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UNI
New Delhi, Apr 16: Tendency of the banks to invest surplus funds in treasury bills is one reason for the continuing low credit deposit ratio (CDR) in northern India, says a study conducted by the PHD Chamber of Commerce and Industry.
The states of the northern region comprising of Punjab, Haryana, Rajasthan, Uttar Pradesh, Jammu and Kashmir, Madhya Pradesh, Himachal Pradesh, Delhi and Chandigarh have a low CDR compared to the national average. Haryana, Chandigarh and Delhi are the only states where the CDR is above average.
The CDR is an important indicator that shows the extent of contribution made by the banks to the development activities in the concerned state. However, it depends not only on the efforts made by the banks, but also on various other factors such as credit absorptive capacity of the region, physical, social and institutional infrastructural support, and most importantly, the overall policy framework.
After the economic reform programme initated in 1991 the CDR has shown furtherdecline in the region. In the year 1992 the composite CDR of these state was 56 per cent which has reduced to 46.6 per cent at the end of september 1998, that is much below the national average of 57.3 per cent, says PHDCCI.
The low CDR in most northern states in not a new trend. In many states, the ratio has been declining consistently in the last couple of years, inespective of high or low CRR and slr BY the RBI. For example, CDR of Uttar Pradesh in March 1992 was 44.6 per cent, the same was reduced to 31.6 per cent in March 1997 and it declined even further to an abysmal 25.6 per cent at the end of September 1998.
Haryana is the only example in the region that has made a substantial recovery during last year. The CDR of Haryana increased from 42.7 per cent in March 1997 to 47.4 per cent in september 1998. The northern region accounts for nearly 37 per cent of the total bank deposits of the nation, whereas, it gets only less than 32 per cent of the total country's bank credit, which clearly shows thathard earned money of the people in the north are diverted from the region to other advanced states. This aggravates the financial conditions of already capital starved states in the northern region.
It appears, that five industrial states, that is, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and West Bengal are appropriating the major credit share of the country. This is primarily due to the presence of metropolitan centres (high industrial growth centres) in these states. These major cities account for a substantial proportion of the credit disbursed in their respective states. While mumbai accounted for 82 per cent of the total credit disbursed in Maharashtra, Calcutta accounted for 78.9 per cent, Chennai 53.8 per cent, Bangalore 52.8 per cent, and Hyderabad 41.3 per cent of the total credit in their respective states.
According to the RBI norm, a minimum 40 per cent of the total bank credit should be on priority sector. The PHDCCI study has noticed that states with low CDR are the ones that havetended to have high priority sector ratios, for example Uttar Pradesh and Himachal Pradesh. This happens because even when priority sector lending as a proportion of total deposits is low, it does not require a major effort on the part of the banks to attain the RBI norm of 40 per cent, since the norm links priority sector banks credit not to deposits but to advances.
Norm fixation by the RBI has enabled the banks to inflate their priority sector ratios for the states even when their actual priority sector lending is extremely low. Until and unless the norm for priority sector bank lending is fixed with reference to the deposits generated in each state, the priority sector credit ratios will continue to present an extremely distorted picture that hides the relative deprivation of the priority areas particularly in the low income states, says the chamber.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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