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54 input distribution. And fourth, members of the managing committee as well as the general nembership were committed to their organization's interests. Nationalized Commercial Banks, India This case study, drawn froiii Gothoskar 1989, shows that these banks have pcnctrated the rural financial market in a nmajor way by expanding branch networks inl many remote, itl)anked arcas. Ti's has improved tile mobilization of deposits in rural areas and their share of loans. These banks are vertically orgainized and are largely miultifitctional, serving not only farnters but also support institutions for agricultural development, small-scale industries, trade, and translport. Most of the rural branches in a sample were viable anld had achieved economies of scale in transaction costs once their volmc of, business expanded beyond Rs I million. In 19,19, only 16 percent--700 out oft,263 hranclis---of comnercial banks were in rural arcas with poputlations less than 10,000. Tiwenty years later, their share had increased to 22 percent, but tile share of rural areas in deposits titohilized and loans tiade remained at 2-3 percent. In .July 1969, ili ajor (ollilliecial banks were nationalized. By 1975, tile share of' rural bralclcs ill ill lotal incrcased to 27.5 percent, by 1980 to ,t0 percent, and by 1985 to 5r percent. 11,y 1980, as a result of' this expansion i ,i rual franclIcs, the share of commetrcial hanks itt loans had increased to 8 percent, and their share ill deposits collected had riscii to 10.5 percent. And by 1985, the corresponding pxercentages were 21 and 20 percent. The creeit-lcposit ratio of rural branches was just about 0.50 by June 1980, increasing to 0.63 in another five years. The increase in deposits dming 198035 wLs highest for rillall biutches, followed by semiurban branches (those with 'enters of populations of 10,000 to 50,000), trban, and then metropolitaln branches of sitilar age (Table 16). Thrce broad types of deposits arc mol iIized: crtt-cili, savings, and fixed deposits with itatility periods raiging f'roin 50 days to 5 years. Duting 1980-85, there was a ittargiital chaiuge ill the interest late offered by these banks oni deposits. Current deposits carry no initerest rate because they arc ield bricly for transaction puiposes. D)iring 1980-85 increictits ill loans were allocated to agriculture (18.1 percent), industry (38.5 percent), trade and trantsport (29.1 percent), and others (14.3 percent). In 1985, rural branclhes itadc nearly 50 percent of their loans to agriculture, while scnitrban branches nidce about 33 percent, urban branches 15 percent, and major ntctn)opo6. ait branches 2 percent to agriculture. Industrial loans were the second itost important loans in both rural and seiiti-ban bra;iclcs, while trade and transport clailtmed the third positioln. Analysis of cross-sectional dalta of a large sample of mostly rural brancles shows thtat they wetl viablelt i it mid-1980s (Table 17). This, however, would n0t have bCet trte if thisC braitclcs had not cxpatdcd their volutie of business (loans plus deposit Ialances) beyond Rs I tnillion. Average transaction costs of a typical branich verc 3.3 percent and average financial costs were ,4.7 percent. llowever, such a branch would have sutffered diseconoities of scale otn transaction costs until its
55 Table 16-Deposit growth rates of nationalized commercial banks in India during 1980-85, according to branch groups 1980-85 Increase in Total Branch Deposits Prior to Over Branch Group/City Over 1970 Over 1970-75 All Three 1975-80 Periods (percent) Branch group Rural Seminurban Ur ban Metropolitan City Bombay Delhi Calcutta Madras 11.1.8 94.2 87.1 83.7 90.8 92.6 58.A 76.9 154.3 138.0 139.6 139.4 1.1.1.8 147.7 130.0 1,19.2 268.6 220.7 210.2 201.7 232.2 20-.1. 177.5 196.8 162.7 11(;.1 111.6 105.0 107.4 116.7 8.1.2 . I Source: Gothoskar 1989. Notes: Rural branches are those with centers of populatin trder 10,000; seinittrban branches have po]pulatton cettcis of 10,000-50,000. voltuite of business reachc( ;l)otil Rs I titillioti (lFigrire 5), after which it would rapiIdly rea l)ec('ot()1i(.S of'sualt- that wor llittue even Ihyoild a volutIce of blisin(ess of Rs 60 ittillion. Rural Institutional Finance System, India iI the two decades sintce 1961,/62, te riial inslitilional fiitaice systeli has perfored well as far as fiiatncial (dce)penilgof the itural sector is contcei-ned (Desai and Natiiboodii 1991). Bitl its ixrtfolrniance is Ilo1dest Table 1 7 -Estimated parameters of the log-log inverse transaction cost function for rural branches of the nationalized commercial banks, India Coefficients Related Io Dependent Variable Conslant Aoans Outstanding and Deposit Balances Inverse of loans Outstanding and Deposit Balances Scale -2 Param- R eter Number of Observations Transaction costs 0.023 0.66.10 --162.2.13 0.968 0. 68 h (5.253) (-0.299) Notes: Figures i,,pareot hese,. ac i-va Ics. 'Sigiifi cant at I percettt. Significantly less thant1, iztiplvinig scale c( toics.
