Impact of Monetary Policy.

A
COMPREHENSIVE PROJECT REPORT

ON
“Impact of monetary policy instruments on profitability of co-operative banking
sector with special reference of The SUTEX co-operative bank ltd.”
Submitted to
S.R. LUTHRA INSTITUTE OF MANAGEMENT
IN PARTIAL FULFILLMENT OF THE
REQUIREMENT OF THE AWARD FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
In
Gujarat Technological University
UNDER THE GUIDANCE OF
Faculty Guide: Company Guide:

Mr. Hiren Patel Mr. Kamlesh Patel
Assistant Professor Branch Manager
(The SUTEX co-operative bank ltd.)
Submitted by
Mr. Nishit Diwan [Batch No. 2014-16, Enrollment No.147500592026]
Mr. Piyush Jadav [Batch No. 2014-16, Enrollment No. 147500592033]
MBA SEMESTER III/IV
S.R. LUTHRA INSTITUTE OF MANAGEMENT – 750

MBA PROGRAMME
Affiliated to Gujarat Technological University
Ahmedabad
May-2016
Students’ Declaration
We, Mr. Nishit Y. Diwan & Mr. Piyush G. Jadav, hereby declare that the report
for Comprehensive Project entitled “Impact of monetary policy instruments on
profitability of co-operative banking sector with special reference of The
SUTEX co-operative bank ltd.” is a result of our own work and our
indebtedness to other work publications, references, if any, have been duly
acknowledged.
Place: Surat
Date: _____________
__________________
(Nishit Y. Diwan)
__________________
(Piyush G. Jadav)
Institute’s Certificate
Certified that this Comprehensive Project Report Titled “Impact of monetary

policy instruments on profitability of co-operative banking sector with special
reference of The SUTEX co-operative bank ltd.” is the bonafide work of. Mr.
Nishit Y. Diwan (Enrollment No.147500592026) and Mr. Piyush G. Jadav
(Enrollment No.147500592033), who carried out the research under my
supervision. I also certify further, that to the best of my knowledge the work
reported herein does not form part of any other project report or dissertation
on the basis of which a degree or award was conferred on an earlier occasion
on this or any other candidate.
Place: Surat
Date: ________________
___________________
(Hiren Patel)
Assistant Professor
___________________
(J. M. Kapadia)
Director
PREFACE
In today’s competitive global era only theoretical knowledge can’t work
anymore. So we have to acquire practical knowledge along with the
theoretical aspects so that we can utilize it in practical manner. We
understand that project report for five months is for the development and
enhancement of the knowledge in particular field. Practical knowledge of
administration and management of business is very important. Hence,
practical study is of great importance in our career.
With a view to expand the knowledge in banking sector we have done 3 rd

semester and 4th semester comprehensive project report at “The Sutex co-
Operative Bank Ltd-Surat”. We have made deliberate efforts to collect the
required information and fulfill project objectives. This Project work helps us in
understanding various function performed of how monetary policy instruments
are affecting to the profitability of the co-operative banking sector.
ACKNOWLEDGEMENT
A comprehensive project report is incomplete without the guidance from

appropriate person. We take this opportunity to express our sincere gratitude
towards all those, who have helped to bringing out this project successfully.
It is our great honor and pride to be a part of The Sutex Co-operative Bank
Limited, Surat at least for five months. We heartily thank to Mr. Kamlesh
Patel (Branch Manager) with whose reference, we got the honor to take
great experience with the bank.
We express my profound sense of gratitude and sincere thanks to Mr. K. T.

Wadia (CEO) of The Sutex Co-operative Bank Ltd. Surat, who allowed us
to have the opportunity to accomplish a project report at bank. We would like
to express our special thanks to Mr. Hiren Patel (Assistant Professor) for
this prompt support and guidance in accomplishing this project.
We would like to express our sincere thanks and gratitude to Dr. J. M.

Kapadia (Director, S R Luthra Institute of Management, Surat) for providing
all resources to complete this work successfully.
Lastly we extend our deep sense to God, our Parents, our family members
and our friends for motivating and encouraging us continuously throughout the
period of our study. Finally, we would like to thank to all those people who are
directly or indirectly contributed to our project work.
EXECUTIVE SUMMARY
Cooperatives occupy an important position in the Indian financial system.
Cooperatives were the first formal institution to be conceived and developed
to purvey credit to rural India. In order to deal with the issue of dual control,
the Reserve Bank has taken several steps to develop a stronger and unified
regulatory framework for the cooperative sector. Gujarat Urban Co-operative
Banks, big & small, have been playing an instrumental role as financial power
houses for the common man in each stage of his life - education, career
building as entrepreneurs, helping buy the dream home, meeting personal
needs through gold loans, setting up industries through term loans, business
expansion through working capital limits & encouraging savings through term
deposits.
This project was carried out for the Sutex Co-operative bank ltd, Surat. The
bank has thirteen Branches and one Administrative office. The bank has 217
employers to give training at Administrative office and 36 employers to other
bank branches in previous year. The Bank is Economical, Social, Educational,
and Medical activity with go ahead in Surat city and Surat District. Bank has
provided donation in year 2010-2011 in various Economical and Social
activities.
The project titled “Impact of monetary policy instruments on profitability of co-

operative banking sector with special reference of The SUTEX co-operative
bank ltd.” The objective of the study is to identify the Impact of monetary
policy instruments on profitability of co-operative banking sector with special
reference of The SUTEX co-operative bank ltd. to determine the impact of
Cash Reserve Rate (CRR), Statutory Liquidity Rate (SLR), Interest Rate
(IR)has significant effect on the profit of The Sutex Co-Operative Bank Ltd.
from 2010 – 2015. The research is based on the secondary data and for the
analysis of the data is undertaken by various analytical tools.
TABLE OF CONTENTS
o Company’s Certificate
o Students’ Declaration
o Institute’s Certificate
o Preface
o Acknowledgement
o Executive Summary
Sr. No. Particulars Page No.
1. Introduction 1
2. Industry Profile
a. Global 5
5
b. National 10
c. State 12
d. Current trends 13
e. PESTEL 16
f. Major Players 18
g. Major Offerings 20
3. Company Profile
a. Company Profile 21
21
b. Organogram 28
c. Divisions/ Departments 29
d. SWOT 31
e. Market Position 32
4. Review of Literature 33
5. Research Methodology 48
48
a. Problem Statement
b. Research Objective 49
c. Research Design 49
i. Type of Design
ii. Sampling
iii. Data Collection
iv. Tools for Analysis
v. Limitations of the Study
6. Data Analysis & Interpretation
7. Findings
8. Conclusion
9. Bibliography
10. Annexure xxx
Table Index
Sr. Table Page

Particulars
No. No. No.
1 Staff at SUTEX Co-Op. Ltd. at Rander road branch 3.1 22
2 Board of Director of Bank 3.2 24
3 Branches 3.3 25
4 Interest rate of deposits of bank 3.4 26
5 Capital structure (Rs. in crores) 3.5 27
6 Financial Highlights 3.6 32
7 Summary of model 6.1

8 Interpretation of R for SLR to other dependent variable 6.2
9 Interpretation of R for CRR to other dependent variable 6.3
10 Interpretation of R for IR to other dependent variable 6.4
11 Interpretation of R2 for SLR to other dependent variable 6.5
12 Interpretation of R2 for CRR to other dependent variable 6.6
13 Interpretation of R2 for IR to other dependent variable 6.7
List of Figures
Figure Page
Sr. No. Particulars
No. No.
1 Locker and ATM facilities 3.1 23
2 Organogram 3.2 28
MEANING OF MONETARY POLICY
Monetary policy is the macroeconomic policy laid down by the central bank. It
involves management of money supply and interest rate and is the demand
side economic policy used by the government of a country to achieve
macroeconomic objectives like inflation, consumption, growth and liquidity.
Monetary policy is not easy. Central bankers have multiple objectives and,
over time, must confront a variety of economic circumstances. They know
their actions have powerful effects on the economy, but the timing, magnitude,
and channels of those effects are not fully understood. Their job is made all
the more difficult by widespread disagreements among economists. Some
economists view monetary policy as a potential cure for economic
fluctuations. 0thers would be satisfied if monetary policy could avoid being a
cause of fluctuations.
The key aim of monetary policy for most central banks is to keep inflation low
and steady. Central banks are not, of course, indifferent to economic growth
and unemployment but believe that the best contribution they can make to
long-term economic growth is to aim for price stability, or something close to
it. In the short run, say over the period of a year, a reduction of interest rates
and an increase in the money supply can increase demand and output in the
economy but, unless output is below its potential, only at the cost of an
increase in inflation. Higher inflation, in turn, reduces output again. In fact, the
long - run effects of high inflation on the economy are probably adverse.
Recent comprehensive studies, covering a large number of countries, suggest
that, over ten-year periods, higher inflation - particularly of more than 10-20%
a year - is associated with lower not higher economic growth.1 In nearly all
former centrally-planned countries too, positive economic growth has
resumed recently only after inflation stabilized at relatively low rates. In a
market-oriented economy, central banks cannot control inflation directly. They
have to use instruments such as interest rates, the effects of which are
uncertain. And they have to rely on incomplete information about the economy
and its prospects. Decisions on monetary policy are based on a variety of
indicators. Some central banks use money growth or the exchange rate as the
sole guide to decisions. Others take a more eclectic approach and consider a
range of factors in assessing inflation conditions
Monetary policy helps to promote national economic goals, by influencing the

availability and cost of money and credit.
In the United States, the Federal Reserve Bank indirectly influences demand,
by raising and lowering short-term interest rates. It watches various economic
indicators to determine which the direction the economy is going. By
forecasting increases in inflation or slow times in the economy, the Federal
Reserve knows whether to raise or lower interest rates or increase the supply
of money, in an effort to influence the economy.
In India, the Reserve Bank of India is India’s central banking institution. The
Reserve Bank lays downs restrictions on bank lending and other activities
with large companies. It is the sole authority for issuing bank notes and
supervises all banking operations in India.
Objectives or Goals of Monetary Policy:
The following are the principal objectives of monetary policy:
1. Full Employment:
Full employment has been ranked among the foremost objectives of monetary
policy. It is an important goal not only because unemployment leads to
wastage of potential output, but also because of the loss of social standing
and self-respect.
2. Price Stability:
One of the policy objectives of monetary policy is to stabilise the price level.
Both economists and laymen favour this policy because fluctuations in prices
bring uncertainty and instability to the economy.
3. Economic Growth:
One of the most important objectives of monetary policy in recent years has
been the rapid economic growth of an economy. Economic growth is defined
as “the process whereby the real per capita income of a country increases
over a long period of time.”
4. Balance of Payments:
Another objective of monetary policy since the 1950s has been to maintain
equilibrium in the balance of payments.
Monetary operations
Monetary operations involve monetary techniques which operate on monetary

magnitudes such as money supply, interest rates and availability of credit
aimed to maintain Price Stability, Stable exchange rate, Healthy Balance of
Payment, Financial stability, Economic growth. RBI, the apex institute of India
which monitors and regulates the monetary policy of the country stabilizes the
price by controlling Inflation. RBI takes into account the following monetary
policies:
Cash Reserve Ratio
Cash Reserve Ratio is a certain percentage of bank deposits which banks are
required to keep with RBI in the form of reserves or balances. Higher the CRR
with the RBI lower will be the liquidity in the system and vice versa. RBI is
empowered to vary CRR between 15 percent and 3 percent. But as per the
suggestion by the Narsimham committee Report the CRR was reduced from
15% in the 1990 to 5 percent in 2002. As of September 2015, the CRR is 4.00
percent.
Statutory Liquidity Ratio
Every financial institution has to maintain a certain quantity of liquid assets

