Chapter V CREDIT - DEPOSIT RATIO ANALYSIS

Chapter V CREDIT - DEPOSIT RATIO ANALYSIS

(98) CREDIT - DEPOSIT RATIO ANALYSIS Since the nationalisation of major commercial banks in India on July 19, 1969, participation of commercial banks in rural development has been gradually increasing. Initially there was massive increase in branch expansion in the rural areas but its immediate impact on the rural economy was by the way of depositmobilisation and since, there was no commensurate increase in the advances in the short run, credit deposit ratio remained depressed. This attracted charges against commercial banks that they were drawing away investible resources from the rural to urban areas. For advances in the rural sectors banks were required to develop close insights into the dynamics of growth in the rural econmy, which they shared with the local planners at the grass root levels. Besides, statistical analysis it must be realised that the extension of banking in the rural areas has brought about a more fundamental change in the commercial banks. Presuming that credit is key to development, it must be realised that develpment has its own logic. It needs, for its success, certain preconditions such as willingness on the part of the local population to adopt innovations in technology, availability of infrastructure facilities, presence of backward and forward linkages of various economic activities. Commercial banks may be ready to finance, argue bank officials, but the actual demand for loans would depend upon the inclinition of local people to borrow, which in turn would depend upon the intensity of their desire to better their living conditions. The major functions of commercial banks and other financial institutions

(99) in any developing or underdeveloped economy can be stated as- mobilisation of savings, promotion of productive investment and raising the levels of savings and investments for the attainment of socio economic objectives. These functions clearly define the critical roles of banking and other financial institutions is in achieving and promoting developmental objectives. In the search for accelerating the development process in India, one of the strategies was to harness the banking system, through nationalisation of banks. From the traditional role of mere lending, banking has now taken a new orientation as a develpmental agency working in close collaboration with the government, in implementing national policies. The changed role necessiates examination of the performance of banks. To assess the performance of commercial banks, to meet progressively and serve better needs of development of the economy in conformity with national policy and objectives continues to remain issue of vital issue of consideration and discussion. Several parameters were used by different research workers to assess the performance. These included number of offices, mobilisation of deposits, increment in advances, sectorial advances etc. In the initial years of post-nationalisation era opening of large number of offices at unbanked places reflected on the eagerness of banks to consider for small depositor at remote villages, it made increasingly possible for the people to institutionalise savings and thus deposit's growth. The growth pattern of credit was more encouraging and it was observed that during first five years of nationalisation advances to priority sectors, which included agriculture and small enterpreneurs increased at faster rate than the general increase in advance. The achievement on the adances front could also be viewed from the angle that the approach of banker in judging the credit worthiness of potential borrower changed from asset nexus to

(100) economic viability of the project. The variations at the levels of commercial banks, regions, rural/urban areas, economic groups continued as important indicators of commercial banks' functioning. The proportion of the credit deployed to the deposit mobilised, popularly known as C/D ratio, has recently come into focus as one of the parameters to assess the performance of the banking industry. Though the ratio does not in itself have significance or relevance if calculated for the entire country, it is a result of the policy demand. The primary function of the bank being to mobilise deposits and investing the surplus, after meeting the statutory requirements, in terms of lending to various sectors, within the framework of the national plan and priorities, thereby earning an interest differential by way of profits the surplus notwithstanding the C/D ratio cannot be kept idle. The policy pursued by the banks inevitably resulted in deployment of the funds/surplus mobilised in other areas irrespective of the origin and /or the areas of deposit mobilisation. As a consequence, the developed and developing areas/states attracted investment of more and more funds by the banks, aggravating eventually the regional imbalances of the use of funds. The policy thinking, therefore, emerged which desired, out of public demand and planning requirements, that the deposits mobilised by the banks should be invested in the same area to ensure local utilisation of funds for development. At present, it is therefore, customary to assess the ratio on the basis of the State and also simultaneously make it an operative compulsion for the banks to achieve a minimum of C/D ratio of 60 per cent for each State. The Reserve Bank of India has been, therefore, exhorting all the banks to maximise the C/D ratio in each deficit State which should reach a national average of 60 per cent over a reasonable period.

