Compound Annual Growth Rate of Credit Deposit Ratio of Schedule Commercial Banks

 

Dr. Purnima Mishra¹, Dr. A. K Pandey², Rekha Verma³

¹Asst. Professor (Dept. of Economics), Gov. J. Yognandam Chhattisgarh College, Raipur, Chhattisgarh

²Professor, SOS in Economics, Pt. Ravishankar Shukla University, Raipur, Chhattisgarh

³Research Scholar, SOS in Economics, Pt. Ravishankar Shukla University, Raipur, Chhattisgarh

 

ABSTRACT:

With the progress of the Indian economy, especially when the economy focuses on to achieve sustainable developments, there must be an attempt to include maximum number of participants from all the sections of the society. But lack of awareness and financial literacy among the rural population of the country is hiding the growth of the economy as a majority of the population does not have access to formal credit. financial inclusion as the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream institutional players This paper analyses the financial inclusion developments of schedule commercial banks in 36 (including union territories) Indian states in both rural and urban from the year 2015 to 2017. The paper concludes that, after 60 years of independence, a large section of Indian population still remains unbanked. This malaise has led generation of financial instability and pauperism among the lower income group who do not have access to financial products and services. Out of 36 states, including Manipur, Rajasthan, Haryana, Chhattisgarh, Chandigarh and Madhya Pradesh have high growth rate of banking penetration, where as Tripura, Delhi, Lakshadweep and Daman & Diu have low growth rate of banking penetration. The credit deposit ratio growth rate is highest in some states includes- West Bengal, Gujarat, Maharashtra, Mizoram and Chhattisgarh. However, in the recent years the government and Reserve Bank of India has been pushing the concept and idea of financial inclusion.

 

 

 

INTRODUCTION:

With the progress of the Indian economy, especially when the economy focuses on to achieve sustainable developments, there must be an attempt to include maximum number of participants from all the sections of the society.

 

 

But lack of awareness and financial literacy among the rural population of the country is hiding the growth of the economy as a majority of the population does not have access to formal credit. Financial inclusion enables improve and better sustainable economic and social development of the country. In early 2000, financial inclusion has gained importance and as a result of identifying financial exclusion and its directly correlate to poverty. The United Nation sets the goal of financial inclusion and they are – to access at reasonable cost for all the household to full range of financial services, including saving and deposits services, payments and transfer services, credit and insurance. Whereas, RBI has initiated several measures to achieve greater financial inclusion such as opening no frills account and general credit card for small deposits and credit. Other facilities are relaxation on know your customer (KYC norms) and opening of branches in unbanked rural centres. Therefore, on 25 June 2013, India’s leading credit rating and Research Company launched an index to measure the states of financial inclusion in India called CRISIL. CRISIL inclusix is a relative index on a scale of 0 to 100 and it combines three critical parameters of basic banking services namely- Branch penetration, Deposit penetration and Credit penetration in to one metric¹.

 

This paper analyses the financial inclusion developments of schedule commercial banks in 36 (including union territories) Indian states in both rural and urban from the year 2015 to 2017.This paper is divided in six sections. First section-I, introduce the introduction of financial inclusion in India. Definition of financial inclusion presented in section II. A review of literature presented in section III. Section IV, presented the parameter of financial inclusion. Section V, analyses the financial inclusion in schedule commercial banks in 36 states. Section VI, presents the conclusions and recommendations.

 

SECTION II: DEFINATION OF FNANCIAL INCLUSION:

Financial inclusion was coined by former RBI of India Governor Y.V Reddy in 2005. The Committee on Financial Inclusion, Chairman- Dr. C. Rangrajan; defined “financial inclusion, as the process of ensuring access to financial services and timely and adequate credit, where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost”. The Committee on Financial Sector Reforms, Chairman- Dr. Raghuramrajan defines “financial inclusion refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products”.

 

RBI defines “financial inclusion as the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream institutional players”.

 

Planning commission (2009)² define “financial inclusion refers to universal access to a wide range of financial services at reasonable cost. These include not only banking products but also other financial services such as insurance and equity products”.

 

 

 

SECTION III: REVIEW OF LITERATURE: SECLECTED STUDIES:

Usha Thoart (2007)³ proposed the paper on “financial inclusion: The Indian Experiences” and it stated that government can play a pro active role in facilitating financial inclusion and issuing official identity documents opening accounts, creating awareness involving district and block level functionaries in the entire process, meeting cost of cards and other devices for pilots,  undertaking financial literacy drives are some of the ways in which state and district administration have involved themselves. It also concludes that in 2007-08, Finance Minister had announced budget in which he has setting 2 funds for financial inclusion; first- Financial Fund for Development and Promotional Intervention and second- Financial Inclusion Technology Fund to meet cost of technology adoption about 125 million each.