with themselves at any point of time of their total time and demand liabilities.
These assets have to be kept in non cash form such as G-secs precious
metals, approved securities like bonds etc. The ratio of the liquid assets to
time and demand liabilities is termed as the statutory liquidity ratio. There was
a reduction of SLR from 38.5% to 25% because of the suggestion by
Narshimam Committee. The current SLR is 21.5%(w.e.f.03/02/15).
Bank Rate Policy
The bank rate, also known as the discount rate, is the rate of interest charged
by the RBI for providing funds or loans to the banking system. This banking
system involves commercial and co-operative banks, Industrial Development
Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds
are provided either through lending directly or rediscounting or buying money
market instruments like commercial bills and treasury bills. Increase in Bank
Rate increases the cost of borrowing by commercial banks which results into
the reduction in credit volume to the banks and hence declines the supply of
money. Increase in the bank rate is the symbol of tightening of RBI monetary
policy. As of September 29, 2015, the Bank Rate stands adjusted by 50 basis
points from 8.25 per cent on June 2, 2015 to 7.75 per cent.
Repo Rate and Reverse Repo Rate
Repo rate is the rate at which RBI lends to commercial banks generally
against government securities. Reduction in Repo rate helps the commercial
banks to get money at a cheaper rate and increase in Repo rate discourages
the commercial banks to get money as the rate increases and becomes
expensive. Reverse Repo rate is the rate at which RBI borrows money from
the commercial banks. The increase in the Repo rate will increase the cost of
borrowing and lending of the banks which will discourage the public to borrow
money and will encourage them to deposit. As the rates are high the
availability of credit and demand decreases resulting to decrease in inflation.
This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening
of the policy.
BANKING INDUSTRY AT GLOBAL LEVEL
In 2014, the global economy entered a period of adjustment, leading to

differentiated bank performance results. The banking industry in the US and
the UK saw an upturn, while that in Japan and Euro Zone remained sluggish
and facing challenges. Against the backdrop of the “New Normal” economic
pattern in China, the assets and liabilities and net profit growth of China’s
banking industry slowed down, and credit risk pressure increased but was
controllable on the whole.
After climbing for 30 years, the share of economic activity attributable to bank
revenues fell in the wake of the global financial crisis. Looking forward,
revenues could flat line at about 5 percent of GDP through 2020 (exhibit). In
fact, that’s our base scenario for the global banking industry—one that implies
growth at the same rate as nominal GDP, following the pattern of other
industries.
In developed markets, factors contributing to this trajectory include

deleveraging and stiffer regulatory regimes that will require higher bank-
capital ratios. In many emerging markets, banking penetration is relatively low
(less than 4 percent in India, Mexico, Nigeria, and Russia, for example). In
others, it is falling—in China, from 6.2 percent to 5.3 percent, we estimate,
mostly as a result of credit liberalization, which will go on dampening margins.
These forces are unlikely to be counterbalanced by the positive impact of
outliers such as Brazil (where banking penetration is more than 10 percent),
global infrastructure-spending growth, or the emergence of a new class of
borrower in developing nations. If interest rates in developed markets rose
faster than anticipated, or if an unexpected burst of product and service
innovation took hold, though, the industry’s growth could become stronger.
Central Banks in the world:
The world’s central banks possess similar forms of operation and structure
although their long term goals may vary.
There are eight major central banks within the world economy today:
1. US Federal Reserve Bank (USD)
2. European Central Bank (EUR)
3. Bank of England (GBP)
4. Bank of Japan (JPY)
5. Swiss National Bank (CHF)
6. Bank of Canada (CAD)
7. Reserve Bank of Australia (AUD)
8. Reserve Bank of New Zealand (NZD)
Federal Reserve Bank- United States
The Federal Reserve The most influential

bank is the US Federal Reserve Bank
because the US dollar is the most heavily
traded currency. The Federal Reserve’s
Federal Open Markets Committee
(FOMC) decides on interest rates and is
made up of 7 governors of the Reserve
Board and 5 of the 12 district reserve presidents. The Federal Reserve meets
8 times a year and its key official is Ben Bernanke, the chairman of the
Federal Reserve. Twelve regional Federal Reserve Banks were created so
that the economic operations of the United States can be monitored
efficiently.
The European Central Bank
European Central Bank The European Central

Bank was established after the creation of the
Euro in 1998. It oversees the actions of the other
member European central banks such as the
Banque de France or Ufficio Italiano dei Cambi.
The European Central Bank has a group similar
to the Federal Open Markets Committee that
helps decide on the changes that may need to be
made to monetary policy. The committee is
known as the Governing Council and is
comprised of 6 members of the executive board of the European Central Bank
in addition to all the governors of the national central banks from the countries
which use the Euro. The Governing Council meets twice a week but only
changes policy at 11 of these meetings. The key official associated with the
Governing Council is Jean-Claude Trichet, who is the President of European
Central Bank.
The Bank of England
Bank of EnglandThe Bank of England consists of

a committee known as the Monetary Policy
Committee. It is comprised of 9 members, which
include a governor, 2 deputy governors, 2
executive directors and 4 outside experts. The
main official associated with the Bank of England
is a man by the name of Mervyn King who is the
governor of the Bank of England. The Monetary Policy Committee meets once
every month in order to discuss any policy changes.
The Bank of Japan
Bank of Japan the Bank of Japan also has

a committee that consists of the Bank of
Japan governor, two deputy governors
along with 6 other members.
It meets once or twice a month and the

key official associated with the Bank of Japan is Toshihiko Fukui who is the
governor of the Bank of Japan.
The Swiss National Bank
Swiss BankThe Swiss National Bank

has a very small committee that
consists of just 3 people and is typically
more conservative as far as interest
rate movements are concerned.
The committee meets quarterly and the

key official associated with the Swiss Bank is Jean-Pierre Roth who is the
Chairman of the Swiss National Bank.
The Royal Bank of Canada
The Bank of Canada also has a committee which is known as the governing
council. The governing council consists of the governor of the Bank of
Canada, the senior deputy governor and four deputy governors. The
committee meets about 8 times a year and the key official associated with the
bank is David Dodge, who is the governor of the Bank of Canada.
The Reserve Bank of Australia
The Reserve Bank of Australia consists of a monetary policy committee which

contains a central bank governor, deputy governor, the secretary to the
treasurer and 6 independent members appointed by the government. The
committee meets about eleven times a year and the key official for the
Reserve Bank is Ian Macfarlane, who is the Governor of the Reserve Bank of
Australia.
The National Bank of New Zealand
Finally, the National Bank of New Zealand unlike all the other banks has no
committee. In fact, all the power of monetary policy lies in the hands of one
individual: the central bank governor. The decision is made about 8 times a
year by Alan Bollard who is the governor.
BANKING INDUSTRY IN INDIA
Cooperatives occupy an important position in the Indian financial system.

Cooperatives were the first formal institution to be conceived and developed
to purvey credit to rural India. Thus far, cooperatives have been a key
instrument of financial inclusion in reaching out to the last mile in rural areas.
The urban counterparts of rural cooperatives, the Urban Cooperative Banks
(UCBs), too have traditionally been an important channel of financial inclusion
for the middle and low income sections in the semi-urban and urban areas.
While there has been an improvement in the financial performance of the

urban cooperative banking sector in recent times, the high levels of NPAs of
UCBs continue to pose a threat to the financial soundness of these
institutions. Rural credit cooperative institutions both of the short- and long-
term nature too is beset with several structural weaknesses, such as poor
resource base and high levels of accumulated losses. Besides, both rural and
urban cooperatives have traditionally been subjected to a multiplicity of control
from the Reserve Bank and State Governments. The CFSA (2009)
characterizes the dual control as “the single most important regulatory and
supervisory weakness” in the cooperative banking sector.
In order to deal with the issue of dual control, the Reserve Bank has taken
several steps to develop a stronger and unified regulatory framework for the
cooperative sector. These steps include the preparation of a Vision Document
by the Reserve Bank in 2005, which recommended a State-specific strategy
of the State Governments entering into a Memorandum of Understanding
(MoU) with the Reserve Bank to deal with the dual regulatory control over
UCBs and the establishment of a Task Force for UCBs in these States as
already discussed in Chapter III of the Report. Similarly, the Task Forc on
Revival of Cooperative Credit Institutions constituted by the Government of
India in 2004 recommended the State Governments to enter into MoU with
the Central Government and National Bank for Agriculture and Rural
Development (NABARD) for implementation of the revival package for rural
cooperative institutions. There are mainly three types of co-operative banks in
India.
1. State co-operative banks
2. Central co-operative banks
3. Urban co-operative banks
State Co-operative Banks
These banks are also known as apex bank & are registered under co-
operative societies act – 1912. In fact these banks are established to function
as a leading co-operative financial institution of the state offer co-operative
societies should grow. The “apex banks” as they are called are they to render
financial help as & when the co-operative societies are in need of their help.
Central Co-operative Banks
A district level of central co-operative banks is functioning as a commercial

bank & that too as an independent unit. They are there in order to strengthen
the co-operative movement in the country. In fact these banks are the key link
between people & apex bank & render valuable services to downtrodden &
rural folk in taking them out of the financial wood central co-operative banks
get funds from (A) share capital (B) deposits (C) financial help from state co-
operative banks (D) state bank of India & (E) commercial banks. Their
working capital is usually provided by state government.
Urban Co-operative Banks
Urban co-operative banks are organized & established in towns on the pattern
of joint – stock banks but are established under co-operative societies act –
1912. For funds these banks depend on their own sources. However central
co-operative banks are helping them in financially viable. Central co-operative
banks are directly links with the state co-operative banks. Urban primary co-
operative banks provide funds to rural folk in easy terms to help them in
agriculture work aid its development today they have started playing a
significant role in rural upliftment. They are in tune with the government
policies & program.
BANKING INDUSTRY IN GUJARAT
The Gujarat Urban Co – operative Banks Federation was established in

Ahmedabad on 5th March 1975 in accordance with the provisions of the
Gujarat Co-Operative Society Act, 1961. Gujarat Urban Co–operative Banks
Federation (GUCBF) is the apex body of 244 urban co-operative banks in
Gujarat.
The Gujarat Co-operative Banking Sector has been servicing the common
man since last 125 years much before the Gujarat Co-operative Societies Act
got enacted in 1908, 103 years back.
Gujarat Urban Co-operative Banks, big & small, have been playing an
instrumental role as financial power houses for the common man in each
stage of his life - education, career building as entrepreneurs, helping buy the
dream home, meeting personal needs through gold loans, setting up
industries through term loans, business expansion through working capital
limits & encouraging savings through term deposits.
All through these years and in the context of the recent global meltdown that
shook the Western & European world the Co-operative Banking Sector has
stood the test of time. It continues to demonstrate that it is a sustainable &
viable model offering affordable finance for not only economic but socio
economic upliftment of the common man.
Historically Co-operative Banks were started by ordinary people with

miniscule capital. To date these banks represent the common man. These
people have a feeling of ownership & pride in their association. Over time
these banks have become financially strong & the assets generated by these
banks also belong to the common people who are their members:
The Federation is currently working on three major areas
1) Technology up gradation to help even the tiniest bank acquire

capabilities to offer world class banking.
2) Consolidate the co-operative brand “Proudly Co-operative” to provide

banks & other Co-operative Organizations with a uniform identity.
3) Carry out research for the sector to develop a road map for 2020 in its
endeavor to constantly prepare banks to meet future challenges.
The declaration of 2012 as the International Year of Co-operatives by UNO

has given us a unique opportunity to go to the public to highlight success
stories, various socio-economic business models & initiatives that the
Federation & its member banks have taken.
The Federation has decided to celebrate this year through various initiatives
for financial inclusion & inclusive growth. The details of such initiatives &
projects with emphasis on youth & women are highlighted separately under
the title IYC initiatives.
The Federation is committed to serve the common man guided by Co-
operative Principles, Values & Regulation. The Federation continues to be
absolutely confident that the Urban Co-operative Sector of the State is fully
geared to raise to the expectations of the common man and handhold each
such individual to a safe, secure & prosperous future.
CURRENT TRENDS IN BANKING INDUSTRY
 Today, we are having a fairly well developed banking system with

different classes of banks.
 Some of them have engaged in the areas of consumer credit, credit

cards, merchant banking, internet and phone banking, leasing, mutual
funds etc.
 A few banks have already set up subsidiaries for merchant banking,

leasing and mutual funds and many more are in the process of doing
so.
IT in Banking:
 Increasing importance of total banking automation in the Indian

Banking Industry
 Used under two different avenues in Banking used under two different
avenues in Banking
 Communication and Connectivity
 Business Process Reengineering
Technology In Banks:
 To Transform Financial Services Industry In The Net-worked World.
 Increased Operation Efficiency, profitability & Productivity.
 Superior Customer Service.