(101) The terms,, deposits and credits used in arriving at C/D ratio have a definite connotation which should be understood as they stand in the present context of the ratio. As stipulated by Reserve Bank of India the deposit means aggregate deposits, exclusive of (i) inter-bank deposits and (ii) interest accrued on aggregate deposits as reported under item 11(a) of the Special Statutory return by the banks, under Section 42(2) of the Reserve Bank of India Act. The items under 1(a) and 1(c) of the return are not to be included in the aggregate deposits. The credits pertain to the total of item VI, excluding inter-bank advances and the total amount outstanding of the bills rediscounted with other financial institutions as on the last Friday of each month. It is interesting to note that the Reserve Bank of India was called upon to clarify the definition of deposits and credits as late as in early 1989 which is an indicator of the fact that there were reporting discrepancies which required necessary corrections for uniformity. Banks have been projecting the ratio as a measure of their performance in a given state, without any relevance to sectoral deployment of funds or population groupwise achievements of their branches. It is interesting to note that the Reserve Bank of India has not laid down specific guidelines either for calculation of the ratio or for its constitutents. The ratio would be much governed by the availability of the loanable funds at the disposal of the banks, after meeting the statutory stipulations of CRR & SLR, which together now constitute about 53 per cent of the total deposits and thus leaving the surplus loanable funds of the order of 47 per cent. The RBI also envisages that by making the banks to achieve a stipulated C/D ratio, the existing regional imbalances in absorption of credit would be corrected. The RBI desires the banks to arrange their lending portfolio so that

(102) more credit would be deployed in the backward States and districts of the country. With this objective the RBI has advised the banks to achieve a credit deposit ratio of 60 per cent through all their rural and semi-urban branches. Not withstanding differences and lack in clarity in concept, errors of the methods of calculations and reporting, variance in projections by the banks than what has been envisaged by RBI. Attempt has been made in this chapter to present temporal analysis of C/D Ratio in respect of regions, rural and urban areas, states and commercial banks. Table 5.1: Regionwise Credit Deposit Ratio of Scheduled Commercial Bank (Percentage) S.N. Regions Credit Deposit Ratio 1997 1998 1999 2000 1. Northern Region 47.0 47.5 49.4 58.0 2. North-Eastern Region 36.1 33.5 33.7 27.7 3. Eastern Region 42.1 40..4 38.0 36.8 4. Central Region 40.7 39.2 36.8 33.4 5. Western Region 66.2 65.0 67.0 74.1 6. Southern Region 75.3 72.0 68.7 65.8 All India 56.8 55.3 54.8 57.1 Source : Annexure to General Secretary Report A.I.B.E.A. XXIV Conference 30" December' 2000 2"d January1 2001, p. 16 Table 5.1 presents Regionwise Credit Deposit Ratio of Scheduled Commercial Banks. Northern Region comprises the states of Haryana, Himanchal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Chandigarh and Delhi. The North Eastern Region comprises Arunanchal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. The Eastern Region comprises

(103) Bihar, Orissa, Sikkim, West Bengal and Andaman and Nicobar Island. The Central Region comprises Uttar Pradesh and Madhya Pradesh. The Western Region comprises Goa, Gujarat, Maharashtra, Dadar & Nagar Haveli, Daman & Diu and the Southern Region comprises Andhra Pradesh, Karnataka, Kerala, Tamilnadu, Lakshdweep and Pondichery. Perusal of the table reveals that the All India C/D Ratio was 56.8 in 1997, 55.3 in 1998, 54.8 in 1999 and 57.1 showing that in none of the years under reference it was stipulated 60 as per RBI norms. It shows that it remained more than the national average in Central and Southern Region throughout and more than 65 in both regions and all years. Northern Region indicates rising trend as the C/D Ratio in it was 47.0 in 1997, 47.5 in 1998, 49.4 in 1999 and 58.0 in 2000. In North Eastern Region C/D Ratio is very low and was 36.1 in 1997, 33.5 in 1998, 33.7 in 1999 and 27.7 in 2000. It is seen that 27.7 is lowest C/D Ratio in the regions and during the years and reference. In Eastern Region the tendency is declining as C/D Ratio declined continuously from 42.1 in 1997 to 36.8 in 2000, The Central Region also followed pattern of Eastern Region as it recorded continuous declining from 40.7 in 1997 to 33.4 in 2000. Regional comparison shows that there is wide variation in C/D Ratio so far as the regions of the union are concerned indicating that the regional enterprenureship besides credit absorption capacity and level of economic development and activities may be responsible of this wide variation. It may be added that special efforts are needed for enhancing C/D ratio in North Eastern, Eastern and Central Regions to bring them in the main stream of economic activity. Besides, the regional differences in C/D Ratio comparison of Rural and