 

Mandira Sharma (2008)⁴ proposed paper on “Index of Financial Inclusion”, in which it concludes that, indexes such as HDI, HPI, GDI and GEM can also be used to researchers to addresses empirical question on the relationship between development and financial inclusion, where as International Organization such as UNDP, IMF AND World Bank should make effort to collect and disseminate data on different dimension of financial inclusion.

 

GOI (2008)⁵ examined financial inclusion as a delivery mechanism providing financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The recommendations of the report focused on the following areas. First, financial inclusion should include access to mainstream financial products. Second, banking and payment services should be available to the entire population without discrimination. Third, promotion of sustainable development and generation of employment in rural areas should be a priority. Fourth, financial inclusion must be taken up in a mission mode and thereby suggested the constitution of a National Mission on Financial Inclusion (NMFI) in order to achieve universal financial inclusion within a specific time frame. Fifth, the Committee also recommended for the constitution of two funds with NABARD – the Financial Inclusion Promotion and Development Fund, and the Financial Inclusion Technology Fund for better credit absorption capacity among the poor and vulnerable sections of the country and also for proper and appropriate application of technology in order to facilitate the mandated levels of inclusion. In short, the report provided an understanding of one of the best way to achieve inclusive growth through financial inclusion.

 

 

 

 

SECTION IV: PARAMETERS OF FINANCIAL INCLUSION:

The paper includes three parameter to analyse the level of financial inclusion in India and they are-

Credit Deposits Ratio:

It is the ratio of how much bank lends out of the deposit it has been mobilised or credit in circulation to total deposits. A higher ratio indicates more reliance on deposit for lending and vice versa.

 

Banking Penetration

It is the number of bank access per person.

 

State Wise Bank Offices Growth

Growth of per bank per year.

 

SECTION V: ANALYSIS OF SCHEDULE COMMERCIAL BANKS:

An analysis of schedule commercial banks in India finds out the banking penetration in India in 36 States with total population, credit-deposit ratio in 36 Indian States. To find out the results we are using compound annual growth rate (CAGR) research methodology. Table 1, shows the region wise distribution of offices of schedule commercial banks, in which southern region states has highest number of schedule commercial bank offices includes- Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Lakshadweep, Pondicherry and Telangana. It may also seen that compound annual growth rate 2.72 percent is highest in North Eastern states and lowest in western region state (0.82 percent).The overall compound annual growth rate of schedule commercial banks in India from 2015 to 2017 is 1.62 percent.

 

Table: 1 Region Wise Distribution of Offices of Schedule Commercial Banks

REGION	2015	2016	2017	CAGR (in %)
Northern Region State	23843	25924	24844	1.38
North- Eastern State	3345	3749	3625	2.72
Eastern Region State	20893	22521	22107	1.90
Central Region State	25926	27857	27874	2.44
Western Region State	19821	21289	20314	0.82
Southern Region State	36654	39543	38236	1.42
TOTAL	130482	140883	137000	1.64

 

 

Graph: 1 Region Wise Distribution of  Offices of  Schedule Commercial Banks

 

 

Graph: 2 compound annual growth rate of banking penetration

 

Table 2 shows the banking penetration in functioning Offices of Schedule Commercial Banks in 36 states of India in the year from 2015 to 2017. It shows that banking penetration is one of the most important indicators and it indicates whether the inclusive financial system has reached to the people even at the remotest part of the state or not. The compound annual growth rate shows that, out of 36 states, banking penetration 6.74 percent is highest in Manipur state and minus 2.16 percent lowest in Tripura State. It may also see that CAGR is zero in two states that .i.e. Lakshadweep and Dadra & Nagar Haveli, due to no change in penetration ratio.

 

Table: 2 Banking Penetration in  functioning Offices of  Schedule Commercial Banks

