States Need To Do More To Arrest CDR

New Delhi: | Updated: Oct 28 2002, 05:30am hrs
As financial intermediation has got more dispersed through more products in the liberalised era, the public sector banks credit-deposit ratio (CDR) has been travelling southward even as their investment-deposit ratio has increased. Indeed, in contrast to the traditional means of lending to corporates earlier, now banks subscribe to the bond issues and commercial paper of corporate entities. This has adversely affected CDR which, as one banker explained, indicates the level of resources raised from an area and utilised for assisting economic activities in that region itself.

CDR is the percentage of bank deposits deployed as loans and advances in the same geographical area, and denotes the level of economic activity in any place or state.

Indian Banks Association statistics show that the average CDR of banks slid from a healthy 61 per cent as on March 31, 1990, to 53.6 per cent a decade later. In March 2001, the ratio was 53.1 per cent with a slight recovery to 53.81 per cent the following fiscal. By contrast, the investment-deposit ratio has inched up in the corresponding periods from 37 per cent, 38 per cent, 38.5 per cent and 39.07 per cent, respectively.

Banks explain the variations in CDRs across states (see table) to the lack of power, roads and communication links in some states, since these factors act as disincentives to investors. However, strong cooperative movements in states like Gujarat and Maharashtra have also affected their CDRs, especially in the agriculture, textiles and chemicals segments.

In many other smaller locations, head offices of corporates tend to attend to the financial needs of the entities through banks metro branches, leading to a skewed CDR at times.

To counter the adverse CDRs, banks have suggested more attention to equitable distribution of infrastructure asset creation and better marketing and storage avenues for agricultural produce. Watershed development projects, too, could enhance the capacity of local trade and industry to absorb credit. They have also called for focused efforts to boost micro-credit lending, since the asset quality experience among self-help groups has proved them to be first-rate borrowers. Another major hindrance in credit offtake identified by bankers is lack of adequate support for rural housing.