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Aspects affecting Demand and Supply of banking industry in India

March 1, 2019 0 Comment

Aspects affecting Demand and Supply of banking industry in India:
In banking industry, there are positive factors that influence the bank, its activities and success or failure. Five influences have been considered as crucial factors that may affect banks in every part of the world.
• The income of the country and its fiscal level always affects the banking sector. Income flows in a country affect banks in terms of the amount of capital they can access and clients that are ready to bank with them. Income also defines spending and borrowing.
• Inflation Rates. When inflation is high, banks tend to suffer. This is because inflation tends to affect the value of currency and this often has a ripple effect in the banking sector. Inflation causes uncertainty in notes and erodes client confidence exclusively foreign investors.
• Macroeconomic policies can have far reaching impacts on the banking sector. Negative policies makes the banking sector assured to lose while sound macroeconomic policies can make all the difference and enable a banks to actually grow.
• Exchange Rates across the world. Strong currencies such as the US Dollar, British Pound, Japanese Yen, European Euro and Canadian Dollar have a peevish cutting impact on other currencies and monetary markets in the world. When the exchange rates for these currencies fall the banking sectors can contribution problems.
• Laws and regulations. Severe laws and regulations for the banking sector can actually shorten business. However a profuse regulator is also quite dangerous because some banks can easily lose focus in the bid to make higher profits. It is therefore important to continue a rationally directing context that talks the needs of both the bank and its regulars.
Financial Inclusion in India: An Inter-State Analysis
Supply of Financial Services
The supply of financial services across the states of India has been approximated by means of three financial dimensions: banking penetration (i.e., the number of bank accounts as a proportion of the total adult population), availability of banking services (i.e., the number of bank branches per 1000 adult population) and use of banking services (i.e., the volume of credit and deposit as proportion of the state’s Net State Domestic Product). The data pertaining to the year 2010 shows a wide inter-state disparity in supply side individual indicators of financial inclusion. In respect of the number of bank account, states like Delhi, Chandigarh, Goa, Punjab, Pondicherry, Himachal Pradesh, Kerala, Uttaranchal, Haryana, Karnataka, Andhra Pradesh, Tamil Nadu, Jammu ; Kashmir and Gujarat, an average individual has more than one bank account (as shown in column 2 of Table 2), while an average individual in Delhi, Chandigarh and Goa has more than three bank accounts. On the other hand, more than 40 percent of the adult population in Mizoram, Bihar and Manipur do not have any bank account. Such unbanked population is higher in north-eastern and eastern regions. Inter-state variability in the availability of banking services, which is measured by the number of bank branches per 1000 adult population, is represented in column 4 of Table 2. It is evident that states like Chandigarh, Goa, Himachal Pradesh, Delhi, Punjab, Uttaranchal, Sikkim, Kerala, Pondicherry, Haryana, Karnataka, Mizoram, Andaman ; Nicobar, Jammu ; Kashmir, Meghalaya, Tamil Nadu, Andhra Pradesh, and Gujarat have more bank branches than the all India average of 1.19 branches per 10000 adult populations. A wide inter-state disparity in the availability of banking services in India is evident as more than four banks are found in operation for 10000 adult population in states like Chandigarh, Goa and Himachal Pradesh, while only one bank is serving for 10000 adult population in states like Uttar Pradesh, West Bengal, Chhattisgarh, Assam, Bihar and Manipur. Credit and deposit as a proportion of NSDP can be considered as one of the important indicator of actual utilization of financial services by the population. Usage of banking habit is crucial as it indicates the development of banking habit subject to the constraint of the penetration and availability of banking services. The volume of credit and deposit is found to be more than double than NSDP in the states like Delhi, Chandigarh and Maharashtra (column 6 of Table 2). The inequality in the usage of financial services is widespread in India, out of 31 States and Union Territories 24 States and Union Territories are lagging behind the all India average. A poor rating of banking habit is observed in Mizoram, Andaman ; Nicobar and Manipur.
Ranking of the States on the basis of Supply Side Dimensions of Financial Inclusion
States/UTs No of accounts per 100 of adult population Rank No of bank branches per 100 adult pop Rank Credit and Deposit as a proportion of NSDP Rank
Northern Region 138.38 – 0.016 – 1.975 –
Haryana 127.37 9 0.016 10 0.911 21
Himachal Pradesh 137.12 6 0.023 3 1.074 12
Jammu ; Kashmir 117.06 13 0.014 14 1.414 7
Punjab 155.49 4 0.02 5 1.319 8
Rajasthan 75.25 23 0.011 20 0.891 22
Chandigarh 332.95 2 0.047 1 4.593 2
Delhi 355.86 1 0.023 4 4.762 1
North Eastern Region 70.5 – 0.009 – 0.794 –
Arunachal Pradesh 76.91 21 0.01 22 0.839 24
Assam 71.86 26 0.008 29 0.82 25
Manipur 40.23 31 0.005 31 0.516 31
Meghalaya 66.67 27 0.014 15 0.855 23
Mizoram 58.05 29 0.015 12 0.676 29
Tripura 84.85 20 0.01 23 0.766 28
Eastern Region 71.97 – 0.009 – 1.06 –
Bihar 52.63 30 0.007 30 0.808 26
Jharkhand 75.8 22 0.01 25 1.026 14
Orissa 74.54 24 0.011 21 0.948 20
Sikkim 93.69 17 0.02 7 1.038 13
West Bengal 88.11 19 0.009 27 1.225 10
Andaman ; Nicobar 111.06 14 0.015 13 0.625 30
Central Region 86.8 – 0.01 – 0.955 –
Chhattisgarh 63.85 28 0.009 28 0.78 27
Madhya Pradesh 72.08 25 0.01 24 0.987 15
Uttar Pradesh 93.24 18 0.009 26 0.976 16
Uttaranchal 129.03 8 0.02 6 0.967 17
Western Region 103.11 – 0.012 – 2.141 –

