the importance given to the following in framing the guidelines (Please assign rank I to the most important and 7 to the least important)•) Corporate longterm objectives and plans □ii) Past performance of the bank □in) Performance of the banking system as a whole □iv) RBI guidelines and directions □v) Economic and political policy of the govt. □vi) Social and technological changes □vii) Competition □

29. How many months ahead of the budget year do the following events occur?No. of months before the budget

Event year that the event takes place

i) Initiation of the budget developmentii) Review prior to finalizationiii) Company wide budgetiv) Finalization of the company wide budget

For formulating the budget for deposits, do you fix the tatgts for the following classes of deposits? (Tick boxes/box applicable)

>) Current □ii) Demand □iii) Savings nIV) Fixed □v) Recurring Deposits □

vi) Flexible Recurring Deposits □vi i) Any other (please specify) □

For formulating the budget for loans and advances, which of the following classes, you fix the budget­ary targets (Ticket the box/boxes applicable)

i) Consortium advance □ii) Priority sector:- O

a) Agriculture □b) Artisans □c) Livestock n

d) SSI □e) Transport Sector □f) Self employed □

s) Other priority sectors □iii) Medium and large scale industry □iv) Whole sale trade □v) Unclassified advances □vi) Export finance □vii) Consumer loan □viii)ix)x)Xl)

Housing loan □Loan on term deposits □Self employed □Other servicesa) Public □b) Education □c) Recreational □d) Religions □e) Medical and others □

To what extent do managers who have to implement the budget participate in the development of the budget?(Please give details)__________________________________

Is there a formal understanding that the annual budget will.be received with the intent to revise it duringthe budget year, and i f so at what frequency are such reviews expected to be conducted?i) No such reviews are planned for before hand □ii) A budget reviews with the intent to revise it,

i f necessary, is scheduled six months after the annual budget comes into effect. □

iii) Reviews with the intent to revise the budgetschedule every quarter □

How often are the performance reports showing variance between actual performance and budgetedperformance received from the lower levels of management? (Please tick appropriate box)i) Monthly □ii) Quarterly □

iii) H alf yearly □iv) Never □How often are the variances analysed by causes indicating controllable and non-controllable elements? (Tick die appropriate box/boxes)i) Regularly nii) Sometimes Oiii) Never n

What actions are takai by the higher authorities on variances? (Tick the appropriate box/boxes)! } No action is usually taken or recommended □ii) Deposit mobilization strategies are changed □iii) Credit policies are revised □IV) Resources (such as men) are re-deployed □v) Any other (please specify) □vi) Any other □

For monitoring performance, indicate the kind of comparison you make (please tick the appropriate block)1) Interzonal/Divisional comparisons within the bank □ii) interzonai/Divisionai comparies witii other banks □iii) No Comparision □

Do you have reward and punishment system for the executives based on comparision of actual against budgeted performance? I f yes , give details____________

How much of the chairman and managing director's time is spent on the activities described below-

i) Time spent on setting up the budget is ______ %

ii) Time spent on evaluation of performance______ %

If the performance budgeting system in your bank is discountinued, how will it affect the performance of the bank?

Appendix - V

FACULTY OF COMMERCE & MANAGEMENT STUDIES UNIVERSITY OF KASHMIR

M i d d l e Level Q u e s t i o n n a i r e

Name of the Division/Zone/Region/District with name of the bank._________________Location of the Division/Zone/Region/District office______________________________No. of Districts/Regions/Circles in Division/Zone(under your domain)_________________No. of branches in District/Region/Circle/Division________________of which:-

i) Metropolitan branches_________ii) Urban branches^_______________iii) Semi-Urban branches__________iv) Rural branches________________

Performance Budgeting

1. Is the performance budgeting system in use in your bank?(Tick the appropriate box)

Yes □ No UIf yes, since when? 19_________

2. What use performance budgeting system has in your bank (please assign rank 1 to the most important and 4 to the least importanti) Performance budgeting enables the bank to plan the

business and work out its financial and manpower implications. * □

ii) It promotes the involvement of the branches/districts/regions in enchnacing the business of the bank □

iii) It helps the bank in analysing its performance inrelation to budgeted levels and deciding on the corrective measures to be taken □

v) It improves communication between head office and regional office/divisional office and Head office and branch office □