S. no		2015	2016	2017	CAGR (in %)
1.	Haryana	5611	5284	5040	5.52
2.	Himachal Pradesh	4586	4378	4271	3.50
3.	Jammu and Kashmir	7237	7006	6860	2.64
4.	Punjab	4486	4266	4120	4.17
5.	Rajasthan	10347	9274	9202	5.70
6.	Chandigarh	2361	2231	2149	4.60
7.	Delhi	4372	4509	4371	0.01
8.	Anurachal Pradesh	9814	9225	9043	4.01
9.	Assam	13987	13526	13217	2.79
10.	Manipur	19427	17520	16898	6.74
11.	Meghalaya	8990	8579	8476	2.90
12.	Mizoram	6305	5995	5714	4.80
13.	Nagaland	13016	12522	12138	3.43
14.	Tripura	8092	8237	8445	-2.16
15.	Bihar	16216	15678	15246	3.04
16.	Jharkhand	11706	11247	10988	3.12
17.	Orissa	9288	8827	8624	3.64
18.	Sikkim	4924	4697	4556	3.81
19.	West Bengal	11774	11405	11172	2.59
20.	Andaman and Nicobar	6138	5766	5680	3.80
21.	Chhattisgarh	11068	10435	10009	4.90
22.	Uttarakhand	5094	4932	4800	2.93
23.	Uttar Pradesh	12145	11798	11495	2.71
24.	Madhya Pradesh	11939	11298	10865	4.60
25.	Gujarat	8120	7724	7442	4.27
26.	Maharashtra	9295	8874	8572	3.97
27.	Dadra & Nagar Haveli	6249	6030	5634	5.05
28.	Daman & Diu	5067	5067	5067	0.00
29.	Goa	2151	2096	2063	2.07
30.	Andhra Pradesh	7574	7191	6914	4.46
31.	Karnataka	6315	5996	5804	4.13
32.	Kerala	5308	5147	5028	2.67
33.	Tamil Nadu	7145	6843	6519	4.48
34.	Lakshadweep	4959	4959	4959	0.00
35.	Pondicherry	5267	5160	4971	2.85
36.	Telangana	7052	6767	6517	3.87

RBI report

 

 

Graph: 3 Graphical presentation of banking penetration of schedule commercial banks

 

 

Graph: 4 Compound annual growth rate of banking penetration of schedule commercial banks

Therefore graph 3 shows, the state wise banking penetration in the year 2015, 2016 and 2017; and graph 4 shows, the compound annual growth rate of 36 states in the year from 2015 to 2017.

 

Table 3 shows the region wise credit deposit ratio in Schedule Commercial Banks, in which  compound annual growth rate in credit deposit ratio 37.46 percent is highest in western region states includes- Gujarat, Maharashtra, Dadra & Nagar Haveli, Daman & Diu and Goa. The lowest credit deposit ratio is minus 6.79 percent in North Eastern State. Therefore graph 5, shows the region wise C-D ratio and Graph 6, shows the compound annual growth rate of credit deposit ration in the year from 2015 to 2017.

Table: 3 Region Wise Credit Deposit ratio of Schedule Commercial Banks

REGION	2015-16 (in %)	2016-17   (in %)	2017-18 (in %)	CAGR         (in %)
Northern Region State	86.35	57.69	75.02	- 6.79
North- Eastern State	37.60	36.38	41.17	4.64
Eastern Region State	30.93	29.34	40.07	13.82
Central Region State	46.75	43.48	45.72	- 1.11
Western Region State	54.14	49.31	102.30	37.46
Southern Region State	83.71	77.62	88.96	3.09
TOTAL	56.12	50.19	75.11	1.64

 

 

 

 

 

 

Graph: 5 Region Wise Credit Deposit ratio of Schedule Commercial Banks

 

 

Graph: 6 compound annual growth rate of credit deposit ratio        

 

Table 4 shows the State Wise Credit Deposit Ratio in schedule commercial banks which indicates, how much of a bank's core funds are being used for lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending and vice-versa. Forming part of the Liquidity ratios of a bank, this ratio is often used by policy makers to determine the lending practices of financial institutions.

 

The table shows the C-D ration of 36 states, out of which; West Bengal is the highest 44.02 percent compound annual growth in credit deposit ratio and Kerala is the lowest minus 35.92 percent compound annual growth rate in C-D ratio. This can be shown in illustrated graph 7 and graph 8. The high credit deposit ratio indicates more reliance on deposits for lending and a likely pressure on resources. If the ratio is too low, banks may not be earning as much as they could be. If the ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen fund requirements, may affect capital adequacy and asset-liability mis-match. A very high ratio could have implications at the systemic level⁶.

 