(104) Urban areas in the region is important as it indicates the dimension and direction of credit flow with in the region. Table 5.2 presents C/D Ratio compiled by the Committee for Review of the working of Monetary System of Reserve Bank of India. Perusal of the table reveals that at the All India level, against C/D Ratio of 69.6 in 1973, the same for Rural areas was 47.2, for Semi-urban area 42.9 and for Urban/Metropolitan areas 80.8, where as against 68.1 C/D Ratio in 1983 the same for Rural areas was 59.9, Semi-urban area 50.8 and Urban and Metropolitan areas 76.5. It shows the gap between Rural and Urban/Metropolitan areas has narrowed overtime. The table further reveals that in 1973 the C/D Ratio in Rural areas ranged between 21.0 in Northern Region and 88.6 in Southern Region, in Urban areas between 22.0 in Eastern Region and 71.4 in Southern Region and in Urban/Metropolitan areas 46.7 in Central Region and 107.2 in Southern Region. It shows that during 1973 the regional variation in C/D Ratio in Rural areas was very wide which declined in Semi-Urban and substantially narrowed down in Urban/Metropolitan Regions. In 1983 the C/D Ratio is Rural Areas ranged between 81 in Southern Region and 50.6 in Western region in Semi-Urban areas between 60.3 in Southern Region and 34.5 in Eastern Region and in Urban/Metropolitan areas between 91.9 in Southern and 46.4 in Central Region. These observations lead to conclusion that by passage of time the gap in C/D Ratio acrosss the regions and Rural and Urban areas seam to have narrowed. Many of governmental development activities are initiated by State Government, beside agriculture being state subject, as such credit flow is alteded by the policies and economic initiatives oof the state. Table 5.3 presents Credit Depsit Ratio in different States during the years 1969, 1984, 1995 and 2000.

(105) Table 5.3 : Credit Deposit Ratio in Different States (Percentage) S.N. States Credit Deposit Ratio 1969 1984 1995 2000 1. Andhra Pradesh 100.10 81.16 82.63 63.8 2. Assam 39.00 50.66 39.08 31.5 3. Bihar 31.00 35.96 31.39 22.5 4. Gujrat 49.00 54.88 47.19 49.8 5. Haryana 47.00 69.92 44.02 41.4 6. Hinanchal Prdesh 28.00 43.06 26.38 22.9 7. Jammu & Kashmir 05.00 34.73 23.67 40.5 8. Karnataka 76.00 85.51 72.21 61.0 9. Kerala 66.00 68.00 43.39 42.3 10. Madhya Pradesh 59.00 58.44 54.70 49.2 11. Maharashtra 101.01 94.65 79.22 83.8 12. Manipur 14.15 61.54 60.58 36.4 13. Meghalaya 36.68 25.49 14.53 15.7 14. Nagaland 5.71 37.93 35.46 15.4 15. Orissa 49.51 78.39 54.62 39.8 16. Punjab 27.12 48.86 41.18 39.1 17. Rajasthan 51.81 66.41 46.46 46.7 18. Tamil Nadu 133.34 95.29 94.94 88.0 19. Tripura 4.26 61.90 37.11 25.8 20. Uttar Pradesh 45.60 44.86 34.67 27.5 21. West Bengal 114.76 55.97 54.24 45.2 Union Territories 1. Chandigarh 53.89 195.55 192.00 52.6 2. Delhi 68.07 58.42 79.27 76.9 3. Goa Daman & Dieu 40.48 25.17 27.84 24.2 4. Pandichery 93.68 54.06 44.89 32.8