3. For formulating the budget for deposits, do you fix the targts for the followingclasses of deposits? (Tick boxes/box applicable)0 Current □ii) Demand □iii) Savings □iv) Fixed □v) Recurring Deposits □vi) Flxi-recurring Deposits □

vii) Any other (please specify) □For formulating the budget for loans and advances, which of the following classes, you fix the budgetary targets (Ticket the box/boxes applicable)) Consortium advance □ii) Priority sector

a) Agriculture □b) Artisans □c) Livestock □d) SSI □e) Transport Sector □f) Self employed □g) other priority sectors □

iii) Medium and large scale industry □iv) Whole sale trade □v) Unclassified advances □v i ) Export finance □Vll) Consumer loan □vi i i ) Housing loan □IX) Loan on term deposits □x) Other services:-

a) Public □b) Education □c) Recreational □d) Religions □e) Medical and others □

The targets of performance on deposits, advances and resource requirements are worked out on the basis of reports (ticket appropriate box/boxes)i) Monthly □ii) Quarterly □iii) Half yearly □ix) Yearly □

Is there a formal understanding that the annual budget will be received w i t h t h e

intent to revise it during the budget year, and if so at what frequency a r e s u c h

reviews expected to be conducted?i) No such reviews are planned for before hand Uii) A budget reviews with the intent to revise it, if

necessary, is scheduled six months after theannual budget comes into effect. □

iii) Reviews with the intent to revise the budgetschedule every quarter □

How often are the performance reports showing variance between actual perform­ance and budgeted performance submitted to the higher levels of management? (Please tick appropriate box)

i) Monthly □ii) Quarterly □

iii) Half yearlyiv) Never

□□

8. How often are the variances analysed by causes indicating controllable and non- controllable elements? (Tick the appropriate box/boxes)

i) Regularly □ii) Sometimes □iii) Never □

9. What actions are taken by the higher authorities on variances? (Tick t h e a p p r o p r i ­

ate box/boxes)i) No action is usually taken or recommended □ii) Deposit mobilization strategies are changed □iii) Credit policies are revised □iv) Resources (such as men) are deployed □v) Any other (please specify)_______ □

10. For monitoring performance, indicate the kind of comparison y o u m a k e , ( p l e a s e

tick the appropriate block)Interbranch comparisions □Inter district/region comparisons □Not applicable □

11. How much time elapses between the end of the budget period and compeletion of the various performance reports?

Name of the performance report Time taken>] __________________________________ ____________

ii] _________________________________ ____________i'i] __________________________________ ____________iv] __________________________________ ____________v] ___________________________ . _________vi] __________________________________ ____________

12. How are the reports prepared? (Please tick in the appropriate box)Manually With Punched With electronic

cards data processing equiptments□ □ □

Any other (Please specify)_______________

13. Please indicate the four most important non-financial indicators of performance such as customers complaints and number of borrowal accounts.i] ii] __________ ______________iii] _ _ _ iv] ________________________

14. If the performance budgeting system in your bank is discontinued, how will it affect the performance of the bank?

Indicate the extent to which you think is most appropriate on the basis of your experience by ticking (he appropriate box shown against the statement.

1. Attitude towards the system

i) Increase in workload as a result of budgeting system has been large

ii) Performance budgeting is a managerial tool to exert heavy pressure

iii) I could wark as well without budgets/ standards

v) Introducing budgets/standards has improved efficiency

vi) The people from the controller's office have a clear understanding of branch/ district/zone/division problems

vii) Budgeting is first of all an accounting tool

2. Perceived usefulness of the system

i) In reviewing activities and identifying weak areas Management Information System/reporting systemwas extremely useful.

ii) Decision during the last few monthswere influenced by the MIS/reporting system . very significantly

iii) In arriving at targets and formulating budgets MIS/Reporting system. . .. •■ was extremely useful

iv) The Management information reports I get are sufficiently understandable

v) Compared with the benefits arising out of performance budgeting system, the cost involved is more than its benefits.

