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Diversion of Deposits from rural areas and less Developed States to more Developed States and Metros
- K. Ramasubba Reddy |
| “Agriculturists are the linch-pin of the world for they support all other workers who cannot till the soil” Kural. |
| “When tillage begins, other arts follow. The farmers, therefore, are the founders of human civilization.” Daniel Webster |
| ABSTRACT: |
“For decades together, credit given out of deposits collected from rural and semi-Urban areas continues to be less than the credit deployed in metro areas, resulting in continued diversion of deposits to the extent of Rs 1,60,000 crore from rural and semi-urban areas for extending credit in Metro areas, taking in to account the overall C/D ratio of 70%.” |
| “Taking the overall C/D ratio of 70% 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 with and these funds are given as loans in Maharashtra, A.P, and Tamil Nadu which have higher per capita income |
| In Maharashtra alone loans in excess C/D ratio of 70% were given to the tune of over Rs 2,00,000 crore in Metro areas, equivalent to deposits diverted from the lesser C/D ratio and per capita income States referred to above.” |
| “States where from saving are diverted remained 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.” |
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 09 show. Tamil Nadu, as always is the case, has the highest C/D ratio of 109% (Rs 268,963 crore). Quantum wise, Maharashtra States stands first with Bank credit of over Rs 9 lakh crore accounting for nearly one third of All India total Bank advances. |
Bihar is once again at the bottom with the lowest C/D Ratio of 27% (Rs 23,624 crore) and Jharkhand’s rural credit deposit ratio is 32% (Rs 17,789 crore) followed by West Bengal and Assam at 38%.
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| While A.P has the highest rural Credit/Deposit ratio of 112%, Jharkhand has the lowest Credit/Deposit ratio of 26%. |
Similar region wise and state wise disparities are seen in semi-urban credit deposit ratio also. Rural credit deposit ratio is very low in Eastern Region (39%) and highest in Southern Region (91%). 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 |
Number |
Of braches |
Credit |
Advances |
Deposits |
Deposits |
C/D |
Ratio% |
| March |
Rural No |
% |
Rural |
% |
Rural |
% |
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 |
66 |
| 2009 |
31,325
|
40 |
2,08,700 |
7.3 |
3,65,500 |
9.3 |
57 |
73 |
|
| As of Sep 09, C/D ratio of All Scheduled Commercial Banks in metropolitan centres was the highest (83per cent), followed distantly by rural centres (58 per cent) and urban centres (56 per cent). The semi-urban centres recorded the lowest CD ratio at 50 per cent. The credit-deposit (C-D) ratio of All Scheduled Commercial Banks stood at 70 per cent. |
T 2.ASCB-Credit/Deposit Ratio –SEP 09 (Rs in Crore)
|
| |
Rural |
Semi-urban |
Urban |
Metro |
Total |
| Offices |
31,829 |
19,418 |
15,889 |
13,954 |
81,090 |
| Deposits |
384,181 |
560,327 |
853,029 |
2303,982 |
41,01,518 |
| Credit |
222,372 |
278,866 |
478,691 |
1901,970 |
2881,898 |
| C/D Ratio |
58% |
50% |
56% |
82.6% |
70.3% |
Sources: RBI Qtly Dep/Credit
|
| 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 extent of Rs 1,60,000 crore from rural and semi-urban areas for giving credit in Metro areas, taking in to account the overall C/D ratio of 70%. |
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 09-(%) |
| All India |
72.6 |
| Northern Region |
68.5 |
| North-Eastern Region |
35.8 |
| Eastern Region |
48.9 |
| Central Region |
44.8 |
| Western Region |
85.2 |
| Southern Region |
88.4 |
Source: RBI-TPB March 2009 |
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 2009 was 72% 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.
