3.

1 Credit Deposit Ratio

The Credit to Deposit (CD) ratio indicates how much of the advances lent by
banks is done through deposits. It is the proportion of loan-assets created by the banks
from the deposits received. The higher the ratio, the higher the loan-assets created
from deposits. Deposits would be in the form of current and saving accounts as well as
term deposits. The outcome of this ratio reflects the ability of the bank to make
optimal use of the available resources. Credit and deposit are the two efficient
determinants in banks loan system. The RBI issued an advisory note to PSBs for
maintaining a CD ratio of 60% in rural and semi urban branches continuouusly to
reduce inter-regional imbalances in credit delivery meaning that 60% of the deposits
should be lent out as loan rather than investing it in stock exchanges and other
instruments which may yield more attractive return. The CD ratio is used as the
yardstick for measuring banks commitment for serving the poor. However, it is
important to develop an alternative measure that calculates credit as per utilisation,
which rather gives a far better picture of credit usage. The RBI intends to build an
enabling environment for utilising the vast banking network. In particular, the CD
ratio has been used as an indicator to motivate and remind the PSBs of the importance
of inclusive banking.
It is well known that the NER has been deficient in the use of banking capital.
A low CD ratio in the NER indicates the availability of sufficient funds to be used as
bank credit. This may be due to lack of demand for credit as a consequence of low
level of economic activity or low credit worthiness of borrowers. CD ratio of the
nationalised banks has been consistently low in all the states of the NE as compared to
the national average. The CD ratio of the nationalised banks in NER was 27.08% in
December 2013 which is very low compared to the all India average of 74.58%.
Moreover, significant differences exist among the NE states in terms of CD ratio.
While Manipur and Assam have a relatively higher rate of CD ratio of 38.24% and
33.84% respectively, Arunachal Pradesh, Meghalaya and Nagaland have about 23% of
CD ratio. In fact, Mizoram registered the lowest CD ratio of the region with only
21.54%. The Committee on Financial Sector Plan for NER (2006) stressed the need to

improve favourable investment climate, infrastructure and creation of favourable

credit culture.
In respect of the banking scenario in Mizoram, no comprehensive study has
been conducted to know the CD ratio covering the PSBs and private banks operating
in the state. There was high concern on low CD ratio of UCO Bank and MCAB
respectively during 20061. The CD ratio in respect of all banks in the state was
52.75% in December 2011. As noted, most of the PSBs and private banks in the state
have a single branch in Aizawl and this is partly reflected in their low level of CD
ratio. For example, the CD ratio of IDBI: 13.29, AXIS: 4.23%, ICICI: 11.71% HDFC:
9.58%, BOB: 4.98%, Canara Bank: 3.82%, BOI and Yes bank: Nil 2. As on 31
December 2012, there were nine banks with CD ratio of less than 20%, one bank
between 20%-30%, three banks between 30%-40% and there were only eight banks
having CD ratio of more than 40%.
Although between 1972 and 1990 the CD ratio at the all India level fell from
66.4% to 60.7%, the ratio improved in many less developed States and regions.
Between 1990 and 2000, the CD ratio at the all India level declined from 60.7% to
56%. The CD ratio of India was 71.13% at the end of the year 2009, as against
37.43% in the NER. In fact, the NER had the lowest CD ratio among all the six
regions in the country. Southern region maintains an impressive CD ratio of over 91%.
Western and northern regions maintained a ratio of 78% and 70% respectively. The
other two regions, namely eastern (49%) and central (48%) regions, could manage
better than the NER, but still not satisfactory (Bhartendu Singh, 2011).
Table 3.1
CD Ratio of Select Banks in Mizoram during 2006-12 (` in lakh)
Years
MCAB
MRB
SBI
Total
Industry
2006
64.46
67.05
73.18
70.40
61.84
2007
49.83
75.21
67.99
65.29
69.55
1 Marejaree MB, General Manager, SIDBI in his speech at SLBC meeting in December
2006.
2 SLBC 2011, p 10.

2008
2009
2010
2011
2012
Average

60.26
65.95
82.11
35.36
90.00
72.82
48.56
60.33
65.99
61.38
45.22
51.40
72.40
43.73
47.99
54.50
54.50
62.48
st
Figures as at 31 December

75.65
66.41
60.41
50.92
49.45
59.19

67.81
61.61
52.27
44.21
42.84
53.05

Source: Compiled from State Level Bankers Committee Meetings

The Finance Minister of Mizoram Mr Lalsawta, in his speech in the 21 st Annual
General Assembly of MCAB, remarked that the CD ratio indicates the banks
commitment towards the people; and appreciated the efforts of MCAB as its CD ratio
was 68.84% during 2013-14, the highest in Mizoram. Very recently, the central
committee of the states largest Community Based Organisations (CBOs), the Young
Mizo Association (YMA) held a meeting with the representatives of six nationalised
banks operating in Mizoram which have low CD ratio than other banks. AXIS Bank,
Yes Bank, Vijaya Bank, HDFC Bank, ICICI Bank and IDBI Bank have comparatively
lower CD ratio than other banks. The YMA urged the banks to take more efforts to
increase their CD ratio. In fact, the YMA has warned that in case there is no
improvement despite the repeated appeals, it may go to the extent of asking the public
not to deposit their money in these banks.
Table 3.1 shows the CD ratio of the banking industry in Mizoram, including the
select banks during the study period. It is observed that the CD Ratio of the banking
industry in the state had been continuously declining from 61.84% in 2006 to 42.84%
in 2012. The CD ratio which was calculated aggregately for the three select banks
shows the declining trend in all the years, except in 2008 during the study period. In
2012, the MRBs CD ratio was 43.73% and the SBIs CD ratio was 47.99%. However,
the MCAB registered a high CD ratio of 72.40% in 2012. In fact, the MCAB
registered a high CD ratio in 2011 and 2012 when the SBI and the MRB had shown a
low CD ratio in these years. It may be inferred that the SBI and the MRB were extra
cautious in 2011 and 2012 in extending loans to the needy sections of the society such
as the entrepreneurs, farmers, and MSMEs in the state. As these two public sector

banks are the lead banks in the banking industry in the state, they need to be proactive
in identifying the genuine borrowers who would strengthen the economy by utilising
the loans for productive purposes in economy. Such a strategy is the need of the hour
in a remote state of Mizoram in order to achieve the inclusive growth in tune of the
policy of inclusive banking as enunciated by the policy makers in the country.