Sources: Basic Statistical Return of SCBs (Reserve Bank of India) March 2010, Census of India, 2011, Central Statistical Organization, 2011.
Demand for Financial Services
Three family unit level pointers have been utilized to investigate the between state inconstancy of the interest for budgetary administrations: funds, credit and protection. At the all India level, just 31.2 for each penny of the family units approaching investment funds, 18.4 for each penny to credit and just 12.8 for each penny in protection in 2002-03. There is a gigantic difference over the states on the individual parts of the interest for money related administrations. Out of 35 states and association domains, 20 States are slacking underneath the all India normal on the entrance to investment funds. Access to investment funds is seen to be most elevated in Andaman and Nicobar Island taken after by Himachal Pradesh, Daman and Diu, Kerala and Chandigarh. The last five States in the positioning are Chhattisgarh, Tripura, Orissa, Nagaland and Bihar. Every other State and Union Territories lie in the middle of the road position. Between state dissimilarity is additionally noticeable in regard of credit and protection scope. The scope of credit and protection office has been moderately higher for southern states (Kerala, Pondicherry, and Maharashtra). Protection scope is seen to be generally happier in the vast majority of the Union Territories. It merits specifying that Andaman and Nicobar, Chandigarh and Himachal Pradesh have a decent sparing and protection scope in spite of the fact that they have poor credit get to. Then again, Pondicherry has great credit and protection scope yet does not have a decent sparing scope in the formal division. In this manner to reach a general inferences, an aggregative examination in light of every one of the three segments of interest side money related incorporation is alluring.
Ranking of the States on the basis of Demand Side Dimensions of Financial Inclusion
State Proportion of households having access to savings Rank Proportion of households having access to credit Rank Proportion of households having access to insurance Rank
Northern Region 0.324 — 0.142 — 0.138 —
Haryana 0.32 17 0.203 10 0.179 12
Himachal Pradesh 0.646 2 0.151 16 0.22 9
Jammu ; Kashmir 0.388 14 0.032 29 0.153 17
Punjab 0.5 7 0.185 11 0.136 23
Rajasthan 0.178 29 0.15 17 0.103 29
Chandigarh 0.551 5 0.067 22 0.419 1
Delhi 0.306 18 0.007 35 0.115 25
North Eastern Region 0.207 — 0.041 — 0.153 —
Arunachal Pradesh 0.205 26 0.012 33 0.068 33
Assam 0.224 24 0.028 30 0.158 16
Manipur 0.221 25 0.014 32 0.166 15
Meghalaya 0.184 28 0.01 34 0.111 27
Mizoram 0.164 30 0.043 28 0.126 24
Tripura 0.121 34 0.164 13 0.147 19
Nagaland 0.126 32 0.056 25 0.266 6
Eastern Region 0.194 — 0.131 — 0.093 —
Bihar 0.132 31 0.065 23 0.031 35
Jharkhand 0.186 27 0.081 21 0.107 28
Orissa 0.123 33 0.221 6 0.076 32
Sikkim 0.387 15 0.058 24 0.198 10
West Bengal 0.276 21 0.157 15 0.145 20
Andaman ; Nicobar 0.652 1 0.12 19 0.37 3
Central Region 0.257 — 0.158 — 0.075 —
Chhattisgarh 0.114 35 0.207 9 0.087 31
Madhya Pradesh 0.228 23 0.209 8 0.098 30
Uttar Pradesh 0.283 19 0.135 18 0.059 34
Uttaranchal 0.421 11 0.055 26 0.145 21
Western 0.475 — 0.228 — 0.181 —

Sources: Basic Statistical Return of SCBs (Reserve Bank of India) March 2010, Census of India, 2011, Central Statistical Organization, 2011.
Association between Demand for and Supply of Financial Inclusion in India
In order to make a comparative analysis between the demand for financial services and the supply of financial services across the states of India, it requires data on demand-supply components at the same point of time. Since our above analysis is based on the data on two points of time (for demand analysis for the year 2002-03, and supply analysis for the year 2010), we are not in a position make such comparison. In order to make effective comparison we have again constructed the index relating to the supply of financial services for the time period 2002-03. A comparison of IFI from demand and supply perspective in 2002-03 suggests that IFI of demand for and supply of financial services move closely with each other (Table 6). The state, Kerala, secures first position in the ranking of demand side of financial services while it ranks seventh in respect of supply of financial services. Chandigarh, a high IFI state from supply point of view has ranked seventh in respect of demand side of IFI.