Page 79 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Profitability and Social Obligations Must Go Hand In Hand

There is no doubt that social obligations increase cost of operations and hence unfavorably
affect profitability of the bank. But in the long run, economic goals and social responsibilities
are compatible with each other and they reinforce each other.
Social actions of a bank enhance its image and creditability in the society and thus ensure its
existence. Rendering satisfactory services to customers at reasonable price and ensuring them
enough safety, security and liquidity helps the bank to acquire (garner) adequate resources
comfortably.

The profit making goal of a bank contributes directly and indirectly to social welfare and
development. We must appreciate the fact that major social responsibility of a bank is to operate
profitably and efficiently utilize the resources at its disposal. Society does not stand to gain if
bank's performance suffers.
A commercial bank can serve society and help economy to develop only when it operates
successfully. Generation of adequate operational surpluses by banks is also necessary to provide
cushion against their credit risks and also to supplement the finances of the Government.

Thus, a bank to survive successfully in the long run has to give due importance to profit as well
as social goals. There should be a conscious and deliberate planning of the bank's income,
expenditure and overall productivity of human resources.

Notes A commercial bank can serve society and help economy to develop only when it
operates successfully.

4.7 Shortcomings of the Indian Banking System

There is no doubt that the Indian commercial banks have made praiseworthy progress during
recent decades. However, they still suffering from a number of shortcomings. These are:

Figure 4.1: Shortcomings of Indian Banking System

Inadequacy of
Capital
Growing Non-
Volume of Bad transparent
Debts (NPAs) Balance Sheet

Shortcomings Dual
of the Indian Administrative
Banking System Control System

Inadequacy
Defective Loan Social Banking
Procedure
Low
Profitability

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