3. Participation-Supportive groupprocess

StronglyAgree

Some What

Agree agreeStrongly

Disagree disagree

ii) Views and opinions expressed by the participants in the meetings were conside- ered by the unit manager with high regard

iii) in assessing the resource needs of the responsibility centres and in making optima! resource allocations,the meetings were very helpful.

iv) In developing belter understanding among officials and in creating an atmos­phere of cooperation and mutual help, the meetings were very useful.

v) Discussions in the meetings were directed at helping individual managers analyze and understand their problems to a great extent.

vi) My boss accepts my ideas for improvement

vii) Budgets are set here after taking sufficient account of my branch's/ divisiorfe/districfe/zone's special problems.

viii) My boss asks my opinion about matters.

ix) My boss discusses the quality performance of my branch/di strict/ zone/division/deparlment.

4. Commitment to the system

i) If MIS/reporting system were not working as well as it should, I would make a sufficiently extra effort.

ii) If MIS is formally discontinued,Iwould still continue to collect for my analysis the MIS data.

iii) If in a group some members criticise the performance budgeting system, I would try to defend it.

iv) Among all the reports I prepare my superior officers, I would give first priority to MIS reports

5. Perceived satisfaction about the internal

Organization Environment

ii) I am extremely satisfied with my

colleagues behaviour with me subordinate's behaviour with me.

Stronglydisagree

iii) I am satisfied with my superior’s dealings with me.

iv) 1 feel proud of being a part of this organization.

6. Clarity of the System

i) The objectives of the performance budgeting and Management Information system are clear

ii) The methods through which the objectives are to be achieved are clear.

iii) Terms and concepts used in the MIS are unambiguous and clear

7. Managerial satisfaction of performance budgeting system as an instrument

of performance evaluation.

i) Budget related information is the most important factor in my evaluation

ii) My superior knows that at times budget variance can be confusing and misleading for evaluation

iii) My superior is more concerned with showing favourable short-term reports than with long-term effectiveness.

iv) My superior questions budget reports and uses them carefully in my evaluation

v) Budget variances are frequently mentioned to me during my performance evaluation interviews.

vi) Budget related information is rigidly used in evaluating my performance

vii) My superior holds me personally accountable for budget variances.

ix) My superior expresses satisfaction to me when the budget has been duly met.

FACULTY OF COMMERCE & MANAGEMENT STUDIES UNIVERSITY OF KASHMIR, SRINAGAR

Branch Level Questionnaire

Name of the Branch including distl.Location of the branch. (Please tick the appropriate box)

i] Metropolitan □ii] Urban □iii] Scmi-urbati □iv] Rural □

Is your branch primarily:(Tick the appropriate box)i] Deposit Heavy □ii] Advances Heavy □m] Balance of deposits

and advances □What is the present staff strength at your branch?

i] Officers □ii] Clerks □iii] Others □

A Performance Budgeting

I . Do you have a performance budgeting system in your bank?(Please tick appropriate box)

Yes □ No □

2. Performance budgeting in your bank has been introduced because of the following reasons (Please’ assign rank 1 to the most important and 5 to the least important)i] It helps branches to analyse its past performance

and decide on corrective steps. ( )u ] It enables the branch to plan the business*and

workout its financial and manpower requirements ( )iii] It promotes the involvement of the branch staff in

increasing business at branches. ( )iv] It helps the Head/regional/divisional/divisional/district

office to exercise effective control on performance of business ( )v] It improves communication between the Head office/

divisional offices/district/office. ( )

,3. In drafting the bank budget, what importance do you give to the following external environmental opportunities and threats. (Please assign rank 1 to the most import and 8th the least important)i] State Govt, policies { )ii] Directives of the R.B.I. ( )iii] Competitors’ strategies ( )iv] Factors related to product/service ( )v] Customer’s needs and aspirations ( )vi] Socio-political factors ( )vii] International factors ( )viii] Policy guidelines from head office/regional office district office. ( )

In drafting the branch budget, what importance do you give to the following strengths andAveaknesses of the branch/bank.(Please assign rank 1 to most important and 5 to the least important)i] Training and experience of the branch employees ( )ii] Commitment and initiative of branch cmployo^r, ( )iii] Physical facilities of the branch ( )iv] Existing customers of the branch ( )v] Behaviour\perccption of your superior

officers towards your branch. ( )

In preparing a branch budget, in your opinion. how useful is the brand) environment data sheet’’ (Please tick in the appropriate box)i] Extremely u:ofu! ( )ii] Useful ( )iii] Somewhat useful ( )iv] Net useful ( ;

While preparing the branch budget do you ir.ai'.e u:o of any additional information not included in the branch environmental data sheet?

