“Agriculturists are the linch-pin of the world for they support all other workers who cannot till the soil” Kural.
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“When tillage begins, other arts follow. The farmers, therefore, are the founders of human civilization.” Daniel Webster
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ABSTRACT: For decades together, credit given out of deposits collected from rural and semi-Urban areas continues to be less than the overall Credit Deposit ratio, resulting in continued diversion of deposits from rural and semi-urban areas for extending credit in Metro areas.
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| Summary |
*Taking the overall C/D ratio of 73% into account, it is noticed that savings to the tune of over Rs 2,00,000 crore were diverted from lesser per capita income States of Bihar, Jharkhand, NE States, UP, Uttar Khand, Orissa, Chhattisgarh and M.P and these funds are given as loans in metros of Maharashtra, A.P, and Tamil Nadu which have higher per capita income.
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*In Maharashtra and TN alone loans in excess C/D ratio of 70% were given to the tune of over Rs 2,60,000 crore, equivalent to deposits diverted from the lesser C/D ratio and per capita income States referred to above.”
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* Maharashtra State has the lowest Rural Credit share @ 2%
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* A P State, has the highest Rural C/D ratio @ 125%
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| *States where from saving are diverted remain least developed having been starved of investments and the States where these diverted savings of less developed States are invested by giving loans have become more developed. This trend has been continuing unabated for decades together keeping under developed states under developed and developed Stated more developed.” |
*A study paper released by the RBI concluded that direct agriculture credit has significant positive impact on agriculture output.
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| * ILO warns of global unrest over unemployment. Employment in rural areas declined from 94 billion person days in 2004-05 to 93 billion person days in 2007-08. |
* Action needed: In order to ensure food security and employment growth in rural areas, the RBI should stipulate that the Rural/Semi-urban Credit /Deposit ratio should be 70%.
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Details
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I.Credit/Deposit ratios have been highly skewed for decades together and continue to be so as the data as on March 10 show. Tamil Nadu, as always is the case, has the highest C/D ratio of 112% (Rs 3.20 lakh crore). Quantum wise, Maharashtra States stands first with Bank credit of about Rs 10 lakh crore accounting for nearly one third of All India total Bank advances.
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Bihar is once again at the bottom with the lowest C/D Ratio of 29% (Rs 29,000 crore) and Jharkhand’s rural credit deposit ratio is 34% (Rs 22,000 crore) followed by Uttar khand and N E States at 34%.
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Similar disparities, region wise and state wise, are seen in semi-urban credit deposit ratio also. Rural credit deposit ratio is very low in Eastern Region (34%) and highest in Southern Region (92%). These trends are perpetuated perennially for decades without any correction.
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| T 1.Declining Trends in Number of Branches and low C/D Ratio of SCBs in Rural India- (Rs in Crore) |
| Year |
No. |
Branches |
credit |
credit |
Deposits |
Deposits |
C/D |
Ratio% |
| March |
Rural |
% |
Rural |
% |
Deposits |
Deposits |
Rural |
All areas |
| 1991 |
35,216 |
58 |
19,688 |
15 |
33,163 |
15 |
59 |
61 |
| 2001 |
32,640 |
48 |
54,431 |
10 |
1,39,431 |
15 |
39 |
57 |
| 2005 |
31,967 |
45 |
1,09,976 |
10 |
2,13,104 |
12 |
52 |
56 |
| 2009 |
31,325 |
40 |
2,08,700 |
7.3 |
3,65,500 |
9.3 |
57 |
73 |
| 2010 |
32,289 |
38 |
2,49,804 |
7.5 |
4,23,502 |
9.2 |
59 |
73 |
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| At the all–India level, the credit-deposit (C-D) ratio of all scheduled commercial banks (SCB) as on March 31, 2010 stood at 72.7 per cent. . C-D ratio of all scheduled commercial banks in metropolitan centres was the highest (85 per cent) followed distantly by rural centres (59.0 per cent) and urban centres (59 per cent). The semi-urban centres recorded the lowest C-D ratio at 52 per cent. |
T 2.ASCB-Credit/Deposit Ratio –Mar 10 (Rs in Crore)
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| |
Rural |
Semi-urban |
Urban |
Metro |
Total |
| Offices |
32,289 |
20,358 |
16,653 |
14,697 |
83,997 |
| Deposits |
423,502 |
618,207 |
9,51,116 |
2609,101 |
46.01,926 |
| Credit |
248.804 |
3,20.372 |
5,59,330 |
22,16,113 |
33,45,619 |
| C/D Ratio |
59% |
52% |
59% |
85% |
72.7% |
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Sources: RBI Qtly Dep/Credit
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Credit given out of deposits collected from rural and semi-Urban areas continues to be less than credit deployed in metro areas for decades together, resulting in continued diversion of deposits to an over all extent of Rs 1,90,000 crore (from rural Rs 60,000 crore and semi-urban Rs 1,30,000 crore) for giving credit in Metro areas, taking in to account the overall C/D ratio of 73%.