 Provide Services / Products across A Range Of Channels.
 To Be Futuristic And Have “Time” Value In All Its Dealings With

Customers
 Improved Management/Accountability.
 Minimal Transaction Cost.
 Improved Financial Analysis Capabilities.
Focus aspects of New Banking Systems:
 Core banking solutions (cbs).
 Customer relationship management (crm).
 Electronic payment services (e - cheques).
 India, as harbinger to the introduction of e-cheque, the Negotiable

Instruments Act has already been amended to include; Truncated
cheque and E-cheque instruments.
Real Time Gross Settlement (RTGS):
 Introduced in India since March 2004.
 It is a system through which electronics instructions can be given by

banks to transfer funds from their account to the account of another
bank.
 The RTGS system is maintained and operated by the RBI and provides
a means of efficient and faster funds transfer among banks facilitating
their financial operations.
 Runs on ‘Real Time bases.
Electronic Fund Transfer (EFT):
 Is a system whereby anyone who wants to make payment to another

person/company etc. can approach his bank and make cash payment
or give instructions/authorization to transfer funds directly from his own
account to the bank account of the receiver/beneficiary.
 RBI is the service provider of EFT.
Electronic Clearing System (ECS):
 Is a retail payment system that can be used to make bulk

payments/receipts of a similar nature especially where each individual
payment is of a repetitive nature and of relatively smaller amount.
 Facility is meant for companies and government departments to

make/receive large volumes of payments rather than for funds
transfers by individuals.
Electronic Data Interchange (EDI):
Electronic exchange of business documents like purchase order, invoices,

shipping notices, receiving advices etc. in a standard, computer processed,
universally accepted format between trading partners.
PESTAL ANALYSIS OF BANKING INDUSTRY
Political
 The Indian banking Industry is mostly dependent on the monetary

policy decided by the RBI
 Stricter regulations with respect to capital and liquidity directly affects

the business of banks
 Banks need to adjust their interest rates accordingly, which may or may
not favor them
 Banks are forced to lend as per the guidelines of RBI, that includes
credit growth in all sectors
 Budgetary Measures announced by the government at the beginning of

every financial year also lay down guidelines to banks to lend or accept
deposits
 The government can also increase credit in particular sectors such as

increase in farm credit, increase in infrastructure credit etc.(priority
lending)
Economic
 Economic factors in the country also affect the Banking Industry both
favorably or unfavorably.
 When the economy is in good shape in terms of high per capita

income, good agriculture harvest and normal inflation, banks have an
edge as people are left with more money to deposit them with banks.
 This helps in more capital formation as more deposits can be realized.

 Also In the times of economic boom, more and more FDI is brought
into India through banking channels that actually improves business for
banks and the economy in general.
 Economic prosperity encourages lending business for the banks but in

times of recession banks face tough times to recover their money,
issue fresh credit and NIMs is lower too.
Social
 The Indian banking system has been progressing rapidly. There are
still several untapped rural markets, despite the large number of banks
in India.
 Many farmers still take loans from moneylenders at a very high interest
rate and small-scale industries continue to remain important for banks.
 However changes could be expected in the near future for the

unorganized sector.
 The growing population of India is a great opportunity for Indian banks

as a lot of people in the country want to open a bank account and
develop good savings habits.
 Changing lifestyle of the Indian urban population who wants easy ways
of financing to their desires.
Technological
 Indian banking has been consistently working towards the development

of technological changes and its usage in its operations.
 With the application of new and improved technologies banks are
expected to reduce costs, time and provide higher customer
satisfaction.
 Internet banking or banking via the phone can be considered a

remarkable development in the banking industry.
 Mobile banking enables Respondents to check their account balance,

transfer funds 24x7, bill payments, booking of bus/flight tickets,
recharge prepaid mobile and do a lot more effortlessly and securely.
 Banking through cell phone benefits the banks too. It cuts down on the
cost of in-person banking and helps reduce headcount at branches.
 Technological developments facilitate the flow of information and data

faster leading to faster appraisal and decision-making as well.
Environmental
 It is the great news that today service sector is contributing more than
half of the Indian GDP. It takes India one step closer to developed
economies of the world. Earlier it was agriculture which mainly
contributed to the Indian GDP.
 This increases the avenues of investment by the industrial sector; this

would further increase the borrowings by the industry’s leading to the
banking industries.
 In regard with the service sector, as the income of the people will
increase, lending and savings will increase leading to increased
business for banks.
Legal
 Banking Regulation Act – In 1949, the Banking Regulation Act was

enacted which empowered RBI to regulate, control and inspect the bank
in India.
 Intervention by RBI – The RBI will intervene to smooth sharp movements

in the rupee and prevent a downward spiral in its value, but will balance
with this with the need to retain reserves in the event of prolonged
turbulence.
(A) Major players of Banking Industry:
Public sector:
 State Bank Of India
 Punjab National Bank
 Bank of Baroda
 Union Bank
 Central Bank Of India
 Dena Bank
Private sector:
 Axis Bank
 HDFC Bank
 ICICI Bank
 Kotak Mahindra Bank

 Dhanlaxmi Bank Ltd.
 Yes Bank Ltd.
 The South Indian Bank Ltd.
Co-operative sector:
Scheduled Urban co-operative bank
 Ahmedabad mercantile co-operative bank
 Kalupur commercial co-operative bank
 The Surat peoples co-operative bank ltd.
 Rajot Nagrik Sahakari bank ltd.
 Mehasana urban co-operative bank ltd.
State co-operative bank:
 Jammu and Kashmir co-operative bank ltd.
 Andhra Pradesh state co-operative bank ltd.
 Gujarat state co-operative bank ltd.
 Delhi state co-operative bank ltd.
 Bihar state co-operative bank ltd.

Major Offerings:
Co-operative banks are small-sized units organized in the co-operative sector

which operate both in urban and non-urban centers. These banks are
traditionally centered on communities, localities and work place groups and
they essentially lend to small borrowers and businesses.
The co-operative banks in rural areas mainly finance agricultural based

activities including farming, cattle, milk, hatchery, personal finance, et cetera,
along with some small scale industries and self-employment driven activities,
the co-operative banks in urban areas mainly finance various categories of
people for self-employment, industries, small scale units and home finance.
This bank provide most services such as savings and current accounts, safe
deposit lockers, loan or mortgages to private and business customers. For
middle class users, for whom a bank is where they can save their money,
facilities like Internet banking or phone banking is very important.
The Sutex Co-Operative Bank Ltd. Offering internet banking to their

customers so that customers can easily access their account from internet
banking.
Bank also offers mobile application to their customers so that any customer
can easily access their account with the using of mobile phone.
They are providing agriculture loans as well as non-agriculture loans to the

individuals and societies.
INTRODUCTION OF BANK
“The Sutex Co-operative Bank Ltd.” has started on 15th may 1972. Bank has
Registered No. as per Gujarat Sate Co-op Act. S/5033 on 15th may 1972, and
Multi State Co-op Act. MSCS/CR/8099.on 8th February 1999. With the help of
Mr. Surajram Hiralal Bachakaniwala, Mr. Jyotindra Bhagwandas Lekhadiya
and other Director Member at Surat Textile Market. The bank is last 39 year to
provide services in various areas. The bank has thirteen Branches and one
Administrative office. Bank used Tragologist Software and Wipro Hardware,
the bank daily working cabol program. The Bank slogan is “HELPS YOU
LIVE BETTER”.
The bank has fifteen Branches, one Administrative office and five ATM
service available to customer in various areas. In 2000-01 year to open a new
branch at “Salabatpura” this branch is good working condition in very short
period. The bank has 217 employers to give training at Administrative office
and 36 employers to other bank branches in previous year. The Bank
Information technology of working in LAN (Local Area Network) system at all
branches.
The Bank is good facility to provide Senior Citizen in Fixed Deposit. The
facility is 1% more interest on Fixed Deposit. The Bank is Economical, Social,
Educational, and Medical activity with go ahead in Surat city and Surat
District. Bank has provided donation in year 2010-2011 in various Economical
and Social activities. The bank has received Audit Class “A”, in last 39 year; it
is a great achievement of the Bank. The Bank provided 15% dividend to share
holders as per profit. The Bank start with 272 shareholder and today
shareholder member is 33357. The Bank started with Rs. 5.25 lakh Working
Capital and today is 1400.31 Cr.
The following member of the Bank team at “Udhna main road” Branch has
played an important role in shaping my training by making this venture a
purposeful and an educative one.
Table No: 3.1
Table Name: Staff at SUTEX Co-Op. Ltd. at Rander road branch
Name Position
Mr. Kamlesh P. Patel Branch Manager
Mr. Yogesh Patel Cashier
Mr. Sailesh Jariwala Officer
Mr. Harshad N. Mehta Officer
Mr. Sirish Patel Clerk
Mr. Vikram Dudhwala Clerk
Mr. Amit Patel Peon
Vision
The bank aims to double its business in next 5 years. Expansion plan is there
for opening of 3 more branches in prime locations of the city. Main focus is to
cover the areas which are not covered by adequate banking facilities.
The adoption of all modern technologies for better service will be priority of
the bank in future. The environment of all the branches will match an
international standard.
Bank is poised to move towards needs based and behavior based

segmentation in the next few years. Recounting that the number of mobile
phone users is increasing day by day, bank has already started services of
mobile banking and will shortly commence net banking.
The bank will expand its horizons beyond the traditional banking products and
enter into newer ventures to increase its bottom line combines with cost
rationalization.
In summary, bank will spotlight on customer service as well as satisfaction
across all channels.
About Sutex bank and its facility
They are providing all modern and advanced services and facilities to their
Respondents such as CBS facility, SMS Alerts, E-statements, E-tax
payments, ATM services, RTGS/NEFT facility, Stamp Franking etc.
Figure No: 3.1
Figure Name: Locker and ATM facilities
Locker facility ATM facility
Attractive rates on various schemes of F.D. are offered by them. Recurring

