Banking and Finance

Finance is the key to investment and hence to the process of growth. Providing saved resources to others with more productive uses for them, raises the income of saver and borrower alike. Without an efficient financial system lending can be both costly and equally risky. Trade, specialisation of production, profesionalisation, savings, efficient use of resources and risk-taking which are cornerstones of a growing economy are duly stimulated and streamline with a well structured networking of financial institutions. In fact development of any economy demands a responsive financial system free from undue temptation for acting merely as "Profit Centre". It has to act as constructive agent for development. It has to act as partner of development. It has to act as resource mobiliser. It is, therefore, one of the basic economic infrastructures.

The first concern in any developing economy is lack of efficient mechanism of mediation between highly organised financial institutions and highly unorganised private savers whose savings constitute the foundation of the financial market. We have to monitor and review this linkage from time to time. The constraints and loopholes have to be dully addressed and plugged promptly.

The structure of banking in the State is naturally the same as at the national level. The structure basically contains the following three types:

Of the three components, the nationalized banks are the bigger player.

In Manipur in 1999 only 86 branches are found operating, some "nominally" and some "effectively". 16 belongs to the State Bank of India and its Associates. 41 are branches of the nationalised banks, 29 are branches of the Regional Rural Banks. 51 are operating in rural areas. 14 are operating in semi-urban areas while 21 in the urban areas. The emerging irksome atmosphere of undesirable law and order prevailing in the rural and hill areas has largely occasioned the "sorry state of affairs" of gradual disappearance of banks. This is bad for the banks and worse for the economy.

Now we can broadly visualise the possible concern of the "limited" performance of banking sector in Manipur by having a reference to 1) Population per bank. 2) Credit-Deposit Ratio (C:D) and 3) Per Capita Credit. The population per bank is fairly high. It is 28,384 in 1999 as against 8445 of Himachal Pradesh and All India Average of 15,070. One cannot expect efficiency of service-delivery with large population. Secondly, the Credit-Deposit Ratio is only 41.7% as against 68.5% in Andhra Pradesh and 93% in Tamil Nadu. In other words, the extent of credit-deployment for every unit of resource raised is fairly low. Thirdly, the per capita credit was only Rs.693 in Manipur as against Rs.50,381 of Chandigarh and Rs.4,270 of kerala. What is possibly required at the programme of training on "Banking, Finance, Project Planning and Management".

It is therefore not a surprise that the quantum of direct finance to farmers and Small Scale Units in Manipur was also low. The direct finance to the farmers could be Rs.91 lakhs. The direct finance and indirect finance to the Small Scale Units in Manipur in 1998 amounted to Rs. 70.91 crores of which Rs.14.62 crores was meant for the village and cottage industries.

Under-finance and failure to finance in time (lack of timely finance) have been a constraint. Out of 8771 Small Scale Units operating in Manipur 2707 (30.86%) are found sick. Out of 79,555 Micro-Enterprises, 74,402(93.52%) are running without profit. 85% are operating without power, and 25% without their own premises. The performance of the State Public Undertakings recorded a negative return on investment (ROI) of 34.38% in 1992-93. The compound annual growth rate of manufacturing sector in the state records a negative rate of 7.4% during the period from 1991-92 to 1996-97 (RBI). One finds lack of necessary optimum exercises including financial networking as one of the major factors. The Bank-Industry-Economy interaction needs a thorough review in the light of new imperatives of globalisation.

The recent development of Refinance Market in the country represents a sound central initiative to step up and possibly diversify the capital market. Because of the Debt. Trap being experienced in Manipur, it has not been possible to take fuller advantage of the new opportunity. Availability of opportunity is one while utilisation of the opportunity is another. For example, under the Schematic Lending of the National Bank for Agriculture and Rural Development, Manipur could get only Rs.37.30 crores (as on 31st March 2000) as against Rs.4529.83 crores of Maharastra. Under the Rural Infrastructure Development Fund Manipur ceased to avail of the "fund" after 1st Phase with only Rs.0.96 crores as against Rs.723 crores of Andhra Pradesh (1st Phase + 2nd Phase + 3rd Phase + 5th Phase). Recovery is bad, hence, refinance is not possible. Initianal provision is not found for the same, hence refinance is not possible. The spiral of debt-burden stands in the way of taking fuller advantage of the refinance market.

The recovery-performance speaks of the efficiency and maturity of the financial sector. Because delay is costlier and interests amount over time. The recovery is fairly low in Manipur. It is less than 20% as against 63% All India Average. The recovery performance of the Manipur State Co-operative Bank could be only 4%, the lowest in the country. Lack of incremental income accounted for 60%, lack of proper facility to repay 31% and willful default 9%. This speaks of the lack of "pre-investment appraisal" of the proposed unit of investment.

There are four other general reasons namely bad recovery climate, weak collateral's, Law and Order and low banking habit. The whole atmosphere has four other implications as well; a) larger providing b) low profitability and c) low eligibility and d) low ground level actual credit (leakages).

As a matter of practical necessity the "credit planning" should be prepared as part of the Development Planning of the area, otherwise it amounts to cart before the horse and the baby is already dead before it is born. The consistency and functional unity should be the principal article of faith. Therefore much remains to be done-right from the level of Village Development Plan.

HIGHLIGHTS OF BANKING IN MANIPUR (1998-99)

1. Number of bank branches 86

2. Population per Bank 28,384

3. Credit-Deposit Ratio(%) 41.7

4. Per Capita Credit Rs.693

5. Direct Finance to Farmers (up to 1998-99) Rs.19.09 crores

6. Finance to Small Scale Units Rs.40.16 crores

7. Recovery performance of the Manipur State 4%

Co-operative Bank (1998-99)

The people-banking relationship is now undergoing a radical change in the State with both sides appreciating a new their respective roles, capacities and approaches. In the process, a new healthy atmosphere of viable financing and responsible entrepreneurs is slowly but surely taking shape.

No. of Commercial Banking Offices in Manipur as on 31-3-1999