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| II. Regional Disparities in Credit Disbursal |
| Western and southern Regions top the list with C/D Ratio of over 85%. North-Eastern, Eastern and Central Regions are having low C/D Ratio of less than 50%. |
T 3.Regon-wise Credit/Deposit Ratio as per Sanction-
As on March 10-(%) |
|
Southen Region |
Total Rural
92 101 |
| Western Region |
78 55 |
| Northern Region |
75 59 |
| Eastern Region |
50 38 |
| Central Region |
47 50 |
| North-Eastern Region |
34 43 |
| All India |
73 59 |
| Source: RBI- Q Dep and Advances |
March 2010 |
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| In Southern region, credit /deposit ratio, overall as well as rural, is highest at 92% and 101% respectively. Over all C/D ratio is lowest in N E Region and rural credit is lowest in eastern region at 385 followed by NE Region at 43%. |
| III.Diversion of Deposits from States with lower per capita income to States with Higher per capita income |
States with lower C/D ratios have, by and large, lesser per capita income.
There seems to be correlation between State Credit/Deposit Ratio and State Per capita income. |
| An analysis is made on the relationship between C/D ratios of the major States and per capita income in these States with a view to finding out whether there is any relationship between loanable funds extended by Banks in a State from out of the deposits collected in the State. The All India C/D ratio as on March 2010 was 73% and the All India per capita income was Rs 37,500. |
After providing for Statutory Liquidity Ratio of 25% and Cash Reserve Ratio of 5%, loanable funds available with Banks in each State are 70%.
Major States with less than C/D ratio of 60% are identified and the per capita income is juxtaposed with the C/D ratios of these States. |
Similarly Major States with more than C/D ratio of 75% are identified and the percapita income is juxtaposed with the C/D ratios of these States.
The resultant data is furnished in Tables Nos: T4 and T5. |
| T 4.States with Bank Credit less than 60% and Per Capita Income less than national average-Mar 10 –Rs Crore. |
| 1-S no |
2-State |
3-C/D Ratio % |
@4-Per capita Income Rs. |
5-Deposits
Rs crore |
6-Advances
Rs crore
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7-70% of Deposits
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Deposits Diverted to other States
8(7-6) |
| 1 |
Bihar |
29 |
12,600 |
101,452 |
29,025 |
71,000 |
-42,000 |
| 2 |
Jharkhand |
34 |
21,500 |
64,826 |
22,329 |
45,400 |
-23,000 |
| 3 |
N.E States |
34 |
23,300 |
78,906 |
27,163 |
55,200 |
-28,000 |
4
5 |
U P
Uttar Khand |
42
33 |
18,200
36,500 |
314,778
42,395 |
134,015
14,328 |
220,400
29,700 |
-86,000
-15,000 |
| 6 |
Orissa |
53 |
26,500 |
83,446 |
44,361 |
58,400 |
-14,000 |
| 7 |
Chhattisgarh |
52 |
29,600 |
48,417 |
25,540 |
33,900 |
- 9,000
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| 8 |
M P |
60 |
18,000* |
119,335 |
71,358 |
83,500 |
-12,000 |
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9 |
$W.B
Total |
61 |
31,772 |
276,704 |
169,698 |
193,700 |
-24,000
-253,000 |
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@March 2009@ current prices ,* Data as on March 08
Sources: RBI Qtly Dep Credit, CSO NAS 2009, Data Computed
Note: $ West Bengal: While 79% of the total advances are given in Metro, rural credit is just 7% and the State’s per capita income is below All India average @Rs 31,722.
Rural credit in the other States: Bihar 34%, Jharkhand 16%, N E States 22%, UP 22%, Uttar Khand 25%, Orissa 23%, Chattisgargh 11%, M.P 16%. |
T 5.States with Bank Credit more than 75% and Per Capita Income more than the national average-Mar 09
Rs Crore |
| 1-S No |
2-State
|
3-C/D Ratio % |
@4-Per capita Income Rs. |
5-Deposits
Rs crore
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6-Advances
Rs crore
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7-70% of Deposits |
Deposits of other States invested
8(6-7) |
| 1 |
Karnataka |
77 |
41,000 |
291,655 |
224,459 |
204,000 |
+20,000 |
| 2 |
Maharashtra |
81 |
47,000* |
1224,329 |
995,343 |
857,000 |
+138,000 |
| 3 |
A P |
105 |
39,600 |
249,467 |
262,286 |
174,000 |
+ 88,000 |
| 4 |
T N |
112 |
45,000 |
285,337 |
321,418 |
200,000 |
+121,000 |
| 5 |
#Rajasthan
Total |
88 |
(27,300) |
107,021 |
94,408 |
75,000 |
+19,000
+386,000 |
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All India |
72.7% |
37,500 |
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| ***@March 2009@ current prices, * Data as on March 08, Sources: RBI Qtly Dep Credit, CSO NAS 2009, Data Computed |
| Note: i)# Rajasthan, even with a C/D ratio of 88%, per capita income is low at Rs 27,300. However, 47% of the advances are given in metro while Rural credit is 15%. |
Credit in Metros /Rural of other States: Karnataka-Metro 54%- Rural 8%, Maharashtra- M93%- R2%, A.P- M54%- R12%, T.N -M55%-R-7%.
