PRODUCTIVITY AND PROFITABILITY OF MIZORAM RURAL BANK*

ZONUNTLUANGA**

Banks and Economic Development. The role of banks in the economic development of a country assumes significance due to the fact that they provide one of the essential inputs, namely finance, for the growth of various segments of the economy. In a developing country like India, where the scarcity of financial resources is admittedly one of the constraints for acceleration the pace of economic growth, an efficient and responsive banking system is of utmost importance. Further, India has adopted a system of planning which seeks to attain social justice and equitable distribution of wealth along with economic development. Judicial allocation of the scarce financial resources between the various segments of economy is one of the means by which social justice can be attained subordinate the commercial approach in its lending policies partially to sub serve the national priorities set by the government Banks are the integral part of financial system which attracts all age shift clientele. The term financial system is a set of inter-related activities/services working together to achieve some predetermined purpose or goal. It includes different markets, institutions, instruments, services and mechanisms which influence the generation of savings, investment capital formation and growth. The Reserve Bank of India (RBI) or the Central Bank is the apex financial institution in the Indian Financial System and is entrusted with ultimate the task of control, supervision, promotion, development and planning. The purpose of institutions in financial system of any country is to ensure easy and swift flow of funds. In other words, surplus funds must be channelized to place where there is dearth supply from where they are abundant. There are two markets in which one can deposit his funds, money market deals with instruments with maturity less than one year and capital market which is more than one year. The main function of the Indian Financial System as a tool towards economic development is clearly shown in the figure below

* A paper presented in the North Eastern Council Sponsored National Seminar on Mizoram Peace and Development organized by the Department of Political Science, Mizoram University, Aizawl during November 1-3, 2007. ** Research Scholar, Department of Commerce. Guest Lecturer, Aizawl College.
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ECONOMIC GROWTH

FINANCIAL SYSTEM I N V E S T O R S MARKETS Money Market INSTITUTIONS INSTRUMENTS Capital Market INSTITUTIONS INSTRUMENTS B O R R O W E R S

Figure showing borrower and investor interface that leads to economic development

Fig: Financial System and Economic Growth As regards its regulatory role, the RBI controls and regulates the activities of the commercial banks in terms of the Banking Regulations Act, 1949. The provisions were extended to co-operative banks in 1966 in terms of the Banking Laws (application to Cooperative Societies) Act, 1965. In India, there are many ways in which banks are classified based on their dealings, ownerships, sizes, locations, credit nature, etc. Banks in India are categorized as Commercial Banks, Public Sector Banks, Nationalized Banks, New Private Sector Banks, Local Area Banks, Scheduled Banks, Cooperative Banks, Insured banks and lastly Regional Rural Banks. Methodology There are eleven banks in the state as to date, however, only Mizoram Rural Bank is taken for study. The reason for taking MRB for study is that it well represents the entire Mizoram in terms of branch network (74.68%) and total deposits (23.5%) as on 31.3.2007. It is believed that the MRB may well represent the whole picture of banks in Mizoram. The relevant data collected is from secondary source only. The main source of information for evaluation will be the Annual Report issued by Head Office. The period of the study is restricted to 10 years that is from 1996-1997 to 2006-2007.
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Objective In this paper, an attempt is made to study the profitability and productivity of Mizoram Rural Bank during 1996-1997 to 2006-2007 History of Banks in Mizoram Banking has its origin way back to the Vedic period of 2000 to 1400 BC in India. By then they play useful role providing services like accepting deposits, loans against gold, jewellery, land, promissory notes, rediscount, etc. however, they were not so much regulated. With the establishment of Presidency Banks in the 19th century banking gain more impetus. RBI was set up in 1935 to boost the banking business in India. 14 major banks were nationalized in 1969 then another 6 more in 1980 which results in public domination of the banking industry. The concept of class banking changed to mass banking. In June 1969, there were only 90 bank branches in the NE region. There were 74 branches in Assam followed by 7 in Meghalaya, 5 in Tripura, 2 each in Manipur and Nagaland, and none in two union territories, viz., Arunachal Pradesh and Mizoram as against 8262 for all India. With the setting up of the State Bank of India in 1972 in Mizoram mark the entry of modern banking in the region. The SBI being the lead bank in the State took up the responsibility to increase the business in the state. By 1984 there are 15 banks branches in Mizoram, 1046 in the NE region and 44583 for the whole of India. One branch served 33000 persons in Mizoram, in Assam and Manipur each branches served 28000 persons, 15000 persons for the whole of India. In 1982, July the 31st the Mizoram Co-operative Apex Bank Ltd came into being to venture the banking sector from a co-operative sphere. It was established and Source: registered under the Registrar of Cooperative Societies, Government of Mizoram in 1978, got license from the RBI under the Banking Regulation Act, 1949 (AACS) The setting up of Mizoram Rural Bank in 1983 mark history as there begun a three tier banking business, viz., commercial, cooperative and rural, in the region. There are four type area-wise classifications or groups, viz., Metropolitan, Urban, Semi-urban, and Rural. Aizawl is categorized as semi-urban, all other places/districts are rural areas, according to SBI. However, UTI categorized Aizawl as Urban1. Banks are one of the most important financial institutions to the economic development in the state like everywhere else in the country and abroad. They are the
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S.Prakash, Asst Vice-President, UTI Bank. State Level Bankers Committee: Meeting. p28