Scheme is also available with attractive rate of interest. Their Kanya Utkarsh
Yojana Recurring Deposit scheme is specially designed for girl child which
offers special rate of interest.
Moreover, Free Accidental Life Insurance Policy is provided by them to each

and every Current / Savings / Share Holders of our bank. Meetings with
valued Respondents of the bank are held at regular intervals. Shareholders of
our bank are also provided benefits under Members Upliftment Scheme in the
form of cash prizes to their children in education achievements, financial aid in
hospital bills etc.
BOARD OF DIRECTORS (2015-16)
Table No: 3.2
Table Name: Board of Director of Bank
Name Position
Mr. Nimeshbhai Bachakaniwala Chairman
Mr. Arunbhai Kanodiya Vice-chairman
Mr.Nirmalkumar Vakharia President
Mr. Kamalvijay Tulsyan Joint President
Mr. Ravindrabhai Dhorabhai Hon. Director
Mr. Prabhatsinh Solanki Hon. Director
Mr. Kartik Hathiwala Hon. Director
Mr. Jyotindrabhai Lekhadiya Director
Mr. Manaharlal Bachakaniwala Director
Mr. Hashmukhlal Mistri Director
Mr. Sharadbhai Kapadiya Director
Mr. Raj Kapadiya Director
Mr. Ashwain Desai Director
Mr.Bhikhubhai Desai Director
Mr.Dilipbhai Dhamanwala Director
Mr. K. T. Wadia C. E. O.
Mr.G.H.Patel Senior Manager

BRANCHES OF SUTEX CO-OPERATIVE BANK LTD.
Table No: 3.3
Table Name: Branches
Branch Location Ph.No.
Head Office Surajram Bachkaniwala Bhawan, 0261-2634702

Udhana-Mug. Road
Textile Market Surat Textile Market, Ring Road 0261-2343947
Athawalines Anjana Shalakha 0261-2254568
Station Medhani Mention 0261-2402736
Parvat Patia Surbhi Complex 0261-2641495
Gopipura Subhash Chowk 0261-2593463
Sachin G.I.D.C. 0261-2397954
Katargam G.I.D.C. 0261-2407876
City Light Hirapanna Shopping Centre 0261-2256444
Rander Nr. Ashirwad Society 0261-2781989
Salabatpura Piperdi Sheri 0261-2365608
Varachha Shreyas Diamond Centre 0261-2542022
Pandesara Keval Commercial Complex 0261-2894025
Udhna Magdala Surajram Bachkaniwala Bhawan,

Udhana-Mug. Road
Sahara Darwaja N.T.M. Market 0261-2343940
Udhna Main Road Shrinath complex udhna main road 0261-2273323

INTEREST RATE OFFERED ON DEPOSITS
Table No: 3.4
Table Name: Interest rate of deposits of bank
SL. FIXED DEPOSITS RATE OF INTEREST
1 15 DAYS TO 30 DAYS 4.50%
2 31 DAYS TO 45 DAYS 7.00%
3 47 DAYS TO 90 DAYS 7.00%
4 91 DAYS TO 180 DAYS 7.00%
5 181 DAYS TO 1 YEAR 7.50%
6 ABOVE 1 YEAR TO 2 YEARS 7.50%
7 ABOVE 2 YEARS TO 3 YEARS 7.75%
8 ABOVE 3 YEARS TO 10 YEARS 8.00%
SPECIAL SCHEME FIXED DEPOSIT
9 FOR 13 MONTHS ONLY 9.50%
(SIMPLE INTEREST)

16 FOR 90 MONTHS 9.50%
(MORE THAN DOUBLE)
17 FOR 120 MONTHS 9.50
(MORE THAN 2 AND HALF)
18 FOR 351 DAYS ONLY (SIMPLE INTEREST) 10.50
19 FOR 551 DAYS ONLY 10.25
(COMPOUNDING INETEREST)
20 SUTEX LAXMI VARSHA SCHEME 10.75
(SIMPLE INTEREST) 444 DAYS PAYABLE

AT MATURITY ONLY
RECURRING DEPOSIT SCHEME
24 FOR 42/48/60/66/75/120 MONTHS ONLY 10.00%
SPECIAL SCHEME
 DEPOSIT 2000 RS EVERY MONTH AND GET AFTER 42 MONTHS

1,00,760 /- AND FOR SC 1,02,640 /-

2,08,348 /- AND FOR SC 2,15,584 /-
4,11,128 /- AND FOR SC 4,35,420 /-

5,03,632 /- AND FOR SC 5,33,390 /-
 351 DAYS AT 10.50 % (SIMPLE INTEREST) (NEW SCHEME)
 551 DAYS AT 10.25 % (COMPOUNDING INETEREST) (NEW

SCHEME)
FINANCIAL HEALTH OF BANK
Table No: 3.5
Table Name: Capital structure (Rs. in crores)
Particular Financial Year
31/03/2013 31/03/2014 31/03/2015
Members 30176 31317 33357
Share capital 24.27 28.85 31.94
Total Deposits 883.15 1068.12 1247.83
Total Advance 584.07 687.21 841.37
Working Capital 1002.53 1201.38 1400.31
Net Profit 11.26 13.24 15.68
Reserve funds 63.42 72.71 88.33
Audit class A A A
Dividend 15% 15% 15%

ORGANIZATIONAL CHART
Figure No.:3.2
Figure Name: Organogram
PRESIDENT
DIRECTORS
GENRAL MANAGER
DEPARTMENT GENRAL MANAGER
ASSISTANCE GENRAL MANAGER
CHIEF MANAGER
SENIOR MANGER
MANAGER
OFFICER'S
SPECIALIST OFFICER'S
SENIOR CLERK
JUNIOR CLERK
PUEN
SWIPEER
c. Divisions/ Departments
(1) LOAN Department:
Loan application department: In loan application department mainly

processing of loan application is done. In this department all the required
documents along with the applications are been collected and then
sanctioning is done for further procedure.
Loan disbursement department: when the documents are been submitted

by the customer for taking loan then investigation on such documents is done
by this department. to find out whether the documents are true or not and
once the bank is satisfied with the investigation and the loan amount is been
paid to customer.
Loan recovery department: the customers who fail to pay the loan amount
then for recovery of the amount of the loan from the customer is done in loan
recovery department all the legal actions are been taken the recover the loan.
(2) Administration department:
 Personnel department: the work related to human resource is done in

this department (i.e. salary, recruitment, training, selection, etc.)
 Salaries of all employees handled at administration department.
 Whenever SDCOBL needed the new employees for bank, the

recruitment procedure and selection procedure are managed by this
department.
 If bank have changes in their technology than it is needed to give

trainings to the employee and it gives by this department.
(3) Share Department:
As the Surat district co-op bank ltd has its own share a separate department
to develop to do all the work related to share like share issue, payment of
dividend, share allotment, etc.
(4) Electronic Data Processing (EDP) Section:
The electronic data possessing section is developing for data processing and
computer hardware and software implementation any development of
software for data entry of banking transaction is done in this department. All
the e-banking services like internet banking, ATM, mobile banking, etc. are
been handle in EDP department.
SWOT ANALYSIS
(1) Strengths
 It is one of the best service-providing Banks.
 There is availability of enough funds.
 The Bank have efficient work force.
 It is fully computerized.
 It takes care of employers.
 It is a popular Bank of Surat city.
 It has well and growth oriented future city.
 The Bank is running legally in all process.
(2) Weaknesses
 Expenses and operating costs are very high.
 There is less emphasis on marketing.
 Over burden of work.
 There is no proper planning to face competitors.
(3) Opportunities
 There is more opportunity for starting new branch in Surat; due to high
population.
 The bank can widen the scope to all over Gujarat.
 As it has audit class “A” since last 39 year & has prosperous balance
sheet so, people at any place will welcome it.
 It has an opportunity to become a Schedule bank in near future.
(4) Threats
 All co-operative Banks of Surat are opening more branches so there is a

threat of Competition.
 As the banks are becoming “Multi State” it has more threat of competition.
Market Position
Financial Highlights
(Rs. in Lacs)
Key Areas 1972- 1982- 1992- 2002-03 2010-11 2011-12 2012-13 2013-14 2014-15
73 83 93
Paid up 1.10 6.07 56.57 618.81 2052.70 2426.70 2768.10 2886.04 3194.61
Share
Capital
Reserves 0.01 8.06 201.02 3291.41 4782.63 5478.41 6342.82 7271.89 8833.16
& Other
Funds
Deposits 5.23 109.1 1983.4 24671.83 63440.76 75629.78 88315.09 106812.21 124782.92
5 0
Loans & 0.47 36.75 1073.7 12396.24 41826.46 51572.27 58407.18 68721.45 84136.97
Advances 7
Working 6.35 141.2 2536.0 30054.65 68493.59 85778.00 100253.31 120138.67 140031.16
Capital 5 8
Net Profit -0.13 4.53 83.10 404.31 743.81 882.97 1125.96 1324.31 1567.61
As on 31/03/2012 and 31/03/2013

(Rs. in crore)
Key Areas 31/3/2012 31/3/2013 31/03/2014 31/03/2015
PAID UP SHARE CAPITAL 24.27 27.68 28.86 31.94
RESERVES & OTHER FUNDS 54.78 63.43 72.72 88.33
DEPOSITS 756.30 883.15 1068.12 1247.82
ADVANCES 515.72 584.07 687.21 841.36

Working Capital 857.78 1002.53 1201.38 1400.31
BUSINESS 1272.02 1467.22 1755.33 2089.18
PROFIT 8.83 11.26 13.24 15.67
Table No: 3.6
Table Name: Financial Highlights

