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CHAPTER VIII

CREDIT DEPOSIT RATIO AND PRIORITY SECTOR LENDING

8,l Introduction
The flow of credit is one of the key instruments to regulate various economic activities. The credit is deployed by commercial banks based on the deposits mobilised from the public after making allowances for statutory requirements prescribed
by RBI from time to time. In order to maximise the credit flow and to ensure better

deployment of credit, a monetary tool known as Credit Deposit Ratio (CDR) was introduced by RBI. The CDR has become more important after the nationalisation of
banks to assess the credit deployment by commercial banks to benefit the economy in

general and the targeted group in particular. Tk CDR expressed in terms of percentage reflects the trends of the flow of credit during each period. Priority Sector Lending

(PSL) normally depends on the CCDR, that is, higher the CDR, higher will be the flow
towards the PSL. The flow towards PSL is decided by the flow of net bank credit which in turn depends on CDR. As per the RBI stipulation, atleast 60 per cent of the CDR

should be achieved by Commercial banks with 40 per cent of the net bank credit to
priority sector. The quantum deployment o f PSL in turn depends on the net bank credit

which in turn depends upon the CDR. This chapter attempts to analyse the vital
relationship between CDR and PSL in the context of Union Territory of Pondicheny.

deposits and advances have gown' enormously in India.04 times indicate the reduced credit flow from banks which widens the gap between the deployment of credit and mobilisation of deposits. The CDR was of 55.BankingStatistics .04 times.6 per cent in March'91 and further down to 55.4 per cent in March592.2 Growth of Deposits and Advances A India H - Over the years.30 times. the CDR mechanism was operating well even before bank nationalisation in July 1969. it is of paramount importance to ensure the flow of adequate credit. there was decline in CDR from 60.5 per cent in 1969 has come down to 53.079 crores for the corresponding period.8. After the financial sector reform measures were introduced in 1991.Basic Statistical Returns Volume .. the deposits have grown from Rs. For i~~stancebetween June.05.3.410 crores in 1998 implying an increase of 130. The credit disbursed has increased from Rs. When the CDR is at a lower ebb.646 to 6. Hence.5 per cent in March'98.. 1969 to March 1998. March.24.4.Mumbai . the weaker sections will be the most affected along with other borrowers. . The growth of deposits to the extent of 130.3 Credit Deposit Ratio in the Union Territory of Pondicherry In the Union Territory of Pondicheny.3599 crores to Rs.5 per cent in March' 98 which is well below the stipulated target of 60 per cent.25. 1996.30 times and growth of advance to the extent of 90.8 per cent in March'90 to 60. indicating an increase of 90. CDR which was 77.1 per cent in March'97 and further down to 53. An analysis of deposits and '~eserve B& of Mia. 8. The proportion of bank deposit forms a very higher percentage to total money in circulation. However.

As may be seen from Table 8. From 1983. As against 15.36 times. The credit flow for the same period has gone up from Rs. Due to this gap.480 lakhs to Rs. The deposits mobilised. From this analysis.733 lakhs indicating an increase of 72.000 population per bank branch in 1969.34.96. Between 1962 and 1968.30 per cent respectively. credit advanced and the CDR from 1969 are given in Table 8.1. .52 per cent and 100.58 per cent in 1986.1.207 lakhs and Rs. bank deposits on the aftermath of bank nationalisation.250 lakh to Rs. CDR had never come down to less than 60 per cent till 1982 ( except the year 1980 ). thereby making available the banking facilities at the door step of the common man. The CDR had come down to 43. it can be inferred that though the deposits mobilised and advances made during the last 29 years had gone up.661 lakhs in March. The credit deployment had exceeded in 1970 and 1971 indicating CDR of 104. the deployment of credit was affected in the Union Territory of Pondicherry. 98 indicating an increase of 175. it was 11.advances made between 1962-1968 show that the deposits had gone up from Rs.552 lakhs in 1969 to Rs. This clearly brings out the fact that there is a widening gap between the growth of deposits and advances in the Union Territory of Pondicheny. the percentage increase in the growth of deposits and advances was not at the same rate.501 lakhs and the corresponding flow of advances were Rs. has gone up from a mere Rs.327 lakhs respectively. the CDR had never come down below 60 per cent. CDR started declining gradually. The bank nationalisation has facilitated the opening of more number of bank branches in various nook and comers of the Union Territory of Pondicherry.000 population per bank branch in 1996.11 times.