useful medium to park surplus funds from business profit and to procure fund in times of deficit. Banks lend to different sector to cater the needs of short and long-term investments in the form of fixed and working capital (WC). The total deposit (i.e. term, saving and current) in 2006 and 2007 was Rs 111404 lacs and 134512 lacs respectively which were about the size of the Annual Budget of the State for the same year. Advance for the same period was Rs 59013 lacs and Rs 76024 lacs respectively marking an increase of 28.83% slightly higher than that of deposit i.e. 20.74%. Credit Deposit Ratio was 52.97% and 56.52% for both the consecutive year. The CD Ratio for MRB has been the highest among banks in the State2. It is observed that almost funds available are loaned towards the minority groups. Table 1 Performance of All Banks in Mizoram in Key areas as on 31.03.2007
Parameters Year 31.03.2006 31.03.2007 (Rs in Lacs) (Rs in Lacs) 59013 76024 111404 134512 39962 57074 3789 4429 29426 44284 15448 20024 11981 16173 56500 74018 Percentage to Net Credit 31.03.2006 31.03.2007 52.97% 67.72% 06.42% 49.86% 26.18% 20.30% 95.74% 56.52% 75.07% 05.83% 58.25% 26.32% 21.27% 97.36% Growth Percent 28.83% 20.74% 06.69% 42.82% 16.00% 50.49% 29.62% 34.99% 31.01%

Credit Deposit CD Ratio Priority Sector Credit Industries Services Weaker Section Women Minority Community

A striking story is that the Central YMA (Young Mizo Association), the biggest NGO, has been requested by the Government to help in recovery, the MHIP (Womens Association) participation is also sought for the same purpose. There are six major banks viz. SBI, MCAB, MRB, Vijaya Bank, MUCO Bank, and UCO Bank, and new banks like UTI Bank or AXIS Bank, UBI Bank, Bank of Baroda, IDBI, Central Bank, and Syndicate Bank have started operating. Today, banks cover the length and breadth of Mizoram providing useful services. MRB alone has 59 branches, followed by SBI and MCAB (Apex Bank) with 21 and 11 respectively.

Shri Vanlalnghaka, Joint Secretary , Govt of Mizoram, Finance. State Level Bankers Committee:Meeting,2007 p28

Table 2 Branch network of Bank in Mizoram as on 31.3.2007 District Aizawl Champhai Kolasib Lawngtlai Lunglei Mamit Saiha Serchhip Total MRB 22 9 6 1 6 6 3 6 59 SBI 7 1 2 2 3 3 1 2 21 Vijaya Bank 1 Nil Nil Nil Nil Nil Nil Nil 1 MUCO Bank 1 Nil Nil Nil Nil Nil Nil Nil 1 UCO Bank 1 Nil Nil Nil Nil Nil Nil Nil 1 MCAB 5 1 1 1 1 Nil 1 1 11 Grand Total 37 20 9 4 10 9 5 9 97

Compiled from information provided by select banks in Mizoram.