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| T 4.States with Bank Credit less than 60% and Per Capita Income less than national average-Mar 09 –Rs Crore |
| 1-S no |
2-State |
3-C/D Ratio % |
@4-Per capita Income Rs. |
5-Deposits
Rs crore |
6-Advances
Rs crore
|
7-70% of Deposits
|
Deposits Diverted to other States
8(7-6) |
| 1 |
Bihar |
27 |
12,600 |
86,652 |
23,624 |
60,656 |
-37,032 |
| 2 |
Jharkhand |
32 |
21,500 |
55,513 |
17,789 |
38,859 |
- 21,070 |
| 3 |
N.E States |
36 |
23,300 |
63,246 |
22,640 |
44,272 |
-21,632 |
4
5 |
U P
Uttar Khand |
42
26 |
18,200
36,500 |
264,270
45,162 |
111,185
11.576 |
184,989
31,612 |
-73,804
-20,036 |
| 6 |
Orissa |
51 |
26,500 |
70,626 |
35,856 |
49,438 |
- 13,582 |
| 7 |
Chhattisgarh |
53 |
29,600 |
39,438 |
21,018 |
27,606 |
- 6,588 |
| 8 |
M P |
57 |
18,000* |
100,971 |
57,957 |
70,680 |
-12,723 |
|
9 |
$W.B |
61 |
31,772 |
228,649 |
138.969 |
160,300 |
- 21,300 |
TOTAL 953,827 440,614 668,412 - 227,767 |
@March 2009@ current prices ,* Data as on March 08
Sources: RBI Qtly Dep Credit, CSO NAS 2009, Data Computed |
Note: $ West Bengal: While 78% of the total advances are given in Metro, rural credit is just 8% 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 28%, Orissa 24%, Chattisgargh 11%, M.P 17%. |
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
|
6-Advances
Rs crore
|
7-70% of Deposits |
Deposits of other States invested
8(6-7) |
| 1 |
Karnataka |
77 |
41,000 |
256,709 |
196,719 |
179,696 |
+15,023 |
| 2 |
Maharashtra |
91 |
47,000* |
1004,898 |
912,368 |
703,428 |
+208,940 |
| 3 |
A P |
98 |
39,600 |
217,453 |
212,173 |
152,217 |
+59,956 |
| 4 |
T N |
109 |
45,000 |
246,992 |
268,963 |
172,894 |
+96 ,069 |
| 5 |
#Rajasthan |
80% |
(27,300) |
91,914 |
73,680 |
64,340 |
+9,340 |
| |
All India |
72.6% |
37,500 |
|
|
|
(3,89,328) |
|
@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 80%, per capita income is low at Rs 27,300. However, 43% of the advances are given in metro while Rural credit is 16%.
Credit in Metros /Rural of other States: Karnataka-Metro 66%- Rural 9%, Maharashtra- M94%- R2%, A.P- M54%- R12%, T.N -M54%-R-7%.
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| 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, 70% of the total advances are given in metro, rural credit is just 9% . |
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 70% 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 Maharashtra, A.P, Tamil Nadu &Karnataka which have higher per capita income. |
| In Maharashtra alone, loans in excess C/D ratio of 70% were given to the tune of over Rs 2,00,000 crore in Metro areas, equivalent to deposits diverted from the lesser C/D ratio and lower per capita income States referred to above. |
| 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 |
2118 |
29% |
14 301 |
1.56% |
Semi-Urban
Urban |
1397
1096 |
19%
15% |
18 599
23,161 |
2.04%
2.54 |
| Metro |
2783 |
37% |
856,307 |
93.86% |
| Total |
7494 |
100 |
912,368 |
100 |
Source: RBI –Qtly Dep -Credit-Mar 09-Computed |
| Major chunk of credit to the extent of 94% of the total credit in the State is given in Metro. A megre 6 % of the total credit is given in the rest of the vast track of rural and semi-urban/Urban Maharashtra. |
| The vast rural belt has only 29% of the bank branches, compared to All India average of 40% rural branches in total branches. Metro has 37% of the total branches. |
| 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 66% of the total credit is advanced in Metro and in A.P and Tamil Nadu, 54% 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 57 per cent of 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 Sep 09, number of Rural Branches was 31,829, semi-urban 19,418, urban 15,889, Metro 13.954 and total number of branches 81,090. Percentage of rural branches to total branches declined from 58% in1991 to 39% by Sep 09. Had at least 50% of the branches are opened in rural areas, the number of rural branches would have been 40,500; about 8,700 more branches would have been catering to the banking needs of the rural people. |
| 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%. |
| 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 Rs1.60 lakh crore would have been extended to Agriculture and small enterprises in rural and semi-urban areas generating additional employment and resulting in increased production and income. |
| 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 5 to 6 years. |
| 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 of Rs1.60 lakh crore 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/020410 |