Literature review
Punita and Somaiya (2006) carried out a study on the impact of monetary
policy on the profitability of banks in India between 1995 and 2000. The
monetary variables were banks rate, lending rates, cash reserve system and
statutory ratio, and each was regressed on banks profitability independently.
Lending rate was found to exact positive and significant influence on banks’
profitability, which indicates a fall in lending rates will reduce the profitability of
the banks. Also, bank rate, cash reserve system and statutory ratio were
found to have negative and significant effect on the profitability of banks. Their
findings were the same when lending rate, bank rate, cash reserve system
and statutory ratio were pooled to explain the relationship between banks
profitability and monetary policy instruments in the private sector.
Gambacorta and Lannoti (2005) investigated the velocity and asymmetry in

response of bank interest rates (lending, deposit, and inter-bank) to monetary
policy changes from 1985-2002 using an Auto-regressive Vector Correction
Model (AVECM) that allows for different behaviors in both the short-run and
long run. Their study shows that the speed of adjustment of bank interest rate
to monetary policy changes increased significantly after the introduction of the
1993 Banking Law, interest rate adjustment in response to positive and
negative shocks is asymmetric in the short run, with the idea that in the long-
run the equilibrium is restored. They also found that banks adjust their loan
(deposit) prices at a faster rate during period of monetary tightening in Italy.
Amidu and Wolfe (2008) examined the constrained implication of monetary

policy on bank lending in Ghana between 1998 and 2004. Their study
revealed that Ghanaian banks’ lending behavior is affected significantly by the
country’s economic support and change in money supply. Their findings also
support the finding of previous studies that the Central Bank prime rate and
inflation rate negatively affect bank lending. Prime rate was found statistically
significant while inflation was insignificant. Based on the firm level
characteristics, their study revealed that bank size and liquidity significantly
influence bank’s ability to extend credit when demanded.
Younus and Akhta (2009) examined the significance of Statutory Liquidity
Requirement (SLR) as a monetary policy instrument in Bangladesh. Using
descriptive analysis techniques, they found that statutory liquidity requirement
has experienced infrequent changes and past evidence showed that reduction
in SLR produced positive impact on bank credit and investment especially
prior to the 1990s.
Ennis and T. Keister (2008) investigated that SLR and Cash Reserve
Requirement (CRR) were found to be significant tools of reducing inflation and
both are used only in situation of drastic imbalance resulting from major
shocks. They posited that Bangladesh Bank has used open market operations
(OMO) more frequently rather than changes in the Bank Rate and SLR as
instruments of monetary policy in line with its market oriented approach.
Okoye and Eze (2013) examined the impact of bank lnterest rate on the
performance of Nigerian Deposit Money Banks between 2000 and 2010. It
specifically determined the effects of lnterest rate and monetary policy rate on
the performance of Nigerian Deposit Money Banks and analyzed how bank
interest rate policy affects the performance of Nigerian deposit money banks.
Their result confirmed that the interest rate and monetary policy rate have
significant and positive effects on the performance of Nigerian deposit money
banks. The implication of this is that lending rate and monetary policy rate are
true parameter of measuring bank performance.
Ajayi (2012) investigated the effect of monetary policy instruments on banks

performance with a view to determining the existence of long-run relation for
the period 1980-2008. The Engle-granger two step co integration approaches
were adopted. The empirical estimates indicated that bank rate, inflation rate
and interest rate are credit enhancing, while liquidity ratio and cash reserves
ratio exerted negative effect on banks total credit. Although, it was only cash
reserve system and interest rate that were found to be significant at 5%
critical value, main conclusion drawn was that monetary policy instruments
are not effective to stimulate credit in the long-run, while banks total credit is
more responsive to cash reserve system. Moreover, it was suggested that the
monetary authorities should moderate the minimum policy rate as a tool for
regulating commercial banks operations and facilitating investment in the
economy.
Akanbi and Ajagbe (2012) investigated analysis of monetary policy on

commercial banks in Nigeria. The study employed three commercial banks in
the Nigeria financial system, that is, the first generation banks. The employed
data run through 1992 to 1999 and this was collected through various issues
of central bank of Nigeria statistical bulletin and analysed with the use of
regression model. The results showed net profit, liquidity ratio, cash ratio and
interest rate on savings which confirms to the prior expectation. This could be
further explained with the regression estimate whereby an increase in interest
rate will leads to a decrease in the lending rate while liquidity ratio and cash
ratio were statistically significant to the profit of the selected banks.
Mishra and Montiel (2012) examined survey of the evidence on the

effectiveness of monetary policy in developing countries. They conclude that,
despite methodological issues present in the literature, monetary transmission
appears to be weak in developing countries. Mishra (2014) find large variation
in the response of bank interest rates to monetary policy shocks across
countries, with weaker transmission in developing countries.
Rao(2006) investigated the impact of monetary policy on the profitability of

banks in the context of financial sector reforms in India using multiple
regression analysis. Their study indicates a greater impact of general credit
control on the private sector banks however the regression coefficient is
insignificant to explain the relationship between bank profitability and the
monetary policy instrument in the case of public sector banks. They view that
some borrowers are dependent on banks for financing stems from economic
models of asymmetric information that help explain credit market
imperfections. The central idea is that the costs of obtaining information about
a firm’s condition, as well as bankruptcy costs, are differentially greater for
smaller firms.
Bennaceur and Goaied, (2008) study The Determinants of Commercial Bank

Interest rate and Profitability: Evidence from Tunisia and find that interest rate
has contrasting effect on net interest margins. In fact, monetary policy has a
negative impact on the interest margin whereas complete strengthens the
ability of Tunisian banks to generate profit margins.
Obstfeld and Rogoff (2002) showed that if the distortion between the natural
rate and the socially optimal rate of output is fixed and if there are complete
financial markets, then monetary policy rules that stabilize prices are optimal
in the face of productivity shocks. Indeed, in this special case, unilateral
adoption of inflation targeting rules by national central banks produces just as
efficient an outcome as if central banks set their rules cooperatively. This
equivalence breaks down when financial markets are incomplete, and when
there is only partial pass-through from exchange rates to prices. (Corsetti and
Pesenti, 2003 demonstrate the latter).
As Blanchard and Gali (2005) have demonstrated, the general principle is that
when economies contain real rigidities (such as sluggish real wage
adjustment) in addition to nominal rigidities, tightly construed inflation
targeting is no longer optimal. They argue that an oil shock is likely to be a
case where monetary authorities, in general, will want to allow some higher
inflation to cushion the shock to output. They show that popular canonical
models that do not allow for such real rigidities (e.g., the New Embargoed
Until Presentation Time on August 26, 2006,23 Keynesian Model with Calvo
Pricing) give a misleading view of the efficacy of overly strict inflation
targeting.
Kangasabapathy (2001) captured the historical perspective in respect of

monetary policy underpinnings with particular reference to India. He also
points out the limitations and constraints in pursuing monetary policy
objectives and throws light on current mainstream economic thinking and
perspective in the context of the changing economic environment worldwide.
In the recent times, due to the emergence of interest rate as an efficient
variable in the transmission mechanism, the RBI has begun placing greater
reliance on indirect instruments such as Repo, Bank rate, OMO etc., rather
than the earlier practice of greater dependence on CRR alone. Another issue
debated in the context of Central Bank autonomy is the separation of debt
management and monetary management functions. At the same time, it
would require a co-ordinate operation with monetary management to achieve
a stable interest rate environment and market condition.
Van den Heuvel (2005) argued that monetary policy affects bank profitability
through two channels. They argued that by lowering bank reserves,
contractionary monetary policy reduces the extent to which banks can accept
reservable deposits, if reserve requirements are binding. The decrease in
reservable liabilities will, in turn, lead banks to reduce lending, if they cannot
easily switch to alternative forms of finance or liquidate assets other than
profits.
Leena Ajit Kaushal, Neha Pathak (2011) investigated the impact of monetary
policy changes on inflation and banking sector interest profitability in India.
The banking system is the most dominant segment of the financial sector.
Indian banks are well regulated and have emerged stronger under the
regulator's watchful eye. Their unassailability could be well gauged by the
health of an economy. The paper focuses to find out that whether the
monetary policy instruments act as an important driver to regulate Inflation or
recession in subsequent years and further to assess the extent to which it
impacts the profitability status of the banks. The results suggest that there has
been a significant impact of policy changes on the commercial banks interest
profitability and the inflation. But when the policy tightens its stance,
commercial banks have enough flexibility to re-adjust their lending rates and
deposit rates to narrow down the impact on its profitability due to the hike in
policy rates. Banks work in tandem to the monetary policies stance to bring
out the desired result in the economy.
Somoye and Ilo (2009) examined on the impact of macroeconomic instability

on the banking sector lending behaviour in Nigeria between 1986 to 2005,
also revealed the mechanism transmission of monetary policy stocks to banks
operation. The result of co integration and Vector Error correction showed that
exist.
Ikhide and Alawode (2001) indicated that central bank’s measures such as
setting ceilings on interest rates and credit expansion, selective all ovation of
credit, and high reserve requirements could result in financial repression
which distorts the well functioning of domestic financial markets.
Folawewo and Osinubi (2006) opined that monetary policy as a combination

of measures designed to regulate the value, supply and cost of money in an
economy, in consonance with the expected level of economic activity. For
most economies, the objectives of monetary policy include price stability,
maintenance of balance of payments equilibrium, promotion of employment
and output growth, and sustainable development. These objectives are
necessary for the attainment of internal and external balance, and the
promotion of long-run economic growth.
Ojo (2003) examined that there are two major control mechanisms of
monetary policy used to by Central Banks at any point in time and these
control mechanisms are usually referred to as tools/instruments of monetary
policy and they have effects on the proximate targets. Monetary instruments
can be direct or indirect. the direct instruments include aggregate credit
ceilings, deposit ceiling, exchange control, restriction on the placement of
public deposit, special deposits and stabilization securities while indirect
instruments include Open Market Operation (OMO), cash reserve
requirement, liquidity ratio, minimum discount rate and selective credit
policies. Monetary policy has vital roles in the short-run i.e. it is used for
counter-cyclical output stabilization, while in the long run; it is used to achieve
the macro-economic goals of full employment, price stability, rapid economic
growth and balance of payments equilibrium.
Uniamikogbo and Enoma (2001) observed that monetary policy objectives are
concerned with the management of multiple monetary targets among them
price stability, promotion of growth, achieving full employment, smoothing the
business cycle, preventing financial crises, stabilizing long-term interest rates
and the real exchange rate. That these objectives are all not consistent with
each other is obvious, as the preference of monetary policy objectives is
anchored upon the weights assigned by monetary authorities or country
priorities. Experience shows that emphasis is usually placed on maintaining
price stability or ensuring low inflation rates.
Van den Heuvel (2000) argued that monetary policy affects bank lending
through two channels. They argued that by lowering reserves, contractionary
monetary policy reduces the extent to which banks can accept deposits if
reserve requirements are binding. The increase in reserve requirements will in
turn lead banks to reduce lending if they cannot easily switch to alternative
forms of finance or liquidate assets other than loan.
Adofu and Audu (2010) used ordinary least square method to ascertain the
assessment of the effects of interest rate deregulation in enhancing
agricultural productivity in Nigeria. The study found out that interest rate play a
significant role in enhancing economic activities and as such, monetary
authorities should ensure appropriate determination of interest rate level that
will break the double - edge effect of interest rate on savers and local
investors.
Rasheed (2010) used error correction model (ECM) to investigate interest

rates determination in Nigeria. The study found out that as the Nigerian
financial sector integrates more with global markets, returns on foreign assets
will play a significant role in the determination of domestic interest rates.
Odufalu (2004) studied mainly on the effect of monetary policy on banks

profitability in Nigeria. He developed a model of bank profitability, which had
profit before interest and tax as the dependent variables. While the
independent variables include, average interest rate on savings and time
deposits, prime lending rate for loans and advances, treasury bills rate, total
deposit, liquidity ratio, cash and income. He also used pooled data for only
twelve commercial banks from 1998 to 2003 periods and estimated the model
using the ordinary least square (OLS) estimation method.
Uchendu (2000) criticized Odufalu’s use of twelve banks as sample size out of
a total of one hundred and twenty banks on the basis that the sample size
was small to make any meaningful conclusion. Using data ranging from 1994
to 1999 and a sample size of a total of sixty commercial banks, he
investigated the impact of monetary policy on the performance of commercial
banking sector in Nigeria. He developed a profit function employing three
different measures of profitability namely: interest earning rate, rate of return
on assets and rate of return on capital as the dependent variables and six
independent variables which include: interest rate (saving or lending),
exchange rate, concentration ratio (a variable measuring efficiency unit labor
cost).
Nyong (2001) undertook a very outstanding study different from all other
previous studies earlier. He used two-ways causality test between profitability
and capital investment in banks. It was hypothesized that an increase in
lending rate as well as the spread between the lending rate and deposit rate
leads to increase in profit. However, an increase in excess liquidity may or
may not lead to increase in bank profitability. An increase in excess reserve
may lead to increase in profit in a condition of strong demand for loan able
funds. It may lead to a fall in profit in a condition of weak demand and hence
constrain the ability of banks to make profits. Rising labour costs could
increase profit only if matched with productivity in line with the marginal
productivity theory because generally increase in labour cost should decrease
bank profit as it is a cost to the banking sector. This implies that profit is
dependent on capital, investment, which provides the means for the purchase
of equipment and machinery and the adoption of modern technology for
improve performance, thus a resultant increase in profit.
Chowdhury, Hoffman and Schabert (2003) examined that monetary policy