ii) C/D ratios of Punjab, Haryana, Kerala and Gujarat are in the middle range of 60% to 66% but per capita incomes are above All India Average of Rs 37,500 (in the range of Rs 42,000 to Rs 68,000). In Gujarat, 71% of the total advances are given in metro, rural credit is just 8% . |
| On an analysis made, it is found that States with C/D ratios less than All India average have per capita income less than the All India average of Rs 37,000 (ranging between Rs 12,600 to Rs 36,500), where as States with higher C/D ratios of more than the All India average have per capita income higher than the All India average (ranging between Rs39,600 - Rs 47,000) with the exception of Rajasthan. |
| Taking the overall C/D ratio of 73% into account, it is noticed that savings to the tune of nearly Rs 2 lakh crore were diverted from lesser per capita income States of Bihar, Jharkhand, NE States, UP, Uttar Khand, Orissa, Chhattisgarh and M.P and these funds are given as loans in Maharashtra, A.P, Tamil Nadu &Karnataka which have higher per capita income. |
| Maharashtra State has the lowest Rural Credit share @ 2% |
| In Maharashtra , loans in excess C/D ratio of 70% were given to the tune of Rs 1,38,000 crore in Metro areas, and in T N the figure of loans in excess of CD ratio of 70% is Rs 1,21 lakh crore (Total Rs 2,59,000 crore) . In these two States it self, entire deposits of Rs 2,53,000 crore, are diverted from the lesser C/D ratio and lower per capita income States referred to above are deployed. |
| Further analysis of credit dispensation in Maharashtra State reveals that these deposits diverted from lesser per capita income States are loaned in the Metro areas as shown in the table below. |
| T6.Deposits and Credit of Scheduled Commercial Banks-Maharashtra State- March 2009 (Rs. in crore) |
| |
No. of Offices |
% share in the total |
Credit-Amount |
% share in the total |
| Rural |
2164 |
27 |
17 139 |
1.8 |
Semi-Urban
Urban |
1526
1225 |
20
15 |
22.035
29,042 |
2.2
3.0 |
| Metro |
3013 |
38 |
927,127 |
93.0 |
| Total |
7928 |
100 |
995,343 |
100 |
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| Source: RBI –Qtly Dep -Credit-Mar 10-Computed |
| As of March 2010, major chunk of credit to the extent of 93% of the total credit in the State is given in Metro. A megre 2% of the total credit is given in the rest of the vast track of rural Maharashtra. (Pl see Annexure) |
| The vast rural belt has only 27% of the bank branches, compared to All India average of 40% rural branches in total branches. Metro has 38% of the total branches. |
| A P State, has the highest Rural C/D ratio @ 125% |
| AP is the only State with high level of rural lending with Credit (Rs 30,729 crore) /Deposit (Rs 24,489 crore) ratio of 125%. A P rural credit at Rs 30,729 crore, is the highest among all states, higher than even that of the largest State U P, and is more than the rural credit of Maharastra and Gujarat States put together. 12% of the total credit is given in rural A P. |
| i.One conclusion that could be drawn is that all wealth and prosperity is concentrated in urban and metros. Other areas of Maharashtra State are starved of credit and are left HIGH AND DRY. |
In Karnataka and AP 54% of the total credit is advanced in Metro and in and Tamil Nadu, 55% of the credit is advanced in Metros. Thus major chunk of advances are given in Metros only.