Yes □ No □I f yes, please give drtails.

7. What information would you like to drop from the environmental data sheet?

For making a deposit plan do you fix target for each types of deposits i.e. current, saving, and fixed deposits etc? Yes □ No □

I f the answer No 8 is yes, what importance do you give to the fo llo w in g deposits. Cfo n io rt important 1 and 4 to the least important )i] Current account deposits (ii] Saving Bank Deposits (iii] Short term fixed deposits under one year* (iv] Fixed deposits more than one year (vi ] Recurring Deposits ( )vii] Flexible Recurring Deposits ( )viii] Anyone (please specify)__________________ ( )

! O .y /por making an advance plan, do you fix tarp.e! for each types of advances'’Yes □ No □

11 a/ I f the answer to Question No. 10 is yes, what importance do you give to the following deposits. (Assign rank 1 to the most important pn<i 6 to the least important)i] Consortium advance ( )ii] Cash credit ( )iii] Term Loans ( )iv] Bills purchased/discounted ( )v] Foreign bills purchased/discounted ( )vi] Any other (Please specify)_______________ ( )

12. Do you fix some target for miscellaneous business as well, apart from deposits and advances. I f yes, what is its percentage contribution to the overall branch profitability.

16.

17.

18.

For formulating a branch budget, on what basis you segment your market'1 (Tick the box/boxes which­ever applicable)i] Income D ii] Status □ml Profession □ iv] Geography □v] Age □ vi ] Sex □vii] Another (please specify)________________ □

Do you fix budget for each source of revenue? (Please tick the appropriate box from the following)

15. Do you fix budget for each expenses of the branch? (Please tick the appropriate box from the following)

A Interest on funds lent to borrowers n"1 Interest on surplus transferred to Head Office □

Discount earnings from customers □

iv] Earnings from collection remittances □

v] Subsidy from Govt, sponsored schemes □VI ] Service charges for lockers □v ii] Commission on guarantees □v ii i] Govt. Business, Commission on Taxes etc □ix ] Any other revalue (Please specify) □

Do you fix budget for each expenses of the branch? (Please tick the appropriate box from t!>] Interest payable on deposits of customers □->] Interest payable on funds required from H O. □ml Salaries □IV] Stationary & postage □v] Rent, Rates & Taxes □Vi] Premiums, furnitures & fixtures etc. □vii] Entertainment expenses for customers □viii] Miscellenous expenses of input & services □I X] Any other expense (Please specify) a

Is your branch budget split-up into: (Please tick the appropriate box/boxes)

i] Monthly □n] Quarterly □">] Half yearly □iv] Not split □

What is the period of reporting of actual performance against budgeted performance ibranch? (Please tick in the appropriate box)i] Fortnightly □

>i] Monthly □iii] Quarterly □iv] H alf yearly □

The review of actual performance of the branch in relation to the branch budget is:i] Mostly made in divisional/regional office □ii] Mainly done by divisional/regional

manager with a part delegated to branch manager. □iii] Shared equally by divisional/regional

manager and branch manager. □

19. In settling the branch budget, how are the decisions regarding deposits, advances and manpower re­quirements made? (Please tick in the appropriate box showing the statement that is closest to your experience)i] Targets/assessments are first made jointly by branch manager

and divisional manager/district manager by participation and discussion □ii] Targets/assessments are first made by the higher authorities

and then discussed with the branch manager for finalisationand modification, i f any. □

iii] Targets/assessments are made by the higher authorities and announced with hardly any opportunity to raise questions or offer any comments.