PROFILE OF MIZORAM RURAL BANK Mizoram Rural Bank was established on the 27th September, 1983 under the Regional Rural Banks Act 1976 with its Head Office at Aizawl, the state capital of Mizoram. Since inception the Bank is striving it set objectives by serving throughout the entire state of Mizoram covering all the eight districts and 22 Community Development Blocks. The Bank has now extended it coverage to 7 urban and 2 semi-urban centres. All staffs of the banks, prior to the revision of pay in 2001, enjoy the same scale with the State Bank of India. The issued share capital of Rs 1 Crore has been paid up by all the share holders as on 31.03.2005, viz., Government of India, Government of Mizoram and State Bank of India (Sponsor Bank). In addition to this, a share capital deposit of Rs. 803.82 lakhs towards equity support for the purpose of cleaning of the balance sheet has been received from the share-holders The Bank has a net-work of 59 branches covering all the eight districts of the state of Mizoram. The district-wise break-up of branch network as on 31.3.2007 are as above. (a) Credit Dispensation The total loan and advances of MRB as at 31st March 2007 was Rs. 12833 lacs while it was Rs 76024 lacs (16.88%) for all banks in Mizoram for the same period. Total deposit for MRB was Rs 19885 lacs (14.78%) while the total deposit for all banks taken together was Rs 134512 lacs for the same period.

Table 3 Credit Dispensation (Rs in Lacs)

Year 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Agri 100.67 101.27 110.22 126.38 145.2 169.86 193.77 858.31 2361.44 2284.37 Agri& Allied 242.82 250.26 268.06 277.76 340.79 345.14 384.59 391.24 207.45 937.44 SSIs 128.97 147.89 171.35 179.82 216.5 221.82 258.02 366.54 755.15 1326.51 Business 461.57 398.58 563.88 867.23 583.45 1087.47 1863.36 1137.86 1185.1 1031.15 Transport 189.26 224.92 219.7 508.82 564.77 477.43 526.94 3161.51 4340.94 5197.35 Total 1331.42 1465.2 1758.04 2300.91 2819.69 3850.15 5026.24 8020.74 10854.3 12833.1 CD Ratio 33.00% 29.00% 35.00% 33.37% 32.76% 33.49% 40.36% 54.52% 65.38% 64.54% Recovery Percent 63.00% 30.00% 63.00% 53.88% 55.04% 50.23% 61.23% 61.22% 71.34% 77.46%

(b) Composition of Deposit The total deposit has been increasing at a steady pace. Yet Current Deposit has been decreased considerably due to the fact that it yielded no interest return on deposit. Table 4 Composition of Deposits. (Rs in lacs)
Year Total Accounts 41984 46162 47063 51047 89900 61030 66288 72622 74113 100411 Deposit 978.34 5072.32 5051.77 6834.34 8608.09 10070.68 12454.62 14710.26 16601.82 19885.04 Current % to Deposit Total 743.28 18.68% 1141.42 22.50% 287.4 5.69% 240.96 3.53% 1077.9 12.52% 871.91 8.66% 468.59 3.76% 650.02 4.42% 535.54 3.23% 623.8 3.14% Saving Deposit 1998.52 2507.13 2900.5 3977.72 4226.34 5106.21 7023.99 8248.87 9859.98 12314.75 % to Total 50.24% 49.43% 57.42% 58.20% 49.10% 50.70% 56.40% 56.08% 59.39% 61.93% Term Deposit 1236.54 1423.77 1863.87 2615.66 3303.85 4092.56 4962.04 5811.37 6206.3 6946.49 % to Total 31.08% 28.07% 36.90% 38.27% 38.38% 40.64% 39.84% 39.51% 37.38% 34.93%

1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Maintaining the account at close to zero is considered enough. Saving Account on the other hand yields interest at the rate of 4.5 to 5% attracting more deposits. The level of term deposit shows no change at all. The CD Ratio as on 31.3.2007 is the highest in Mizoram.

