Syllabus: Prelims, GS 3
Why was Credit-Deposit Ratio of Upper Siang District in News:
The Credit–Deposit (CD) Ratio of Upper Siang district has been reported as low. Banks operating in the district have been advised to intensify credit outreach and improve advances to align with norms prescribed by the Reserve Bank of India (RBI).
What is Credit–Deposit (CD) Ratio?
- Credit-Deposit (CD) Ratio refers to the ratio of total credit (loans/advances) extended by banks to total deposits mobilised in a region.
- Formula:
CD Ratio=Total CreditTotal DepositsX 100
- Purpose: Indicates the extent to which locally mobilised deposits are deployed for local economic activity.
Current Status (Upper Siang):
- CD Ratio: 22.39%
- Assessment: Considerably low vis-a-vis RBI expectations (generally higher deployment is encouraged to support regional growth).
Significance of a Low CD Ratio:
- Underutilisation of Local Savings: Deposits are not being adequately reinvested within the district.
- Credit Constraint: Limited access to institutional credit for agriculture, MSMEs, SHGs, and infrastructure.
- Growth Impact: Slower income generation, employment creation, and entrepreneurship.
- Financial Inclusion Gap: Reflects challenges in last-mile banking and credit delivery.
Possible Reasons for Low Credit-Deposit Ratio in Upper Siang District:
- Demand-Side Factors: Low credit demand due to subsistence livelihoods, limited bankable projects, risk aversion.
- Supply-Side Factors: Conservative lending, collateral issues, limited branch penetration, staffing constraints.
- Structural Issues: Remote terrain, poor connectivity, documentation gaps, land title issues.
- Sectoral Constraints: Dependence on primary sector with higher perceived risk.
RBI & Policy Perspective:
- RBI monitors CD ratios through Lead Bank Scheme (LBS) and District Consultative Committees (DCCs).
- Banks are advised to improve credit flow, especially to priority sectors (agriculture, MSMEs, SHGs/JLGs).
- Emphasis on area-specific credit plans and financial inclusion.
Measures Suggested / Way Forward:
- Strengthen Credit Outreach: Mobile banking units, Business Correspondent network expansion.
- Sectoral Push: Agriculture allied activities, MSMEs, tourism, handloom/handicrafts.
- Risk Mitigation: Credit guarantee schemes (CGTMSE), interest subvention.
- Capacity Building: Financial literacy, project preparation support.
- Coordination: Active District Consultative Committee (DCC) meetings; convergence with state development schemes.
Prelims Practice MCQ:
Q. With reference to the Credit-Deposit (CD) Ratio in Upper Siang district, as highlighted recently in the news, consider the following statements:
- The Credit-Deposit (CD) Ratio represents the proportion of total bank credit to total bank deposits in a given region.
- A low CD Ratio indicates that a significant portion of locally mobilised deposits is not being deployed for local economic activities.
- The CD Ratio of Upper Siang district stands at about 22%, which is considered low as per norms monitored by the Reserve Bank of India.
- A low CD Ratio necessarily implies excess credit expansion and overheating of the local economy.
Which of the statements given above are correct?
A. 1, 2 and 3 only
B. 1 and 3 only
C. 2 and 4 only
D. 1, 2, 3 and 4
Correct Answer: A
FAQ:
The Credit–Deposit (CD) Ratio measures the proportion of bank deposits that are deployed as loans and advances within a region. In Upper Siang district, the CD ratio stands at 22.39%, which is significantly low. This indicates that locally mobilised savings are not being adequately reinvested in the local economy, leading to limited credit availability for agriculture, MSMEs, SHGs, and infrastructure. A low CD ratio can therefore slow down economic growth, employment generation, and financial inclusion.
To improve the low CD ratio, banks under the guidance of the Reserve Bank of India, are advised to intensify credit outreach through mobile banking units and Business Correspondents. Additionally, targeted lending to priority sectors such as agriculture, allied activities, MSMEs, tourism, and handloom is encouraged. Other key measures include using credit guarantee schemes, strengthening financial literacy, preparing bankable projects, and ensuring effective coordination through District Consultative Committee (DCC) meetings and state development programmes.
Source: Arunachal Times