No. bank in^ Statistics 1972 Mumbai. May 1990. Banking Statistics . Statistics. [dl Reserve Bank of India.97. Bankine Indicators. Credit Plan / Annual Credit Plan 1980 - 1997-98 . pp26-36. [fl Lead Bask (Indian Bank) Qiitdct Union Tenitom of Pondicherrv. Statistical Tables relatine to Banks in India 1996 . Year Deposits (3) Advances (4) Credit Deposit Ratio in (Percentage) (5) Source: [a] Reserve Bank of India. PP 99-122 - 1995 . Government of Pondicherry. Murnbai. Various Years. [b] Reserve Bank of India.Basic Stat~sticalReturns. Mumbai adus [el Planning and Research Deparbnent. in Eakhs) S1. Pondicherry.62.Table 8.Omiterlv H n o t . Bankine.1: CREDIT DEPOSIT RATIO IN THE UNION TERRITORY OF PONDICHEKRY (Rs. Mumbai pp 48 . [c] Reserve Bank of India.Basic Statistical Returns (Vol-26) March 1997.

the D 'Indian Bank ( Lead Bank ).2 it can be seen that in 1970. pp. This has affected the credit flow. Pondi~hqw Report of the committee on Credit l R a t i inct 1994.93 in March 1998. The CDR has all along been March.53-55.1 1 in 1981. Though the decline in CDR was an All Ind~a phenomenon affecting various States. the decline was more steep in the Union Territory of Pondicherry. the CDR was fluctuating between 50.88 per cent of priority sector credit and this has gone up to a maximum of 43. Agriculture sector had received 39.01 per cent in March 1997 and and 35.73 per cent and thereafter a steady decelaration has started culminating in an all time low CDR of 39. o . This committee has projected a CDR of 65 per cent to be achieved by March. 1993 at Bangalore. Till 1990. whereas maintained at the level of more than 50 per cent t~ll the ratio has come down below 50 per cent. 90 (except in 1986). after the structural reforms are introduced in the financial sector in 1991.4 Sectoral Flow of Credit Under Priority Sector Lending (All India) From the sectoral flow of credit under PSL for All India as indicated in Table 8.88 to 55. 1997. 8. Madras. This has not been achieved till date . the issue of low CDR pertaining to the Union Territory of Pondicheny was discussed and a decision was taken to appoint a committee2to go into the problems. It may not be out of context to mention that in the Regional Consultative Committee (RCC) meeting of nationalised banks for southern region held in June.During 1987 and 1990.

Table 8. Baking Statistics .Mumbai. No (1) Year Agriculture to ~01.Ouarterl~ Handouts various years. various years. Mumbai. [c] Reserve Bank of India. Statistical Tabla relating to Banks in India 1996 . in Crores SI. Mumbai .9 (4) Sedor (5) Percentage to co1.9 (8) Total Priority Sector Lend~ng (9) Source:[a] Reserve Bank of India . [dl Reserve Bank of India. Mumbai.97.Report on Currency and Finance.9 (2) (3) (6) Other Priority Sector Lending (7) Percentage to co1.ALL FLOW INDIA (Rs.1995 .1988-89 and Annual Reports of Reserve Bank of India.2: SECTORAL OF CREDIT TOWARDS PRIORITY SECTOR LENDING .Basic Statistical Returns. 1969-70 .Basic Statistical Returns. Bankioe Statistics . Banking Statistics I972 . [el Reserve Bank of India. Mumbai . [b] Reserve Bank of Ind~a. Vol-26 March 1997.

1998. From 10. 20. Other PSL indicates that from 3.36 per cent in 1970 and increased to 19.53 percentage in 1970. the fo has increased to 9. The deceleration in percentage flow has started from 1988 and continued till MarchJ998.3 indicates that there was a steady percentage increase of Net bank credit towards agricultural sector from 1970 till 1987. downward trend has started from 1994 onwards. As against 18 per cent flow of net bank credit towards agriculture. it was 14. the flow was 46.67 per cent in 1987.23 per cent in 1998.5 Inter sectoral Flow of Credit out of Net Bank Credit Table 8.72 per cent in March.56 per cent in 1990 and 21. the flow was 7. 8. Flow was below 40 per cent from 1978 to 1990.04 per cent. .73 per cent in 1998. In the case of small industries. when the financial sector reforms were pervading the commercial banks. In 1998.76 per cent in 1970.01 lw per cent in 1970.11 per cent only. As regards other priority sectors (services sector) it was 13.64 per cent in 1998. The financial sector reform has accentuated the process of downward trend. it was only 11. Thereafter it has picked up and had reached a level of 43. Small scale industries did not face much problem as that of agriculture sector. By March 1998 the credit flow towards agriculture sector was only 35.43 per cent in 1980.flow ranged from 41 to 43 per cent of total priority sector credit.