(c) Profitability and Productivity The NPA (i.e. Sub standard, Doubtful and loss assets) percent to gross advances decreases considerably. In March 1998, it was 48.94% and reduces by 41.31% to just 7.63% by March 2007 while it was 23.05% for the whole Mizoram. Profit showed positive trend during the study period. The bank earned profit of 64.50 lacs in 1998 and decreased by almost half to just 34.32 lacs in 2002. It had remained more or less constant during 2001 to 2004. The bank experienced one of its variability in the last three years. The condition seemed to improve in the last year of the study period. However, as per the trend analysis, MRB may not enjoy positive trend in the coming decade. Table 5 Profitability & Productivity (Rs in Lacs)
Year 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 NPA % to Gr. Ad. 48.94% 50.58% 44.64% 35.15% 33.15% 30.64% 24.02% 11.91% 10.74% 7.63% Productivity Branch Staff 1.19 0.35 9.48 3.96 10.78 4.51 11.58 4.85 16.47 4.99 15.74 4.39 22.43 9.54 23.33 10.16 30.04 12.87 40.67 13 Total income 491.65 581.98 625.36 708.46 889.13 950.42 1211.11 1259.58 1622.07 2196.41 Total Expense 441.24 520.7 590.95 661.99 854.81 921.26 1172.38 1289.27 1601.76 2122.9 Profit & Loss 64.50 61.27 34.41 20.27 34.32 29.16 38.73 (29.69) 20.31 73.51 No of staff 184 184 184 179 178 177 175 175 173 169

There is no reason to doubt that the banks profit is showing an increasing balance in spite of the salary revision in 2001. The productivity too, can jump from 1998 lows of 1.19 lacs and 0.35 lacs per number of branch and staff to as high as 40.67 lacs and 13 lacs respectively in 2007. CONCLUSION 1. The performance of MRB is a huge success, yet, has a long way to go to out perform its parent bank, i.e. the SBI, in terms of NPA management, deposit, credit, etc. 2. In 2001, the salary of staffs in MRB has been equated with that of other profit motive banks. This leaves the bank with less profitability and productivity. This only increased the cost of operation like any commercial banks.

3. The main reason for setting up of the MRB is to bank the unbanked section in the State. However, it has become more and more commercial in its dealings leaving less hope to the target people. The self-help group pattern of banking can be of great solution in this sphere. 4. The recovery percent has increased as the Credit Deposit ratio increases. The two variables have correlation 0.74 which shows that the bank doesnt have to worry about giving more proportion of loans from total assets. 5. If sector-wise CD Ratio can be prepared it would be of great help to better assess the sector-wise performance.

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References. Annual reports of Mizoram Rural Bank, from 1997 2007. AK Agarwal Economic Problems and Planning in North-East India. Steriling Publishers Private Limited. 1978 Indian Institute of Bank management, Jawahar Nagar, Khanapara, Guwahati, in collaboration with College of Agriculture Banking, Reserve Bank of India, Pune, Programme on Prudential Norms &Regulatory Issues for Regional Rural Banks. D.V. Deshpande, M.K.Mudgal, K.C. Sharma, Interest Rate Deregulation and its Impact on Regional Rural Banks, Bankers Institute of Rural Development, Lucknow, 1999. AR Rehman, Director, Directorate of Distance Dibugrarh (Assam) and Dr AK Mishra, Reader, Deptt of Commerce, Nagaland University. Productivity and Profitability of The Nagaland Rural Bank. Banking Finance June 2004. P.N. Varshney, D.K.Mittal, Indian Financial System, Sultan Chand & Sons, Educational Publishers, New Delhi. The Regional Rural Banks Act, 1976. Naqi Uddin Regional Rural Banks and Development .A Mittal Publication. State Level Bankers Committee Meeting: Mizoram March 2007