(106) Perusal of the table reveals that in 1969 the C/D Ratio ranged between 133.34 in Tamilnadu and 4.26 in Tripura. States of Andhra Pradesh, Maharashtra, Tamil Nadu and West Bengal recorded more than 100 C/D Ratio. C/D Ratio in Karnataka was 76.00 Chandigarh 53.89 Kerala 66.00, Pondiychery 93.68, Madhya Pradesh 59.0, Rajasthan 51.81 and Delhi 68.48. In Gujrat the C/D Ratio was 49.00, Haryana 47.00, Orissa 49.5, Uttar Pradesh 45.60 and Goa, Daman & Dieu 40.48. C/D Ratio in 1969 was extremely low in Jammu & Kashmir being 5.00, Nagaland 5.71, Tripura 4.26 and Manipur 14.15. In remaining states it was between 20 and 40. This shows very wide variation in C/D Ratio between the states in 1969. During 1984 C/D Ratio ranged between 195.55 in Chandigarh and 25.17 in Goa Daman and Dieu.Madhya Pradesh, Tamil Nadu, West Bengal and Pondiychery presents tendency of continuing decline in the C/D Ratio during the years and reference. Perusal of the table further reveals that between the pre-nationalisation 1969 and post-nationalisation 1984 Assam recorded rise in C/D Ratio from 39.0 to 50.66, Bihar 31.00 to 35.96, Gujrat 49.00 to 54.88, Haryana 47.00 to 69.92. Himanchal Praesh 28.00 to 43.06, Jammu and Kashmir 5.00 to 34.73, Karnatak 76.0 to 85.51, Kerala 66.0 to 68.0, Manipurl4.15 to 61.54, Orissa 49.51 to 78.39, Punjab 27.12 to 48.86, Rajasthan 51.81 to 66.41, Tripura 4.26 to 61.90 and Chandigarh 53.89 to 195.55. It shows that nationalisation of Banks generally raised C/D Ratio and enhanced inter-state uniformity. Between 1995 and 2000 there were only 4 states, viz. Gujarat, Jammu & Kashmir, Meghalaya and Rajasthan which record marginal and insignificant rise in the C/D Ratio while remaining states recorded decline. This leads to the observation that the new economic initiatives had negative bearing on C/D Ratio in most of the states. It can be concluded on the basis of above discussion that accross the states the

(107) initial rise in C/D Ratio has been arrested in all states the except four, Andhra Pradesh (63.8), Karnataka (61.0), Tamilnadu (88.0) and Delhi (76.9). In the other states the C/D Ratio remained less than the stipulated 60 as per directives of Reserve Bank of India. As stated earlier in the chapter that the C/D Ratio increased in the postnationalisation period but the tendency of rise was arrested in the period when economic initiatives were taken across the regions and states. The role of different Commercial Banks and their response to C/D Ratio in context of new economic initiatives became thus important. The C/D Ratio records of different Commercial bank groups needs examination during the era of economic reforms. Table 5.4 presents C/D Ratio of State Bank of India and its associates during 1991 and 1995. Table 5.4 : Credit Deposit Ratio in State Bank of India and Associates. S.N. Name of Bank Credit Deposit Ratio 1991-92 1995-96 1. State Bank of India 73.67 62.06 2. State Bank of Patiala 63.34 53.21 3. State Bank of Hyderabad 61.55 63.63 4. State Bank of Travancore 54.68 61.75 5. Stae Bank of Bikaner & Jaipur 59.58 52.52 6. Bank of Mysore 60.55 53.68 7. State Bank of Saurashtra 67.27 57.68 8. State Bank of Indore 65.27 59.65 Perusal of the table reveals that during 1991-92 the C/D Ratio of State Bank of India and its associates ranged between 73.67 in State Bank of India and 54.68 in State Bank of Travancore. Only two banks, State Bank of Travancorc