Deposits Advances Manpower

i] ________ ________ _________

"I _________ ________ _________

i i i ] _________ _________

2 0 ^ 'D o you involve thcclcrical and supervisory staff in preparing the draft budget of your branch? (Please tick the appropriate box)i] Very much ii] Occasionallyiii] Never

2 < / Did the divisional/regionaL/district manager have any rough targets for your branch deposits/advances with him (or in his mind) when he came for the iast budget settlement meeting0 (please tick appropriate box) Yes □ No □

22. \/For settling a branch budget, who compromised? (Please tick the appropriate box)i] Yourself □ii] Divisional/Distt. manager □iii] Both parties □

2 3 . , / I f there was any change in the draft budget for deposits/advances/manpower requirements during the budget settlement meeting. It was justified by: (Please tick the statement most appealing to you)i] Divisional/regional/District managers’ □

comments to higher authorities. □ii] Potentials suggested by the branch environments □iii] Past performance of the branch □iv] Promise for additional necessities. □

24 In achieving the branch budget did you get the following support from divisional/regional/district man­ager. (Please tick the most appropriate on the basis of your experience)

Full Support Partial Support No Supporti] Manpowerii] Physical facilitiesiii] Feedback informationiv] Involvement of these

officer in business development.

25. Do you feel that the performance budgeting in your branch has been effective in achieving the objec­tives of the system? (Please tick the appropriate box)i] Very effective □ ii] Moderately effective □iii] Somewhat effective □ iv] Not effective □

26. ^£>n the basis of experience regarding the performance budgeting system in Banks, would you like tomake any suggestion to improve the system. Give details.

27. For planning and controlling the day-to-day operations of a branch, do you fix targets for each em­ployee to process the standard number of vouchers per day/ per hour/ per week9

Yes □ No DIs yes, what is the no of vouchers fixed?__________

28 Does your employees fulfil this standard?Yes □ No □

29 Do you fix a time limit for completing a particular job in your bank9Yes □ No □

30. Do you make the morning checking of the previous day’s account at the opening of the day in your branch? Yes D No □!f yes to what extent a morning checking is usefuli] Extremely useful □ ii] Useful □iii] Not useful □

3 i What is the criteria of fixing your exchange/commission on the funds transfer, apart from the bank rule, using your discretionary powers?

32. How do you monitor the progress of stagnate/sticky accounts?

33 On what basis you submit requisition to higher authorities for interest remission on the big borrowal accounts.__________________________________________________________ ____________________

34. How do you ensure the improved services to customers? (Rank the following in order of importancegiven by you using 1 to the most important and 6 to the least important )i) motivating the employees to be polite and helpful to customers. ( )ii) training the employees to be efficient in discharging there duties. ( )in) improving the systems and procedures. , ( )iv) providing more information and counseling services to customers( )v) adding more amenities and services at branch level) ( )vi) any other (Please specify)._______________ ( )

35. Do you charge some interest to H.O./Central Office for the surplus funds of your branch given to them9 (as your branch being Deposit Heavy).

Yes □ No □ No Applicable □If yes, what is the criteria of fixing this interest charge/rate? (Give details)

36. Do you pay some interest to H.O./Central Office for the funds supplied to you to meets the demands ofthe loans of your branch? (As your branch being loan heavy).

Yes □ No □ Not Applicable □I f yes how this interest rate is fixed? Give details

37. Are you satisfied with the above formulae of transfer price?Yes P No. □ Not Applicable □

I f not, what formula you suggest? Give detail

38. Do you have any system of planning and controlling the branch level profitability Yes □ No □

3C> I f the answer to question N o. 38 is yes. what parameters you apply m watching the branch level profitability? (T ick the box/boxes whichever applicable)i) Computing and comparing the spread and burden every month □ii) Profit to average deposits. Oni) Manpower expenses for employee per week/per month □iv) Volume of working funds per employee/per day/per week/per month □v) Gross rate of return □vi) Deposits per employee/per day/per week/per month. □vii) Advances per employee/per day/per week/per month. □vui) Computing the break even point monthly/quarterly □

40 To monitor the profitability of the branch you compute Gross rate of return (GRR):i] Monthly □ii] Quarterly □iii] Six monthly □ix] Annually □x] Never □

41. To control the operating expenses, you compute the expenses ratio:i] Monthly □ii] Quarterly □iii] Six monthly □ix] Annually □x] Never □

42. Please describe the important reports/statements used in your bank for measuring performance o f branch on specific tasks and functions.