refers to the combination of measures designed to regulate the value, supply
and cost of money in an economy. It can be described as the art of controlling
the direction and movement of credit facilities in pursuance of stable price and
economy growth in an economy.
Loayza, and Schmidt-hebbel (2002) observed that monetary policy refers to

the actions of the Central Bank to regulate the money supply which could be
through discretional monetary policy instruments such as the open market
operation (OMO), discount rate, reserve requirement, moral suasion, direct
control of banking system credit, and direct regulation of interest rate.
Minakshi and Kaur (2001) attempted to measure quantitatively the impact of
the various instruments of monetary policy on the profitability of commercial
banks. The study empirically proves that pre-liberalization banking being
highly regulated and controlled industry, has suffered a lot so far as
profitability concerned. The bank rates and reserve requirements ratio has
played a significant role in having a negative impact on the bank’s profitability.
Maureen (2014) investigated in Kenya the impact of monetary policy by using

a structural model of macro econometric. The variables have been used by
them policy rate, interest rate, and CRR (cash reserve ratio). They have used
this data in accordance to the interest rate and bank lending techniques.
Results shows that change in monetary policy rate affects short term rates at
a considerable margin whereas on long term lending rates it affects slightly.
On the other hand monetary policy rate effects on real economy and on
inflation it is negligible. According to them alterations in central bank rate have
a large impact on inflation whereas a change in CRR has a large effect on
aggregate demand. By increasing the efficiency of the CBR and increasing
growth of the interest rate channel can increase the efficiency of monetary
policy in Kenya.
Romer and Romer (2004) used a reasonable set of monetary policy shocks
and then include that in a VAR model they can identify different reasons and
objects that affect United States financial system during that phase. They
have used a time period of 1971:01-1996:12. According to them they have
recognized easily cumulative demand shock and cumulative supply shock
without striking any indication or long run limitations. They have used
decomposition analysis to compare the monetary policy shocks with these
shocks. Decomposition analysis also helpful to measures the relative
importance of that shocks and to explain the fluctuations of that time period.
Fiordelisi (2014) reveals that from many years’ central banks around the world
decreases their main policy to keep their interest rate at low levels. This policy
is helpful for the banks. The major purpose of this policy is to sustain funding
situation and to encourage lending to private sector. To solve this
phenomenon they have used a data set from 2007 to 2012 of monetary
policy. They have investigated this problem at three levels. Their findings
show that single central bank prepares monetary policy; this creates an
assorted market reaction. Regular interest rates must have been used by the
central banks instead of non-conventional ones. This policy can reinstate the
market response. Standard interest rate is an essential tool for maintaining
the standard execution of monetary intermediation. If central bank used
nontraditional procedures this registered a strong market response in both
areas.
Bangura (2011) reveals that maximum banks used interest rates on short
term basis, and it is considered as monetary policy. According to him when
monetary policy changes interest rates will also change by commercial banks
but normally this case is not true. Main point is that commercial banks change
their interest rates with lags in reaction to monetary policy. This method
makes their interest rate sultry. This sultriness in interest rate imposed by
commercial banks is a big hindrance in regular flow of monetary policy. To
estimate results he used different tests. Data has been taken from different
sources which comprised of the time period from 1989-2009. Twenty years
data has been used by him. He estimates the results of change in interest
rates impact on discount rates, lending rates, deposit rates, and Treasury bill
rates.
Syed H kassim, (2009), investigated the impact of monetary policy shocks on

conventional and Islamic banks. They have considered a dual banking system
in Malaysian environment. They have used data from January 1999 to
December 2006. They have used different variables. To measure monetary
policy they have used interest rate, known as overnight policy and denoted by
ONR. Reason to selection of ONR is given by them that ONR is the monetary
policy rate adopted by the bank Negara Malaysia. Other variables are
selected by them from balance sheets of commercial and Islamic banks such
as deposits, liabilities, consumer price index, and industrial production index.
They have also included exchange rate as a control variable, because
Malaysian economy is an open economy. According to them the objective of
this study is to investigate the impact of change in interest rate on Islamic and
commercial banks finance and deposits. They have used VAR (vector auto
regression) model to measure this impact. Results show that Islamic banks
financial conditions are more sensitive than conventional banks. When
interest rate changes this affects Islamic banks more than conventional
banks, because conventional bank loans are more insensitive to interest rate
changes.
Goodhart (2007) showed that an interest rate instrument could make the
system unstable. But these results were shown to hold only if money was the
only nominal standard. Sticky wages and prices create an alternative that
fixes nominal variables, and allow real interest rates to be influenced by policy
for considerable periods. Moreover, an interest rate rule that responded to
macroeconomic variables such as output and inflation gaps would be stable.
Ozdemir (2009) reported complete pass-through to the lending rate and the
deposit rate in the long run. In a complete pass-through the changes in the
policy tool are transmitted completely to the retail rates.
Haron & Ahmad (2002) investigated that The Effects Of Conventional Interest
Rates And Rate Of Profit On Funds Deposited With Islamic Banking System
In Malaysia by using ‘Adaptive Expectation Model’ to measure the effects of
rate of profit declared by Islamic banks on the level of deposits placed by their
customers. Data Variables are saving deposits, Interest-free, Rates of Profit,
results shows that relationship between the amounts of deposits placed in the
Islamic banking system in Malaysia and returns given to these deposits hence
which are guided by the profit motive. It is recommended that these doctrines
require that Muslims should not placed profit maximization as the sole factor
in establishing relationship with Islamic banks.
Punita rao (2005) investigated that a monetary policy instruments are affected
to the profitability of banks in the context of financial sector reforms in India.
She also discussed the financial sector reforms and the implication of the
banks, the various instruments of monetary policy in India, and the impact of
monetary policy on the profitability of banks. Monetary policy objectives have
traditionally included promoting growth, achieving full employment, smoothing
the business cycles, preventing financial crisis and stabilizing long term
interest rates and the real exchange rate.
Uniamikogbo and Enoma (2001) observes that monetary policy objectives are
concerned with the management of multiple monetary targets among them
price stability, promotion of growth, achieving full employment, smoothing the
business cycle, preventing financial crises, stabilizing long-term interest rates
and the real exchange rate. That these objectives are all not consistent with
each other is obvious, as the preference of monetary policy objectives is
anchored upon the weights assigned by monetary authorities or country
priorities. Experience shows that emphasis is usually placed on maintaining
price stability or ensuring low inflation rates.
Mangani (2011) assessed the effects of monetary policy in Malawi by tracing

the channels of its transmission mechanism, while recognizing several factors
that characterize the economy such as market imperfections, fiscal
dominance and vulnerability to external shocks. Using vector autoregressive
modeling, Granger-causality, and innovation accounting analyses to describe
the dynamic interrelationship among monetary policy, financial variables and
prices. The study established the lack of unequivocal evidence in support of a
conventional channel of the monetary policy transmission mechanism, and
found that the exchange rate was the most important variable in predicting
prices.
Olweny and Chiluwe (2012) explored the relationship between monetary

policy and private sector investment in Kenya by tracing the effects of
monetary policy through the transmission mechanism to explain how
investment responded to changes in monetary. the study utilize quarterly
macroeconomic data from 1996 to 2009 and the methodology draws upon
unit roots and co-integration testing using a vector error correction model to
explore the dynamic relationship of short-run and long-run effects of the
variables due to an exogenous shock. The study showed that monetary policy
variables of government domestic debt and Treasury bill rate are inversely
related to private sector investment, while money supply and domestic
savings have positive relationship with private sector investment consistent
with the IS-LM model. Based on the empirical results the study suggests that
tightening of monetary policy by 1% has the effect of reducing investment by
2.63% while the opposite loose monetary policy tends to increase investment
by 2.63%.
Howells and Keith (2000) argued in their book that, equity prices just like the
price of all assets will respond to changes in interest rates. That is to mean, if
the Central Bank raises the interest rates, for instance, the rate available on
the risk-free assets goes up and if more can be earned on risk-free assets,
then the holders of risky shares will want a higher return as well. The share
prices will also fall if the equity market as a whole becomes more risk averse
and demand a higher premium for any level of risk.
Howells and Keith (2000) argued in their book that, equity prices just like the
price of all assets will respond to changes in interest rates. That is to mean, if
the Central Bank raises the interest rates, for instance, the rate available on
the risk-free assets goes up and if more can be earned on risk-free assets,
then the holders of risky shares will want a higher return as well. The share
prices will also fall if the equity market as a whole becomes more risk averse
and demand a higher premium for any level of risk.
Hamdan and Masig (2008) in their research paper attempt to test the
“hypothesis that in the context of a relatively developed banking system and
effective monetary policy framework the speed of adjustment of the deposit
rates would be faster than that of the lending rates in response to a change in
monetary policy instrument such as the discount rates. This knowledge of the
speed of adjustment is crucial for an effective transmission and
implementation of a change in monetary policy instrument. The test of
hypothesis on a set of industrial and developing countries based on the 'Auto-
Regressive Distributed Lag' (ARDL) methodology, tends to suggest that the
deposit rates adjust faster than the lending rates in most of the industrial
countries as well as in those developing countries in which the banking
system appears to be relatively more developed. The findings are plausible
and have strong policy implications for both the industrial and developing
countries.”
Claudio Borio, Leonardo Gambacorta and Boris Hofmann (2015) investigates
how monetary policy affects bank profitability. We use data for 109 large
international banks headquartered in 14 major advanced economies for the
period 1995–2012. Overall, we find a positive relationship between the level of
short-term rates and the slope of the yield curve (the “interest rate structure”,
for short), on the one hand, and bank profitability – return on assets – on the
other. This suggests that the positive impact of the interest rate structure on
net interest income dominates the negative one on loan loss provisions and
on non-interest income. We also find that the effect is stronger when the
interest rate level is lower and the slopes less steep, i.e. that non-linearity are
present. All this suggests that, over time, unusually low interest rates and an
unusually flat term structure erode bank profitability.
Kunt and Huizinga (2000) were among the first to relate bank profits to
macroeconomic indicators, such as real interest rates. They find that high real
interest rates are associated with higher interest margins and profitability,
especially in developing countries where demand deposits frequently pay
below-market interest rates.
Alessandri and Nelson (2014) establish a positive long-run link between the
level and slope of the yield curve and bank profitability in the United Kingdom.
In this paper, we explore the link between monetary policy and bank
profitability in more depth, focusing precisely on the relationship between the
interest rate structure and bank performance. The influence of monetary
policy on bank profitability macroeconomic conditions as given and do not
include any effects that operate indirectly, through monetary policy’s
independent impact on aggregate demand.
Keynes (2006) examined that the economic activity in the economy is

