2.1.3.6. Problems of Commercial Banks in India

Though the commercial banks made significant progress in terms of branch expansion, deposit mobilisation, loans to priority sector and weaker sections of the society, they are still facing a number of problems in different respects.

1) Problems in Branch Expansion: Banks were asked to open their branches in rural and backward areas where minimum infrastructure facilities like roads, communication, transport, education, safe buildings for bank operations were not available. In some places there was a problem of even security to the bank employees.

2) Problems in Deposit Mobilisation: There has been heavy competition among public sector banks in deposit mobilisation as all of them have been providing the same service. Banks also face competition in mobilising deposits from National Savings Organisation, Non- Banking Companies, Unit Trust of India, Mutual Funds etc. It is felt that despite their efforts, deposit mobilisation efforts of banks have not been adequate to meet the needs of the present economic needs. It was also criticised that the schemes of deposit mobilisation of banks are not suited to the needs of the prospective depositors in rural areas.

3) Absence of Coordination: For providing finance to the same borrowers, there are several financial agencies like commercial banks, cooperative banks, regional rural banks and state financial corporation. In view of these multiple organisations and absence of coordination among these institutions it has resulted in duplicate financing, over-financing or under- financing.

4) Inadequate Finance to Agriculture: Though the commercial banks have made spectacular efforts to meet the financial needs of the agricultural sector and its allied activities, still a more vigorous effort is required as the total assistance of commercial banks to agricultural sector is not even 10% of their needs.

5) Inadequate Banking Facilities in Rural Areas: The number of banks in rural areas is quite inadequate compared to the needs of banking services, as is evident from the fact that only 5 per cent of the villages are covered by the banks.

6) Regional Imbalances: Though the commercial banks have spread their branches in different parts of the country, these are not equally distributed. According to Reserve Bank of India's Report about half of the branches are concentrated in the Southern and Western regions. The states like Assam, Jammu & Kashmir, Manipur, Nagaland, Orissa, Tripura, Uttar Pradesh and West Bengal may be termed as under banked areas.

7) Low Profitability: Financing of priority sectors, opening branches in rural as well as unbanked and backward areas, granting loans to weaker sections at low rate of interest, increase in cost of salaries and establishment and increase in overdue resulted in decline in the rate of profitability of most of the commercial banks in India. The low profitability is also caused due to increase in costs, inefficiency, bureaucratic attitude, absence of effective cost control, increase in Statutory Liquidity Ratio and Cash Reserve Ratio etc.

8) Low Efficiency: Nationalisation of banking industry has brought in all the limitations of public sector to it. These are bureaucratic attitude of the managers, absence of initiative, red-tapism, inordinate delays, lack of commitment, responsibility, indifference to work etc. These result in low efficiency of the banks.

9) Political Pressure: Nationalisation of banks has brought political interference and political pressure at all levels of the banks. The political pressure results in poor selection of staff, granting loans and advances to undeserving, etc.

10) Problems of Liberal Credit Policy: Liberal Credit Policy, which is essential to meet the credit requirements of the weaker sections, agricultural sector, etc. resulted in insecurity of bank funds and ultimately of depositors money. Liberal credit policy has also resulted in poor recovery of funds and absence of recycling of bank funds.