Name of the Report Frequency To whom sent

43. Do you find the information contained in these reportsi) very useful □ ii) useful □iii) somewhat useful □ iv) Not useful □

44. Do you have any extra work during the period of closure of bank accounts'1 How much cost is bemtg incurred on that?

45. Do you have any weekly/monthly/quarterly overtime allotments for your staff1 It is carried outi) very satisfactorily □ ii) satisfactorily □iii) unsatisfactorily □ iv) very unsatisfactorily □

46. The inspection and internal audit carried out by the head office of the bank is (Tick the appropriate box)i) very useful to improve tine functioning o f the branch □ii) useful to pinpoint the procedural lapses. □iii) not useful for improving the performance of the branch. □iv) only wastage of resources. □

Indicate the extent to \Miich you think is most appropriate on the basis of your experience by ticking the appropriate box shown against the statement.

1. Attitude towards the system

i) Increase in workload as a result of

budgeting system has been large

ii) Performance budgeting is a managerial tool to exert heavy pressure

iii) I could work as-well without budgets/

standards

v) Introducing budgets/standards has

improved efficiency

vi) The people from the controller’s office have a clear understanding of branch/ district/zone/division problems

vii) Budgeting is first of all an accounting tool

2. Perceived usefulness of the system

i) In reviewing activities and identifying weak areas Management Information System/reporting system .was extremely useful.

ii) Decision during the last few months

were influenced by the MIS/neporting system ' . very significantly

iii) In arriving at targets and formulating

I budgets MIS/Reporting system

was extremely useful

iv) The Management information reports I get are sufficiently understandable

v) Compared with the benefits arising out

of performance budgeting system, the cost involved is more than its benefits.

3. Participation- Supportive group process

Strongly Agree Agree

SomeWhatagree

Strongly Disagree disagree

Strongly Disagree disagree

iii) In assessing the resource needs of ttie responsibility centres and in making

optimal resource allocations,the meetings were very helpful.

iv) In developing better understanding

among officials and in creating an atmos­phere of cooperation and mutual help,

the meetings were very useful.

v) Discussions in the meetings were directed at helping individual managers anatyze and understand their problems to a great extent.

vi) My boss accepts my ideas for improvement

vii) Budgets are set here after taking sufficient account of my branch’s/ divisiorih/districft/zone’s special problems.

viii) My boss asks my opinion about matters.

ix) My boss discusses the quality

performance of my branch/district/ zone/division/department.

4. Commitment to the system>

i If MIS/reporting system were not

vMDrking as well as it should, I would make a sufficiently extra effort

ii) If MIS is formally discontinued,Jwould still continue to collect for my analysis

the MIS data.

iii) If in a group some members criticise the performance budgeting system, I would try to defend it.

iv) Among all the reports I prepare my

superior officers, I would give first priority to MIS reports

5. Perceived satisfaction about the internal Organization Environment

ii) I am extremely satisfied with my

colleagues behaviour with me

subordinate's behaviour with me.

Some

Strongly WhatAgree Agree agree

ii) Views and opinions expressed by the

participants in the meetings were conside- ered by the unit manager with high regard

SomeStrongly What StronglyAgree Agree agree Disagree disagree

iii) 1 am satisfied with my superior's dealings with me.

iv) i feel proud of being a part of this organization.

6. Clarity of the System

i) The objectives of the performance budgeting and Management Information system are clear

ii) The methods through which the objectives are to be achieved are clear.

iii) Terms and concepts used in the MIS are unambiguous and clear

7. Managerial satisfaction of performance budgeting system as an instrumentof performance evaluation.

i) Budget related information is the most important factor in my evaluation

ii) My superior knows that at times budget variance can be confusing and misleading for evaluation

^iii) My superior is more concerned withshowing favourable short-term reports than with long-term effectiveness.

iv) My superior questions budget reports and uses them carefully in my evaluation

v) Budget variances are frequently mentioned to me during my performance evaluation interviews.

vi) Budget related information is rigidly used in evaluating my performance

vii) My superior holds me personally accountable for budget variances.

ix) My superior expresses satisfactionto me when the budget has been duly met.