influenced by the effect of the bank rate on the long-term interest rates.
According to him, whenever bank rate rises, the short-term interest rates go
up immediately and after a while long-term interest rates also move upward.
As a result of rise in the long-term interest rates, given the marginal efficiency
of capital, the businessmen will reduce their investment and the reduction in
investment will result in contraction in economic activity, leading to a fall in
production, employment and prices. Hence, Keynes emphasized the effects of
change in the long-term interest rates on the level of economic activity.
Friedman (2000) examined the first role of interest rates is as an instrument

variable that the central bank sets in order to implement its chosen monetary
policy. A second potential role for interest rates in the monetary policy process
is again as an instrument variable, but as an instrument that the central bank
varies not for influencing output and inflation directly but rather for targeting
the money stock. Most central banks use short term interest rate as their
monetary policy instrument variable based on long-term interest rate
movements, which are taken as more of an information variable about
potential future developments.
Research Methodology
Problem Statement
One of the most complex issues facing government is identifying the

appropriate level and form of intervention in the banking sector. Its efficiency
as a regulator is a significant determinant of the overall efficiency of the
economy. The extent of regulatory intervention may also determine whether
financial markets can develop to their full potential or not. Ultimately, any
inefficiency must be funded by higher charges passed on to the community as
cost arising from strict regulation. The more sophisticated the monetary policy,
the greater its vulnerability to failure of banks to deliver against its promises.
When these failures occur, investment which is an important factor in
economic growth is kept low. Consequent upon this, trust and confidence in
the financial system may go down and sourcing of funds from banks may face
a downward trend due to increase in cost of loan.
The increase in cost of capital often keep back prospective investors from
engaging in new ventures as well as discourages customers of companies
from optimal maintenance of their products. It therefore, stands to reason that
increase in cost of capital results in cyclical effects in the economy. In view of
this, any review of monetary policy is often greeted with wide spread
apprehension, that cuts across various sectors of the economy.
On the other hand, a decrease in the cost of capital tends to stimulate more
aggressive investment in any economy. The higher the volume of investment,
the greater the competition. Even though consumers of products from various
companies stand to benefit from this situation in the short run, it may portend
serious danger in the economy if it is allowed to stretch to the extreme. As
companies engage in stiff competition, weak ones (especially those that are
disadvantaged technologically) may be driven out of business. This may result
in monopolies with their obvious consequences in the economy.
Objectives of the Study
The general objective of this study is to examine the impacts of monetary

policy instruments on the profitability of co- operative banks in India. However,
the specific objectives are:
1. To determine the impact of Cash Reserve Rate (CRR) on the profitability of

The Sutex Co-Operative Bank Ltd. from 2005 – 2015.
2. To determine the impact of Statutory Liquidity Rate (SLR) on the

profitability of The Sutex Co-Operative Bank Ltd. from 2005 – 2015.
3. To determine the impact of Interest Rate (IR) on the profitability of The

Sutex Co-Operative Bank Ltd. from 2005 – 2015.
Profitability is determined through the deposit, net profit, loans and

advances, investments and reserve funds.
Research design- There are three types of research design Descriptive

research design, exploratory research design and casual research design.
Types of design: Descriptive
Data collection: The research is mainly based on the secondary database.

Secondary data have been collected through annual reports, authentic
records, i.e. from 2004-05 to 2014-15.
 Books & magazines
 Websites
 Annual report of last ten years.

Data are collected from the annual report of last ten years of “The
Sutex Co. Operative Bank Ltd.” and the rate of SLR, CRR and IR are
collected from the official website of the RBI (Reserve Bank of India).
Tools and analysis: The research is based on the secondary data and for
the analysis of the data is undertaken by various analytical tools.
Limitations of the Study
 The time period of the research was limited.
 The study is based on the data of past ten years only i.e. from 2004-05
to 2014-15.
 The data for study mainly based on a single bank.

Model Summary:-
Independent Variable
SLR CRR IR
Particulars
R R2 R R2 R R2
Deposit 0.779 0.606 0.649 0.422 0.826 0.682
Net Profit 0.694 0.482 0.493 0.243 0.250 0.062
Investment 0.756 0.571 0.753 0.567 0.836 0.698
Loans and
0.783 0.612 0.640 0.410 0.834 0.696
Advances
Reserve Fund 0.850 0.722 0.686 0.471 0.803 0.645
Table No: - 6.1 Summary of model
Interpretation:-
Model - SPSS allows specifying multiple models in a single regression

command. This tells the number of the model being reported.
R - R is the square root of R-Squared and is the correlation between the

observed and predicted values of dependent variable.
R-Square - R-Square is the proportion of variance in the dependent variable

which can be predicted from the independent variables. R-Square is also
called the coefficient of determination.
Interpretation between Independent variable (i.e. SLR) and
Dependent Variable (i.e. Deposit, Net Profit, Investment,
Loans and Advances, Reserve Fund) For R:-
SLR V/S R Interpretation
The co-relation between SLR and Deposit is

0.779. It indicates that SLR is affected 77.9% to
Deposit 0.779
the deposit and other variables are affected by
remaining 22%.
The co-relation between SLR and Net Profit is

Net Profit 0.694
the Net Profit and other variables are affected by
remaining 30.6%.
The co-relation between SLR and Investment is

Investment 0.756
the Investment and other variables are affected by
remaining 24.4%.
The co-relation between SLR and Loans and

Loans and Advances is 0.783. It indicates that SLR is affected
0.783
Advances 78.3% to Loans and Advances and other variables
are affected by remaining 21.70%.
The co-relation between SLR and Reserve Fund is

Reserve 0.850. It indicates that SLR is affected 85.0% to
0.850
Fund the Reserve Fund and other variables are affected
by remaining 15%.
Table No: - 6.2 Interpretation of R for SLR to other dependent variable.

Interpretation between Independent variable (i.e. CRR) and
CRR V/S R Interpretation

Deposit 0.649
remaining 22.1%.

Net Profit 0.493
remaining 50.7%.

Investment 0.753
remaining 24.7%.

0.640

Reserve 0.686.it indicates that SLR is affected 68.6% to the
0.686
Fund Reserve Fund and other variables are affected by
remaining 31.4%.
Table No: - 6.3 Interpretation of R for CRR to other dependent variable.

Interpretation between Independent variable (i.e. IR) and
IR V/S R Interpretation

Deposit 0.826
remaining 17.4%.

Net Profit 0.250
remaining 75%.

Investment 0.836
remaining 16.4%.

0.834

Reserve 0.803.it indicates that SLR is affected 80.3% to the
0.803
Fund Reserve Fund and other variables are affected by
remaining 19.7%.
Table No: - 6.4 Interpretation of R for IR to other dependent variable.

Interpretation between Independent variable (i.e. SLR) and
Loans and Advances, Reserve Fund) For R2:-
SLR V/S R2 Interpretation
If changes in SLR rates, SLR will be affected to

deposit by 60.6%. In other words 60.6% of changes in
Deposit 0.606
SLR will be explained to the dependency of deposit on
SLR and remaining 39.4% are unexplained.
If changes in SLR rates, SLR will be affected to Net

Profit by 48.2%. In other words 48.2% of changes in
Net Profit 0.482
SLR will be explained to the dependency of Net Profit
on SLR and remaining 51.8% are unexplained.

Investment by 57.1%. In other words 57.1% of
Investment 0.571 changes in SLR will be explained to the dependency
of Investment on SLR and remaining 42.9% are
unexplained.
If changes in SLR rates, SLR will be affected to Loans

and Advances by 61.2%. In other words 61.2% of
Loans and
0.612 changes in SLR will be explained to the dependency
Advances
of Loans and Advances on SLR and remaining 38.8%
are unexplained.

Reserve Fund by 72.2%. In other words 72.2% of
Reserve
0.722 changes in SLR will be explained to the dependency
Fund
of Reserve Fund on SLR and remaining 27.8% are
unexplained.
Table No: - 6.5 Interpretation of R2 for SLR to other dependent variable.

Interpretation between Independent variable (i.e. CRR) and
CRR V/S R2 Interpretation
If changes in CRR rates, CRR will be affected to

deposit by 42.2%. In other words 42.2% of changes in
Deposit 0.422
CRR will be explained to the dependency of deposit
on CRR and remaining 57.8% are unexplained.
If changes in CRR rates, CRR will be affected to Net

Net Profit 0.243
CRR will be explained to the dependency of Net Profit
on CRR and remaining 75.7% are unexplained.

Investment 0.567 changes in CRR will be explained to the dependency
of Investment on CRR and remaining 43.3% are
unexplained.

Loans and Advances by 41%. In other words 41% of
Loans and
0.410 changes in CRR will be explained to the dependency
Advances
of Loans and Advances on CRR and remaining 59%
are unexplained.

Reserve
0.471 changes in CRR will be explained to the dependency
Fund
of Reserve Fund on CRR and remaining 52.9% are
unexplained.
Table No: - 6.6 Interpretation of R2 for CRR to other dependent variable.

Interpretation between Independent variable (i.e. IR) and
IR V/S R2 Interpretation
If changes in IR rates, IR will be affected to deposit

by 68.2%. In other words 68.2% of changes in IR
Deposit 0.682
will be explained to the dependency of deposit on
IR and remaining 31.8% are unexplained.
If changes in IR rates, IR will be affected to Net

Net Profit 0.062
IR will be explained to the dependency of Net
Profit on IR and remaining 93.8% are unexplained.
If changes in IR rates, IR will be affected to

Investment 0.698 changes in IR will be explained to the dependency
of Investment on IR and remaining 30.2% are
unexplained.
If changes in IR rates, IR will be affected to Loans

and Advances by 69.6%. In other words 69.6% of
Loans and
0.696 changes in IR will be explained to the dependency
Advances
of Loans and Advances on IR and remaining
30.4% are unexplained.
If changes in IR rates, IR will be affected to

Reserve
0.645 changes in IR will be explained to the dependency
Fund
of Reserve Fund on IR and remaining 35.5% are
unexplained.
Table No: - 6.7 Interpretation of R2 for IR to other dependent variable.