(108) and State Bank of Bikaner and Jaipur recorded C/D Ratio less than the stipulated 60. Against it the C/D Ratio during 1995-96 ranged between 63.63 in State Bank of Hyderabad and 52.52 in State Bank of Bikaner and Jaipur and Five banks viz. State Bank of Patiala State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Saurashtra and State Bank of Indore recorded C/D Ratio less than the stipulated 60. The table also reveal that only two banks, ie., State Bank of Hyderabad and State Bank of Travancore recorded marginal increase in the C/D Ratio between 1991-92 and 1995-96. Three conclusions emerge from this discussion, the first that there has been decline in C/D Ratio during the period under reference, the gap between different banks narrowed and the banks which registered rise in C/D Ratio were mainly active in Andhra Pradesh which generally remained at top in the group amongst the states and always recorded more than 60 C/D Ratio. Major Commercial Banks in India were nationalised on July 19, 1969 with the objective of boosting credit availability to neglected sector of economy, envolving rise in credit deposit ratio. Table 5.5 presents C/D Ratio of Nationalised Banks during the years 1991-92 and 1995-96 to evaluate the level and tendency of C/D Ratio in and between them. Perusal of the table reveals that during 1991-92 C/D Ratio ranged between 72.26 in Indian Bank and 43.07 in Corporation Bank and in 1995-96 it ranged between 59.13 in Indian Bank and 32.44 in United Bank of India showing that the limits have declined and differences narrowed down. It also reveals that while in 1991-92 in four banks viz. Bank of India (65.45), Indian Overseas Bank (65.72), UCO Bank (67.37) and Indian Bank (72.26) the C/D Ratio was higher than the stipulated 60, during 1995-96 none of the banks touched the stipulated ratio indicating that new economic initiatives adversely affected the C/D Ratio

(109) in Nationalised Banks. It also shows that in only four Nationalised banks the C/D Ratio increased overtime from 54.95 to 56.44 in Bank of Baroda, 46.32 to 48.52 in Union Bank of India, 48.99 to 53.63 in Oriental Bank of Commerce and 48.94 to 52.52 in Deria Bank and in all other banks the tendency was declining. It can be concluded on the basis of above that the new economic initiatives adversely affected the C/D Ratio in Nationalised banks. Table 5.5 : Credit Deposit Ratio in Nationalised Banks. Name of Bank Credit Deposit Ratio 1991-92 1995-96 Bank of Baroda 54.95 56.44 Bank of India 65.45 56.66 Punjab Natinal Bank 51.44 46.75 Canara Bank 56.19 49.90 Central Bank of India 51.46 45.07 Union Bank of India 46.32 48.52 Indian Overseas Bank 65.72 51.44 Indian Bank 72.26 59.13 Syndicate Bank 50.82 42.44 UCO Bank 67.37 43.54 Allahabad Bank 51.66 47.45 United Bank of India 52.36 32.44 Oriental Bank of Commerce 48.99 53.63 Dena Bank 48.94 52.52 Vijaya Bank 56.30 40.81 Bank of Maharashtra 53.88 45.09 Andhra Bank 49.33 43.24 Punjab & Sind Bank 50.77 47.47 Corporation Bank 43.07 42.59