Table: 4 State Wise Credit Deposit Ratio of schedule commercial banks

S.no		2015	2016	2017	CAGR      (in %)
1.	Haryana	72.03	58.74	55.68	-12.08
2.	Himachal Pradesh	33.68	29.32	29.28	- 6.76
3.	Jammu and Kashmir	42.42	38.87	40.26	- 2.58
4.	Punjab	60.77	58.25	59.69	- 0.89
5.	Rajasthan	76.84	70.29	68.64	- 5.49
6.	Chandigarh	99.45	102.93	104.81	2.66
7.	Delhi	133.13	30.15	84.10	-20.52
8.	Anurachal Pradesh	28.59	23.82	26.71	- 3.34
9.	Assam	41.11	39.88	40.87	- 0.29
10.	Manipur	41.21	38.54	48.61	8.61
11.	Meghalaya	24.56	25.58	26.66	4.19
12.	Mizoram	39.83	36.06	58.64	21.34
13.	Nagaland	33.82	36.06	34.30	0.71
14.	Tripura	34.73	31.20	36.26	2.18
15.	Bihar	33.93	35.50	30.36	- 5.41
16.	Jharkhand	29.21	32.56	26.06	- 5.55
17.	Orissa	40.37	26.47	36.05	- 5.50
18.	Sikkim	26.75	37.37	26.92	0.32
19.	West Bengal	24.00	27.08	49.78	44.02
20.	Andaman and Nicobar	42.36	23.51	36.48	- 7.20
21.	Chhattisgarh	40.57	38.22	61.72	23.34
22.	Uttarakhand	34.47	33.73	34.18	- 0.42
23.	Uttar Pradesh	45.62	42.21	38.89	- 7.67
24.	Madhya Pradesh	62.21	56.09	62.47	0.21
25.	Gujarat	45.78	57.49	69.07	22.83
26.	Maharashtra	68.76	61.01	107.86	25.25
27.	Dadra and Nagar Haveli	91.26	36.93	39.13	- 34.52
28.	Daman and Diu	22.87	23.29	24.90	4.34
29.	Goa	26.59	25.55	25.99	- 1.13
30.	Andhra Pradesh	106.25	99.81	102.32	- 1.87
31.	Karnataka	73.28	69.46	67.79	- 3.82
32.	Kerala	149.64	50.70	61.45	- 35.92
33.	Tamil Nadu	106.26	96.65	107.62	0.64
34.	Lakshadweep	8.98	8.39	8.06	- 5.26
35.	Pondicherry	75.01	69.54	62.07	- 9.03
36.	Telangana	117.23	100.22	103.28	- 6.14

RBI report

 

 

Graph: 7  Graphical presentation of State Wise Credit Deposit Ratio of schedule commercial banks

 

 

Graph: 8 Compund annual growth rate of credit deposit ratio of schedule commercial banks

 

SECTION VI: CONCLUSION AND SUGGESTIONS:

Thus it concludes that, after 60 years of independence, a large section of Indian population still remains unbanked. This malaise has led generation of financial instability and pauperism among the lower income group who do not have access to financial products and services. Out of 36 states, including Manipur, Rajasthan, Haryana, Chhattisgarh, Chandigarh and Madhya Pradesh have high growth rate of banking penetration, where as Tripura, Delhi, Lakshadweep and Daman & Diu have low growth rate of banking penetration. The credit deposit ratio growth rate is highest in some states includes- West Bengal, Gujarat, Maharashtra, Mizoram and Chhattisgarh. However, in the recent years the government and Reserve Bank of India has been pushing the concept and idea of financial inclusion.

 

SUGGESTIONS:

Various measure to increase the financial inclusion in India and they are as follows:

 

Banking Penetration Level:

Banking penetration level must be increased; this includes marketing and awareness of banking products to peoples so that they may understand the importance of banks in their life.

 

Credit Deposit Ratio:

As we have seen there is requirement to increase Credit Deposit Ratio so that peoples may take more credit from banks and this will benefit the economy and banks to. 

 

Each household to have at least one bank account:

Banks have been advised to ensure service area bank in rural areas and banks assigned the responsibility in specific wards in urban area to ensure that every household has at least one bank account.

 

Minimum Account Balance:

Banks should inform the customer immediately on the balance in the account breaching minimum balance and the applicable penal charges for not maintaining the balance by SMS/e-mail/letter. Further, the penal charges levied should be in proportion to the shortfall observed.

 

Create Awareness:

Government should promote introduction of basic banking – relevance, services, merits as a topic in secondary and higher secondary classes in all education institutions. Government sponsored promotion campaigns through all media – radio; television; newspapers; Village panchayat; movies; local stage shows etc. Banks should design and organize aggressive education cum promotion campaigns in unbanked parts of any region.

 

Innovative Strategies:

Basic banking itself needs to be supported by innovative strategies, in order to improve the reach and reduce the operating cost of the banks. Infrastructure sharing amongst banks and other organizations will help in lowering the in commission cost and thus the cost benefit can be transferred to customers. Greater use of technology should be made by the banks to improve their reach, speed of processing, as well as to cut down the operating cost.

 

REFERENCES:

1.       CRISIL (2013), “Inclusix Financial Inclusion Index”, June.

2.       Planning Commission (2009), “Report on Financial Sector Reforms” (Chairman: Dr. Raghuram G. Rajan).

3.       Thorat Usha (2007), deputy governor of RBI: ‘’Financial Inclusion: The Indian Experiences’’

4.       Sarma Mandira: (2008):  “index of financial Inclusion”.

5.       Government of India (2008), “Committee on Financial Inclusion” (Chairman: Dr. C. Rangarajan).

6.       https://www.sptulsian.com/free-zone/pathshala/what-does-credit-deposit-ratio-mean 7 RBI report

 

 

 

 

 

 

Received on 14.03.2018       Modified on 12.04.2018

Accepted on 16.05.2018      ©A&V Publications All right reserved