ii.Another important conclusion that could be drawn is that by diverting savings from States with lesser per capita income these States are starved of investments and perhaps therefore remain poor, where as the States where these funds are given as loans have prospered and perhaps therefore have higher per capita income at the cost of the States where from the savings are diverted. |
| IV. Adverse effects of discriminator y credit policy |
| While there are other factors which contribute for higher/lesser per capita incomes of different States (such as availability of infrastructure like power, roads, market facilities etc, enabling Government Policies and Entrepreneurship etc), availability funds is an important factor facilitating/inhibiting economic development of a State. |
| States where from saving are diverted remain least developed having been starved of investments and the States where these diverted savings of less developed States are invested by giving loans have become more developed. This trend has been continuing unabated for decades together keeping under developed states under developed and developed Stated more developed. |
| As for the distribution of credit, metropolitan group gets 23/rd (66%) of the bank credit. Combined with the 16 per cent for the urban sector, this means that 83 per cent of bank credit goes to miniscule metro/urban borrowers with the rural borrowers getting just 7 per cent. |
| V. Decline in rural branches Ratio |
| As of Marc 2010, number of Rural Branches was 32,289, semi-urban 20,358, urban 16,653, Metro 114,697 and total number of branches 83,997. Percentage of rural branches to total branches declined from 58% in1991 to 38%. Had at least 50% of the branches are opened in rural areas, the number of rural branches would have been 42,000; about 10,000 more branches would have been catering to the banking needs of the rural people. |
| Out of 4,940 branches opened during FY 2910, only 16% of the branches are opened in rural areas where 70% of the people live where as half of these branches are opened in urban and metro areas. |
| The regional distribution of bank centres is no better with seven north-eastern States together (Assam included) trailing a single State, Uttar Pradesh, by nearly a fourth. Some States are deprived of funds for investment from out of deposits. |
| VI. Remedial Measures suggested |
| The main objective of the XI Five Year Plan is Inclusive Growth. Hence diversion of deposits from rural/semi-urban to Metro areas and from States with lesser per capita income to States with higher per capita income is the anti thesis of inclusive growth. The disparities will get further widened by such measures. This trend needs not only to be arrested but reversed. |
| When Banks were nationalized in 1969, in order to ensure that rural areas were not deprived of credit, the RBI stipulated that the rural Credit/Deposits ratio should be 60%. At that time, the over all Credit/Deposit ratio was hovering around 60%. Now it is hovering around 70%. |
| i.Therefore it is but appropriate and necessary that the RBI stipulate that the Rural/Semi-urban Credit /Deposit ratio should be 70%. |
| NOTE: If 70%of deposits, being the average C/D Ratio, of the deposits collected in rural and semi-urban areas were deployed there only, additional credit to the extent of Rs2 lakh crore could have been extended to Agriculture and small enterprises in rural and semi-urban areas generating additional employment and resulting in increased production and income. |
| Food insecurity and Unemplyment –Prime concerns |
| a .A study paper released by the RBI concluded that direct agriculture credit has significant positive impact on agriculture output. In particular, change in per capita agriculture direct credit (amount outstanding) by one per cent will lead to increase in per capita agriculture output by 0.11 per cent (Impact of Agricultural Credit on Agriculture Production , Abhiman Das et al, Reserve Bank of India Occasional Papers Vol. 30, No.2, Monsoon 2009). |
| ILO warns of global unrest over unemployment-TH 031010 |
| An analysis of trends in earning and employment from 1983 to 2005, made by Sandip Sarkar, Balwant Singh Mehta. (EPW, september 11, 2010, Income Inequality in India: Pre- and Post-Reform Periods), and NSSO 64th round survey of 2008 bring out facts about worsening employment situation in rural India and low incomes for farmers and low wages for agri workers. |
| b.Employment in rural areas declined from 94 billion person days in 2004-05 to 93 billion person days in 2007-08. |
c.The 2007-08 estimates show almost no non-farm employment diversification compared to 2004-05.
While aggregate employment in the primary sector declined in absolute terms, the growth rate of employment in the secondary sector and services was only 1% per annum. |
| d.The intersectoral productivity gap widened, the share of wages in value added has continued to show a decline with that of profits rising. |
| ii. The same stipulation of C/D ratio of 70% should also be made applicable for loaning in each State in order to ensure that loanable funds from out of the savings collected from each State (with lesser per capita income affected by diversion of the savings of people in the respective States) are available there itself. This will generate additional employment and facilitate increase in incomes of the people in these States. |
| As it may not be possible to immediately increase loaning operations to achieve the stipulated 70% C/D ratio norm in the less developed States, the same may be achieved in incremental enhancement over a period of say 4 to 5years. |
| In the meantime, the difference in the amount between the present low C/D ratio and the stipulated ratio of 70% may be invested by Banks in Special State Infra Development bonds of each such States on similar lines of investing Rural Infra Development Fund by NABARD. |
| iii. The above measures, when implemented, will ensure equitable and inclusive development of rural/semi-urban areas and States with lesser per capita income by infusing additional credit of over Rs 2 lakh crore of which a major amount could be extended in rural/semi urban areas to develop Agriculture and rural industries which will considerably improve incomes of rural people thus fulfilling the objective inclusive growth. |
The Central Government should bring out a Credit Policy Document incorporating the above suggestions and ensure its effective implementation.
Then and then only the fruits of development will reach rural/semi-urban areas and less developed States.
KRSR-051010 |
| Annexure: |
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