. Banking Statisbcs . [c] Reserve Bank of India. various years.TABLE 8. Statstical Tables relatinP to Banks in India 1996 - Murnbal.3: SECTORAL FLOW CREDIT O T OF NET BANK OF U CREDIT ALLINDIA (Rs ~n Crores) SI.Mumbai. - [el Reserve Bank of W .No.9 Net Bank Credit (1) (2) (3) (5) (6) (7) (8) (9) Source: [a] Reserve Bank of India . Mumbal a .9 (4) Other Priority Sector Lendrng Percentage to co1.1988-89 and Annual Reports of Reserve Bank of India.Report on Currency and Fmance. yep. [dl Reserve Bank of India -B&P Murnba . 1969-70 . 97. Statistics Basic Statutical ReturnsAVol. Banking Statist~cs 1972 - 1995 - Basic Stattstical Returns.26 March 1997.9 Sect-or to col. Agriculture Percentage Small Scale Percentage to co1. Mumbsu.Ouarterly Handouts various years. [b] Reserve Bank of India.

28 per cent in 1994 In 1997. During 1982.38 per cent in 1992 and 41.17 per cent in 1972.47 per cent in 1981. In 1991: the flow was only 43.52 till 1991. the flow has started increasing with 42. the percentage was 27. Thereafter. the flow w s 15. .88 per cent in 1972 it has reached a maximum of 7. decline has started reaching a low of 33.51 per cent in 1984 .4.90. Dunng the nineties.54.09 per cent and this has come down to 38. The percentage flow w s hovering around a a minimum of 16 per cent to a maximum of 18.34 per cent whlch a increased to19. In 1983. it may be seen that from a mere 3.Q1 per cent of priority sector credlt from 1972 and increased to a maximum of 65 63 per cent in 1982 Downward trend has started since then. it was 45 42 per cent. the percentage flow was 20.52 per cent in 1994. In 1997. The sectoral flow had started its decline since 1973 year by year. As regards other priority sector.6 Trends in Priority Sector Lending in the Union Territory of Pondieherry The advances of scheduled commercial banks towards PSL in the Union Temtory of Pondicherry are available only from 1972.67 per cent in 1997.8. Table 8 4 indicates that agricultural sector had received 5 1. In respect of small scale sector. the flow was 45. From 1993. The advances of Commercial banks under various broad sectors of priority sector are indicated in Table 8. the percentage flow was in the vicinity of 20 to 21 per cent.

PONDICHERRY $1ye. [c] Reserve Bank of India.(9) Other Sector Percentage '0 Tatal Priority ~0149) Seetor Source: [a] Reserve Bank af India. [dl Reserve Bank of India. Statistical Tables relating to Banks in India 1996 .97. Indicators.4: SECTORAL FLOW OF ADVANCES FROM COMMERCIAL BANKS UNDER PRIORITY SECTOR LENDING.. . - . May 1990. No Agriculture Percentage Small Scale Percentage to c01.Basic Stattstical Returns. Mumbal pp 48 62.(9) Sector to co1.1997-98 Union Te. [fl Lead Bank (Indian Bank) District Credit Plan / Gnnual Credit Plan 1980 . Banking. PP 99-122 [b] Reserve Bank of India.Table 8.Quarterly Handouts. l V 0 1 . Government of Parrdicheny. March 1997.rritory of Pondicherrv. Banking Statistics 1972 . Various Years.~ondicherry.1995 . Mumba~ [el Planning and Research Deparbnmt. Mumbai. Mwnbai. B d h p Statistics . 2 6 . pp26-36.

Thereafter there was decline in 1984.8.07 per cent. flow towards agricultural sector had picked up.5.97 per cent to 8. The flow had been increasing steadily from year to year (except in 1977 and 1979) from a mere 10.74 per cent in 1983.82 in 1980. the credit flow was between 13 per cent and 19 per cent. the flow was 10. 1997 it was only 12. The percentage of credit advanced under other priority sector was a mere 0. This trend was almost maintained till 1986.70 per cent in 1980 and 22.22 per cent in 1972. From 1987 to 1997. In 1985 and 1986.41 per cent in 1972 to a maximum of 34. From 1984 to 1990. the decline has started and had come to a low level of 17.31 per cent. the flow has gone up and reached a maximum of 20.7 Sectoral Flow of Advances Out of Net Bank Credit in the Union Territory of Pondicherry The sectoral flow of advances out of the net bank credit in the Union Territory of Pondicherry from 1972 to 1997 is given in Table 8. During 1983. Since 1987. . the flow had been hovering around 6. In March.79 in 1972 and increased to a maximum af 3.02 per cent in March.92. In the case of small scale sector from a mere 9. From 1991 to 1997.17 per cent in 1983. the percentage flow was in the range of 15 per cent to 17 per cent only.76 per cent.