Findings:-
These studies cover the last five years of annual data of “The Sutex Co-
operative bank ltd.” i.e. Deposit, Net Profit, Investment, Loans and Advances
and Reserve Fund and identify the impact of the SLR, CRR and IR on it. The
results are quite encouraging and are summarized in Table no. 6.1.
On the Deposit R is determine for all the three independent variable is quite
high that reflect the considerable explanatory power of SLR, CRR and IR is
almost same but IR is reflect very high then other two i.e. 82.6% on the
Deposit. For the Net profit effect of IR is quite low as compare to the other two
i.e. SLR and CRR. In the case of Investment two independent variable SLR
and CRR are reflect almost same percentage but here also IR is quite high
reflecting on the investment i.e. 83.6%. In case of the Loans and advances
CRR will reflected very low percentage i.e. 64% or IR also is quite high
reflecting on the loans and advances i.e. 83.4% and lastly in case of the
reserve fund CRR will be reflected very low percentage i.e. 68.6% or the other
two variables are reflected high percentage on the reserve fund.
The refection of R2 on the dependent variable for all the three independent
variable is quite reflective. On the deposit CRR is explained only 42.2%
whereas other two independent variables i.e. SLR and IR is explained 60.6%
and 68.2% respectively. On the net profit IR is explained only 6.20% whereas
other two independent variables explained i.e. SLR and CRR is reflected
48.2% and 24.3% respectively. On the Investment IR is explained the 69.8%
and other two SLR and CRR is explained 57.1% and 56.7% respectively. On
the loans and advances IR is explained very high percentage i.e. 69.6
whereas CRR is explained very low percentage i.e. 41.0%. In the reserve
fund CRR explained very low percentage i.e. 47.1% only whereas other two
variables explained SLR and CRR is 72.2% and 64.5% respectively.
So, here we can clearly see that the effect of SLR, CRR and IR is different
percentage from the different variable of the bank. But one thing should be
evaluate is that they all are effect on the banks profitability level positively
correlation between them. All correlation between them i.e. Dependent
variable and independent variable are positive.
Conclusion:-
It is conclude that monetary policy instruments like SLR, CRR and IR are
affected to the profit of co.-operative banking sector and special reference
with The Sutex co.-Operative Bank Ltd.
In this study the selected dependent variables such as deposit, net profit,
investments, loans and advances, reserve funds which are mainly affected to
the profit of the bank. If any changes in the rate of independent variables i.e.
SLR, CRR and IR that will be directly affected to the profit of bank.
The overall monetary and macroeconomic conditions are, at present quite

satisfactory and in line with the policy expectations. India needs to further
improve upon the financial sector reforms. Nevertheless the Reserve Bank
would continue to keep a constant watch on the domestic and external
situation. Monetary policy is guided by the objective of provision of adequate
liquidity to meet credit growth and support investment demand in the economy
while monitoring carefully the movements in the price level. The policy stance
continues to be one of preference for a soft and flexible interest rate
environment within the framework of macroeconomic stability.
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BIS Working Papers No 514 The influence of monetary policy on bank
profitability by Claudio Borio, Leonardo Gambacorta and Boris Hofmann
Monetary and Economic Department October 2015
Websites:
http://www.sutexbank.in/pages/financial/
http://www.journalsbank.com/ajsr_9_2.pdf
http://iiste.org/Journals/index.php/RJFA/article/viewFile/22584/23397
http://naulibrary.org/dglibrary/admin/book_directory/Thesis/11670.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=356660
https://notendur.hi.is/ajonsson/kennsla2005/Bank_channel.pdf
http://www.theinternationaljournal.org/ojs/index.php?journal=tij&page=article&
op=view&path%5B%5D=154&path%5B%5D=pdf
http://www.sutexbank.in/branch/
Annexure:-
Regression
b. Dependent Variable: Deposit
Model Summary
Std. Error of the

Model R R Square Adjusted R Square Estimate
a
1 .779 .606 .562 227.37681
a. Predictors: (Constant), SLR
b
ANOVA
Model Sum of Squares df Mean Square F Sig.

a
1 Regression 716045.275 1 716045.275 13.850 .005
Residual 465301.942 9 51700.216
Total 1181347.217 10
a
Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 7628.456 1889.001 4.038 .003
SLR -296.657 79.713 -.779 -3.722 .005
a. Dependent Variable: Deposit
Regression
Model Summary
Std. Error of the

a
1 .649 .422 .357 275.52237
a. Predictors: (Constant), CRR
b
ANOVA

a
1 Regression 498134.006 1 498134.006 6.562 .031
Residual 683213.212 9 75912.579
Total 1181347.217 10
a
Coefficients
Standardized
1 (Constant) 1681.004 428.922 3.919 .004
CRR -208.022 81.207 -.649 -2.562 .031
Regression
Model Summary
Std. Error of the

a
1 .826 .682 .647 204.27901
a. Predictors: (Constant), IR
b
ANOVA

a
1 Regression 805778.005 1 805778.005 19.309 .002
Residual 375569.212 9 41729.912
Total 1181347.217 10

a
Coefficients
Standardized
1 (Constant) -753.724 314.850 -2.394 .040
IR 192.577 43.825 .826 4.394 .002
Regression
Model Summary
Std. Error of the

a
1 .694 .482 .425 230.01211
b
ANOVA

a
1 Regression 443399.968 1 443399.968 8.381 .018
Residual 476150.145 9 52905.572
Total 919550.113 10
b. Dependent Variable: Netprofit
a
Coefficients
Standardized
1 (Constant) -5161.948 1910.895 -2.701 .024
SLR 233.444 80.637 .694 2.895 .018

a
Coefficients
Standardized
1 (Constant) -5161.948 1910.895 -2.701 .024
SLR 233.444 80.637 .694 2.895 .018
a. Dependent Variable: Netprofit
Regression
Model Summary
Std. Error of the

a
1 .493 .243 .159 278.14822
b
ANOVA

a
1 Regression 223252.232 1 223252.232 2.886 .124
Residual 696297.881 9 77366.431
Total 919550.113 10
a
Coefficients
Standardized
1 (Constant) -355.204 433.009 -.820 .433
CRR 139.263 81.981 .493 1.699 .124

Regression
Model Summary
Std. Error of the

a
1 .250 .062 -.042 309.52905
b
ANOVA

a
1 Regression 57276.024 1 57276.024 .598 .459
Residual 862274.089 9 95808.232
Total 919550.113 10
a
Coefficients
Standardized
1 (Constant) 728.167 477.069 1.526 .161
IR -51.343 66.405 -.250 -.773 .459
Regression
Model Summary
Std. Error of the

a
1 .756 .571 .523 61.47747

b
ANOVA

a
1 Regression 45247.619 1 45247.619 11.972 .007
Residual 34015.315 9 3779.479
Total 79262.934 10
b. Dependent Variable: Investment
a
Coefficients
Standardized
1 (Constant) 1927.496 510.743 3.774 .004
SLR -74.573 21.553 -.756 -3.460 .007
a. Dependent Variable: Investment
Regression
Model Summary
Std. Error of the

a
1 .753 .567 .519 61.72621
b
ANOVA

a
1 Regression 44971.804 1 44971.804 11.803 .007
Residual 34291.130 9 3810.126
Total 79262.934 10

a
Coefficients
Standardized
1 (Constant) 485.351 96.093 5.051 .001
CRR -62.504 18.193 -.753 -3.436 .007
Regression
Model Summary
Std. Error of the

a
1 .836 .698 .665 51.53481
b
ANOVA

a
1 Regression 55360.407 1 55360.407 20.845 .001
Residual 23902.527 9 2655.836
Total 79262.934 10
a
Coefficients
Standardized
1 (Constant) -194.169 79.429 -2.445 .037
IR 50.477 11.056 .836 4.566 .001

Regression
Model Summary
Std. Error of the

a
1 .783 .612 .569 156.99161
b
ANOVA

a
1 Regression 350338.662 1 350338.662 14.215 .004
Residual 221817.293 9 24646.366
Total 572155.955 10
b. Dependent Variable: Loansandadvances
a
Coefficients
Standardized
1 (Constant) 5304.463 1304.255 4.067 .003
SLR -207.505 55.038 -.783 -3.770 .004
a. Dependent Variable: Loansandadvances
Regression
Model Summary
Std. Error of the

a
1 .640 .410 .344 193.69266

b
ANOVA

a
1 Regression 234504.336 1 234504.336 6.251 .034
Residual 337651.619 9 37516.847
Total 572155.955 10
a
Coefficients
Standardized
1 (Constant) 1129.959 301.533 3.747 .005
CRR -142.729 57.089 -.640 -2.500 .034
Regression
Model Summary
Std. Error of the

a
1 .834 .696 .662 139.06473
b
ANOVA

a
1 Regression 398104.958 1 398104.958 20.586 .001
Residual 174050.997 9 19339.000
Total 572155.955 10

a
Coefficients
Standardized
1 (Constant) -563.322 214.337 -2.628 .027
IR 135.362 29.834 .834 4.537 .001
Regression
Model Summary
Std. Error of the

a
1 .850 .722 .691 10.04720
b
ANOVA

a
1 Regression 2360.366 1 2360.366 23.382 .001
Residual 908.516 9 100.946
Total 3268.882 10
b. Dependent Variable: Reservefund
a
Coefficients
Standardized
1 (Constant) 453.375 83.470 5.432 .000
SLR -17.032 3.522 -.850 -4.836 .001
a. Dependent Variable: Reservefund

Regression
Model Summary
Std. Error of the

a
1 .686 .471 .412 13.86511
b
ANOVA

a
1 Regression 1538.710 1 1538.710 8.004 .020
Residual 1730.172 9 192.241
Total 3268.882 10
a
Coefficients
Standardized
1 (Constant) 109.928 21.585 5.093 .001
CRR -11.562 4.087 -.686 -2.829 .020
Regression
Model Summary
Std. Error of the

a
1 .803 .645 .606 11.35589
b
ANOVA

a
1 Regression 2108.276 1 2108.276 16.349 .003
Residual 1160.606 9 128.956
Total 3268.882 10
a
Coefficients
Standardized
1 (Constant) -19.384 17.503 -1.107 .297
IR 9.851 2.436 .803 4.043 .003

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COMPREHENSIVE PROJECT REPORT

Faculty Guide: Company Guide:

S.R. LUTHRA INSTITUTE OF MANAGEMENT – 750

Certified that this Comprehensive Project Report Titled “Impact of monetary

With a view to expand the knowledge in banking sector we have done 3 rd

A comprehensive project report is incomplete without the guidance from

We express my profound sense of gratitude and sincere thanks to Mr. K. T.

We would like to express our sincere thanks and gratitude to Dr. J. M.

The project titled “Impact of monetary policy instruments on profitability of co-

Sr. No. Particulars Page No.

6. Data Analysis & Interpretation

10. Annexure xxx

Sr. Table Page

1 Staff at SUTEX Co-Op. Ltd. at Rander road branch 3.1 22

2 Board of Director of Bank 3.2 24

4 Interest rate of deposits of bank 3.4 26

5 Capital structure (Rs. in crores) 3.5 27

6 Financial Highlights 3.6 32

7 Summary of model 6.1

9 Interpretation of R for CRR to other dependent variable 6.3

10 Interpretation of R for IR to other dependent variable 6.4

11 Interpretation of R2 for SLR to other dependent variable 6.5

12 Interpretation of R2 for CRR to other dependent variable 6.6

13 Interpretation of R2 for IR to other dependent variable 6.7

1 Locker and ATM facilities 3.1 23

Monetary policy helps to promote national economic goals, by influencing the

Objectives or Goals of Monetary Policy:

The following are the principal objectives of monetary policy:

Monetary operations involve monetary techniques which operate on monetary

Cash Reserve Ratio

Statutory Liquidity Ratio

Every financial institution has to maintain a certain quantity of liquid assets

Bank Rate Policy

Repo Rate and Reverse Repo Rate

In 2014, the global economy entered a period of adjustment, leading to

In developed markets, factors contributing to this trajectory include

1. US Federal Reserve Bank (USD)

2. European Central Bank (EUR)

3. Bank of England (GBP)

4. Bank of Japan (JPY)

5. Swiss National Bank (CHF)

6. Bank of Canada (CAD)

7. Reserve Bank of Australia (AUD)

8. Reserve Bank of New Zealand (NZD)

Federal Reserve Bank- United States

The Federal Reserve The most influential

European Central Bank The European Central

The Bank of England

Bank of EnglandThe Bank of England consists of

Bank of Japan the Bank of Japan also has

It meets once or twice a month and the

The Swiss National Bank

Swiss BankThe Swiss National Bank

The committee meets quarterly and the

The Royal Bank of Canada

The Reserve Bank of Australia

The Reserve Bank of Australia consists of a monetary policy committee which

The National Bank of New Zealand

Cooperatives occupy an important position in the Indian financial system.

While there has been an improvement in the financial performance of the

1. State co-operative banks

2. Central co-operative banks