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,AFOOD POLICY EVIEWl Institutional
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FOOD POLICY REVIEW 1 Institutional
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Chapter One Chapter Two Chapter Thr
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15. Unit transaction costs, unit ir
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47. Relative importance of intcecst
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Foreword Thiis report introduces a
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1 Summary This study analyzes two a
Page 15 and 16: 3 Six organizational principles for
Page 17 and 18: 2 Introduction Finance and Economic
Page 19 and 20: An obvious problem innate to an act
Page 21 and 22: 9 Selection of Theme and Issues for
Page 23 and 24: I1 TIhe issue of scale economies is
Page 25 and 26: 13 There is also a problem of indiv
Page 27 and 28: 15 Figure I-Share of borrowing of f
Page 29 and 30: 17 Figure 2-Share of'agricultural l
Page 31 and 32: 19 specific or economywile developm
Page 33 and 34: Table 1- Continued 21 Region, Count
Page 35 and 36: Table 2-Continued Government Nation
Page 37 and 38: 25 regional without higher or lower
Page 39 and 40: 27 Caribbean, compared with Asia. T
Page 41 and 42: Table 3 -Continued Proportion of Pe
Page 43 and 44: 31 LICs (including Bangladesh, Indi
Page 45 and 46: 33 Functional Structure of RFIs and
Page 47 and 48: 35 approximated from available lite
Page 49 and 50: Figure 3-Stylized organizational fr
Page 51 and 52: 5 Transaction Costs, Profitability,
Page 53 and 54: 411 or fiom new borrowers. Moreover
Page 55 and 56: 43 Table 6-Unit transaction costs o
Page 57 and 58: 45 tiotis largely by borrowing fi'o
Page 59 and 60: 47 Table 9 -Transaction costs of br
Page 61 and 62: 49 'T7heSonali Bank's unit uct marg
Page 63 and 64: Table 14-Estimated parameters of th
Page 65: 53 PACS) was established ill March
Page 69 and 70: 57 rIIIIal Output (28 p)Celt) and o
Page 71 and 72: 59 Although APS loans were dominant
Page 73 and 74: Table 2 0-Pattern of loans advanced
Page 75 and 76: 63 Table 2 1- Unit profit and unit
Page 77 and 78: 65 resources are mainly channeled t
Page 79 and 80: 67 Table 25-Various costs, gross ma
Page 81 and 82: 69 BAAC also en1joyced sc.;le ,~ol
Page 83 and 84: 71 iuzividual farmers at the distri
Page 85 and 86: 73 Agriculture and Cooperatives 197
Page 87 and 88: 75 like the county and plimaly coop
Page 89 and 90: 77 Table 33-Transaction and financi
Page 91 and 92: 79 Table 3 6 -Structure of assets a
Page 93 and 94: Response of Rural Loan Demand to In
Page 95 and 96: 83 Table 3 9-Estimated multivariate
Page 97 and 98: 85 Table 40-Estimated multivariate
Page 99 and 100: 87 separate deteriminants of demand
Page 101 and 102: Table 4 1-Continued Type of Demand,
Page 103 and 104: Table 4 1-Confinued Type of Demand,
Page 105 and 106: Table 4 2 -Evidence on interest ela
Page 107 and 108: 7 Response of Supply of Rural Depos
Page 109 and 110: 97 Table 44-Estimated multivariate
Page 111 and 112: 99 Table 4 6-Relative importance of
Page 113 and 114: 101 I1e positivc respolse of supply
Page 115 and 116: Table 48- Continued 103 eBased on t
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Table 4 9 -Pattern of total rural s
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107 is substantial saving even in d
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109 Table 52-Estimated multivariate
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111 nient), and lastly, the inverse
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113 Table 54-Positive and negative
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9 Flow of Funds of the Rural Financ
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117 interest I'evellie and payment.
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Table 5 5 -Continued 119 cin scenar
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10 Conclusions and Implications ase
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123 differential increase in demand
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125 can be attained. Multifunctiona
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127 fully achieved. Had the institu
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129 so doing, improvements in verti
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The standard error of The standard
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Appendix 2 Reasons for Delinquency
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Region/Country 135 Reaso.z Near Eas
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References Abbott, J. C. 1 9 7 3a.
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139 Aku, P. S. 1986. Lending to far
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141 Caibbean Country Department II,
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143 144. Princeton, N.J., U.S.A.: W
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145 1975. Agriculturalcredit in Asi
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__ 147 Gurley, J. G., and E. S. Sha
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149 G. Hunter and A. F. Bottrall, 5
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151 Lee, T. Y., D. H. Kim, and D. W
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153 __ _. 1976. The new economics o
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155 Olu, W. 1985. Formal credit and
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__ 157 Rao, B. P. 1970. The economi
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159 Singh, G., and S. R. Asokan. 19
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-- 161 Verghese, S. K. 1983. tivfit
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