(110) Private Sector Banks were also expected to follow the directives from Reserve Bank of India under the Banking Services Regulation Act. Table 5.6 presents the C/D Ratio in Private Sector Banks during 1991-92 and 1995-96. Perusal of the table reveals that the C/D Ratio ranged between 71.29 in Bharat Overseas Bank Ltd. and 36.61 in The Punjab Cooperative Bank Ltd. in 1991-92 Table 5.6 : Credit Deposit Ratio in Private Sector Banks. Name of Bank Credit Deposit Ratio 1991-92 1995-96 The Vysya Bank Ltd. 55.30 59.10 The Federal Bank Ltd. 44.50 60.27 The Jammu & Kashmir Bank Ltd. 63.40 47.12 Bank of Rajasthan Ltd. 50.77 54,29 Karnataka Bank Ltd. 53.80 63.89 The South Indian Bank Ltd. 51.33 59.66 The United Western Bank Ltd. 51.48 54.88 Bank of Madura Ltd. 54.22 64.40 The Catholic Syrian Bank Ltd. 52.74 60.38 The Karur Vysya Bank Ltd. 43.85 71.13 Tamilnad Mercantile Bank Ltd. 50.62 62.30 The Lakshmi Vilas Bank Ltd. 46.36 53.97 The Sangli Bank Ltd. 47.32 51.27 The Dhanlakshmi Bank Ltd. 45.39 63.47 Bharat Overseas Bank Ltd. 71.29 58.33 City Union Bank Ltd. 55.81 67.35 The Benares State Bank Ltd. 45.14 32.49 The Nedungadi Bank Ltd. 47.46 54.54 Lord Krishna Bank Ltd. 46.34 69.00 Bareilly Corporation Bank Ltd. 41.24 31.68 Nainital Bank Ltd. 42.55 32.57 The Ratnakar Bank Ltd. 58.43 52.48 The Ganesh Bank of Kurundwad Ltd. 61.99 63.49 The Punjab Co-operative Bank Ltd. 36.61 41.05

(Ill) and between 71.1,3 in the Karur Vysya Bank Ltd. and 31.68 in Bareilly Corporation Bank Ltd. showing that the range practically remained similar and was not affected by the new economic initiatives. It also reveals that in 1991-92 three banks, viz., The Jammu & Kashmir Bank Ltd. (63.40), Bharat Overseas Bank Ltd. (71.29) and the Ganesh Bank of Kurundwad Ltd. touched or exceeded the stipulated 60 mark, whereas in 1995-96 ten Banks viz. The Federal Bank Ltd. (60.27), Karnataka Bank Ltd. (63.89), Bank of Madura Ltd. (64.40), The Catholic Syrian Bank Ltd. (60.38), The Karur Vysya Bank Ltd. (71.13), Tamilnad Mercantile Bank Ltd. (62.30), The Dhanlakshmi Bank Ltd. (63.47), City Union Bank Ltd. (67.35), Lord Krishna Bank Ltd. (69.00) and The Ganesh Bank of Kurundwad Ltd. (63.49) exceed the stipulated 60 C/D Ratio. It also shows that overtime only in six private sector Banks the C/D Ratio declined, e.g. The Jammu & Kashmir Bank Ltd. from 63.40 to 47.12, The Bharat Overseas Bank 71.29 to 58.33, The Benaras State Bank Ltd. 45.14 to 32.49, The Bareilly Corporation Bank Ltd. 41.24 to 31.68, Nainital Bank Ltd. 42.55 to 32.57 and the Ratnakar Bank Ltd. 58.43 to 52.48. It can be concluded from these discussions that the new economic initiatives positively affected the C/D Ratio in Private Sector Bank and probably raised the limits and led to the increasing tendency. Foreign Banks also actively participated in policy initiatives undertaken by the Reserve Bank of India. Table 5.7 presents C/D Ratio of Foreign Banks during 1991-92. Perusal of the table reveals that during 1991-92 the C/D Ratio ranged between 88.37 in Deutsche Bank Ag. and 34.11 in Bank of America NT & SA whereas during 1995-96 it ranged between 107.39 in the Bank of Tok\o- Mitsubishi and 51.34 in Citi Bank N.A. It shows that there was increase in both the higher and lower limits overtime. It also shows that while in 1991-92 Hongkong Bank (74.16), Deutsche Bank Ag (88.37) and the Bank Tokyo-

