report of the working group on improvement of banking services

26
Credit Deposit Ratio
3.3 As may be observed from Table 3.1, <strong>the</strong>re has been no steady growth in <strong>the</strong> Credit-Deposit Ratio (CD
Ratio). It increased from 8.5% in 2001-2002 to 11.25% in 2005-06, i.e. an increase <strong>of</strong> 2.75% in five years,
subsequently fell to 10.19% in 2006-07. If <strong>the</strong> C.D. ratio is worked out excluding Government deposits, <strong>the</strong>
same would be around 31%. Growth in credit has substantially lagged <strong>the</strong> growth in deposits in terms <strong>of</strong>
absolute numbers. The major reasons for low CD ratio appear to be <strong>the</strong> following :
(i) Major portion <strong>of</strong> <strong>the</strong> deposits represents Government deposits.
(ii) low credit absorption capacity on account <strong>of</strong> various locational and infrastructural constraints resulting in
few credit proposals coming to <strong>the</strong> banking system;
(iii) absence <strong>of</strong> sufficient awareness/financial literacy among most <strong>of</strong> <strong>the</strong> population regarding credit
facilities/schemes available from <strong>the</strong> banks;
(iv) social/religious factors inhibiting <strong>the</strong> population from availing credit facilities from banks;
(v) a certain lack <strong>of</strong> entrepreneurship and motivation to take up enhanced economic activities, in part due to a
feeling <strong>of</strong> contentment with 'things as <strong>the</strong>y are';
(vi) lack <strong>of</strong> competition in <strong>the</strong> banking system since nine out <strong>of</strong> ten branches are with one bank - Syndicate
Bank; greater innovations and creativity in designing banking products and services that may be better suited
to <strong>the</strong> needs and customs <strong>of</strong> <strong>the</strong> islanders and marketing efforts might be higher with more competition;
(vii) perceived delay and procedural cumbersomeness in dealing with banks for obtaining credit in <strong>the</strong> minds <strong>of</strong>
<strong>the</strong> people.
The banks and <strong>the</strong> UTL administration have to jointly make earnest efforts on improving <strong>the</strong> CD Ratio
through greater exploitation <strong>of</strong> <strong>the</strong> potential in <strong>the</strong> fishing, agriculture and tourism sectors, going up <strong>the</strong> value
chain and improving <strong>the</strong> entrepreneurial technique and management skills <strong>of</strong> <strong>the</strong> island population. The Expert
Group on CD ratio headed by Dr. Y.S.P. Thorat had advised banks to closely monitor <strong>the</strong> districts where CD
ratio is less than 40 percent. It is observed that <strong>the</strong> performance <strong>of</strong> <strong>the</strong> banks under lending to priority sector is
marginally below <strong>the</strong> required level <strong>of</strong> 40% and <strong>the</strong> credit under agriculture sector is below <strong>the</strong> required target
<strong>of</strong> 18%.