May 1990% [fl Lead Baak (Indian Bank) District W i t P1. Bankinrr Statistics . Bankine Indicators.(9) Source: [a] Reserve Bank of India..Basic Statistical Returns.26. pp26-36.Table 8 5 SECTORAL FLOW OF ADVANCES OUT OF THE NET BANK . PONDICHERRY Other Net Bank Credit s. Banking Statist~cs 1972 .m 1 Annual Credit Plan 1980 -1997-98 26 1997 5278 I8 16 28 3912 94 12 07 2429 03 749 32421 - Union T e n i of P o ~ d i c h m ~ . Banking Statistics . [cl Reserve Bank of India.1995 . (dl Reserve Bank of India. Vol. Mumbai. Mumbal [el Planning and Research Departmat.No Year Agriculture Percentage to co1. Various Years.97. Government of Pondicheny.: CREDIT OF COMMERCIAL BANKS.Basic Statistical Retuns. ?ondichem. PP 99-122 [b] Reserve Bank of India. March 1997.(9) Small Scale Sector Percentage to CO!.QuMerlv Handouts.(Y) Percentage to Co1. -Mumbai. Stat~stical Tables relating to Banks in India 1996 . Mumbai pp 48 62.

In this context. PONDICHERRY Year Recovery (in Per Cent) Source: Indian Bank (Lead Bank). a new dimension has been added and the advancing of fkther credit is linked to recovery of performance of banks. The performance of banks in terms of profitability depends on the recovery performance.8 Recovery Performance of Banks in the Union Territory of Pondicherry Recovery is a major problem encountered by commercial banks in general.6: RECOVERY PERFORMANCE UNDER PRIORITY SECTOR ADVANCES. . Various Years. Table 8. it was attempted to find out the of recovery performance made by commercial banks in the Union Territory of Pondicherry. After the structural reforms are implemented in financial sector. Pondicherry. .h u a l Credit Plans and Agenda Pagers of the State Level Bankers' Committee. particularly in banks. The prudential norms has driven the banks to a tight corner.8. Pondicheny.

No.7: Table 8.7. Though little less than half of the loans were recovered under industries sector.02 per cent in 1992. Secondary 3. Primary 2.27 per cent. Pondicherry. PONDICHERRY (in Per Cent) 1995 1996 1997 1998 (3) 14) (5) (6) 65 64 64 63 41 53 41 48 42 60 48 50 53 60 54 55 TOTAL Source: Indian Bank (Lead Bank). 1999. it was 55 per cent in 1998. Tertiary (Services) It can be seen from Table 8.97 per cent in 1991 and 56. DRDA and PADCO which may likely to yield a positive impact in the recovery fkont.86 per cent during 1993. Now joint recovery camp is attempted by commercial banks in coordination with the concerned implementing agencies like DIC. This performance has improved to 53. This shows that the recovery position of advances is not as alarming as it was portrayed by various commercial banks in the Union Territory of Pondicherry The sector-wise recovery performance under priority sector from 1995 is given in Table 8. During 1997 it has come down to 54 per cent and to 55. SI. . it may be seen that the recovery performance of banks under PSL in 1987 was 38. Improvement has taken place in 1994 to 58 per cent. Agriculture and allied activities throughout 1995-98 has witnessed a recovery performance of more than 60 per cent.6. It has come down to 48. Name of the Sector (1) (2) 1.21 in 1998. In 1995 and 1996 it was 53 per cent and 60 per cent respectively. Similar is the position in respect of services sector. Agenda papers of the 58" meeting of State Level Bankers' Committee.7: RECOVERY PERFORMANCE (SECTOR-WISE). more efforts are required on the part of banks and concerned implementing agencies to go in for all out efforts to recover the amount and try to achieve a recovery performance of 90 per cent if not 100 per cent.From Table 8. that as against the overall recovery performance of 53 per cent in 1995.