(112) Table 5.7 : Credit Deposit Ratio in Foreign Sector Banks. Name of Bank Credit Deposit Ratio 1991-92 1995-96 Citibank N.A. 56.35 51.34 ANZ Grindlaya Bank 48.20 69.46 Hongkong Bank 74.16 55.82 Standard Chartered Bank 50.63 73.70 American Express Bank 55.21 56.45 Bank of America NT & SA 34.11 104.88 Deutsche Bank Ag 88.37 84.99 The Bank of Tokyo-Mitsubishi 63.17 107.39 Mitsubishi (63.17) exceeded the stipulated 60 C/D Ratio, in 1995-96 the ANJ Grindlay Bank (69.46), Standard Chartered Bank (73.70), Bank of America Nt & SA (104.88), Duetsch Bank Ag (84..99), The Bank of Tokyo-Mitsubishi (107.39) exceeded the stipulated 60 mark. It also shows that in almost all barring three foreign banks there was rising tendency in C/D Ratio. It can be observed on the basis of these that the economic initiatives positively affected the C 'D Ratio in foreign Banks and the tendency was similar to private sector Banks. The ratios also do not conclusively establish the availability or development of infrastructure, as a prerequisite of lending process and phenomenon, though they may indicate the lending atmosphere. The following generalised inferences, though they may be open for interpretation, may emerge (a) the foremost difficulty encountered in reporting the ratio is the definition of gross deposits/gross credits taken for computation;

(113) (b) the C/D Ratio in itself does not enlighten the sectoral spread of credit deployment; (c) the place or state of availment of the credit and its utilisation, especially by the corporate borrowers, are at variance, resulting into erroneous interpretation of the state of economic development; (d) the ratio is a measure of magnitude of availment of the credit but may not serve as a means to assess its sectoral deployment; (e) the ratio does not correctly reflect the dynamics of deposit mobilisation; (f) the ratio is neither an evidence of credit absorption capacity nor a manifestation of credit disbursal capacity; (g) the ratio fails to guide on the functional phenomenon of lending in terms of recovery, hardcore outstanding not declared as bad debts; (h) the ratio may be found to vary with the period taken for computation. Despite the obvious limitations posed by the ratio, it is being increasingly employed to assess the performance of the banks on one hand and to relate it with economic development of the state on the other. It would be appreciated that the ratio is a function and resultant reaction of tire factors such as rate of growth of deposits, pace of deployment of credit, state or plan of development of the economy reflected in infrastructural facilities entrepreneurship and quantum of loanable funds available at the disposal of the banking industry. As has been stated earlier the C/D ratio does not reflect the dynamics of growth of deposits and lending. Lower pace or near stagnancy of the lending, due to whatsoever reasons or the quantum of lending remaining same, the C/D ratio would tend to regress and vice versa credit absorption is a phenomenon

(114) and direct result of the availability of infrstructural facilities, concessions and incentives given by the States, though the C/D ratio does not precisely bring into focus these aspects. Recovery performance also plays a significant role in the movement of the ratio. The variation of performance of the banking industry, the ratio is bound to vary positively or negatively if the pace of lending rate is assumed normal. With the quantum of loanable funds available at the disposal of the banks, the ratio assumes more importance which would put obvious limitations on the lending portfolios. The significant fact which perhaps escapes the attention in subterfuge of reporting of the ratio is its very purpose. The intention in stipulating the ratio is to ensure and to make the banks to arrange its credit portfolio in such manner so that the funds mobilised in rural areas are invested to the extent of 60 per cent, in the same areas and that too in priority sector. The present reporting system neither suits the purpose nor reflects/ gives clues to chalk out remedial measures. The stipulation of investment of minimum 40 per cent of the hinds lent in priority sector to the total credit deployed loses relevance with reference to the stipulation of C/D ratio and vice versa. It is discernible that though the C/D ratio may serve as a parameter of deployment of total funds mobilised in the State, it is a very crude indicator of the sectral utilisation- Creating an atmosphere of lending by providing infrastructural facilities, added with incentives of varied kinds, liberalisation of financial norms and expansion of functional base are some of the measures which the banks and the state administration are called upon to take. Introduction of statewise differential norms of SLR and CRR as a statutory requirement.

(115) thoughprima facie-would appear impracticable, would make the efforts of the banks meaningful in reaching tire stipulated ratios and make it more meaningful for interpretation as an indicator of economic development, if reduction of the intra and inter-regional imbalance is tire aim.