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Shortcomings of commercial banking in India

Although commercial banks have come a long way after nationalisation of banks, they still suffer from the following shortcomings.
  • Insufficient growth: Though commercial banks have spread to every nook and corner of the country, their growth is still insufficient considering the huge population of India. Rural areas have just 37% of the bank branches where more than 70% population of the country resides.
  • Regional imbalances: States like Arunachal Pradesh, Jammu and Kashmir, Uttaranchal, Manipur and Tripura still have lesser number of banks on an average when compared to other states. Even in well banked states like Maharashtra, West Bengal, and Tamil Nadu, if metropolitan cities are excluded, the population per bank office is larger than the average of these states.
  • Bad debts and over dues: Most of the commercial banks suffer from excessive over dues, bad and doubtful debts which have adversely affected the capacity of a bank to lend money. Bad and doubtful debts of commercial banks, called non-performing assets (NPA’s) which were more than 50,000 crore in 1997-98 have increased to 70,000 crore in 2001-02. However, the gross NPAs have fallen due to strict credit norms followed by the banks. The gross advances also have fallen from 10.5% in 2001-02, 2.94% in 2011-12.
  • Deterioration of quality of service: With the passage of time, the quality of service rendered by commercial banks has deteriorated. This has affected their overall efficiency. Also the staffs are in disciplined and there is no proper system of accountability and control over the banks located in rural areas.
  • Falling profitability: Although the absolute profits have increased, their profitability ratio has fallen considerably. This is due to
    • …Lesser interest on Government borrowings from banks
    • …Subsidisation of credit to priority sector
    • …Rapid branch expansion
    • …Blocked funds in low-term, low-yielding securities resulting from directed credit programmes of banks
    • …Absence of competition
    • …Huge expenditure resulting from over staffing and mushrooming of non-viable branches
  • Lack of professionalism: Banks lack expertise in the areas of merchant banking and agricultural financing. There is a need of a professional approach in these areas.

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