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News and policy analysis
from India and the sub-continent
Lending
Disparities in India
In recent months, the Reserve Bank of India
(RBI) has been tightening credit, purportedly to "manage" runaway
inflation. It has been suggested that "out-of-control" lending
has been the cause of double-digit inflation, and hence, lending by the
State Bank of India (SBI) and other nationalized and commercial banks
needs to be reined in.
But the RBI's "Quarterly Statistics on
Deposits and Credit of Scheduled Commercial Banks" (for Mar 2008)
reveals startling inequities in lending patterns across states that
seem to run counter to the RBI's oft-repeated assumptions. For
instance, the following table reveals the wide disparities
between outstanding credit versus aggregate deposits across states:
STATE
|
Credit vs.
Population
(1000 Cr/Mill)
|
Credit
vs.
Deposit
Ratio
|
SBI
|
Nationalized
Banks
|
Indian
Commercial Banks
|
Regional
Rural Banks
|
State Cooperative Banks/
District Central Co-ops
(Mar 2007)
|
Foreign
Banks
|
|
|
|
|
|
|
|
|
|
Tamil
Nadu
|
3.6
|
1.1
|
1.38
|
1
|
.92
|
1.04
|
.94,
1.3
|
2.9
(*)
|
Maharashtra
|
8.2
|
.95
|
.98
|
1.01
|
.98
|
.52
|
|
.66
(**)
|
| Andhra
Pradesh |
2.12 |
.92
|
.91 |
.96 |
.79 |
.95 |
6.67, 3 |
1.06 |
| Rajasthan |
1.05 |
.82
|
.76
|
.97
|
.63
|
.67
|
|
|
| Karnataka |
3.1 |
.78 |
.8
|
.84
|
.53
|
.95
|
|
.98
(*) |
| Punjab |
2.73
|
.67
|
.85
|
.62
|
.5
|
.62
|
2.43,
1.16 |
|
| Kerala |
2.2
|
.65
|
.69
|
.65
|
.57
|
1.13
|
|
|
| Gujarat |
1.96
|
.65
|
.78
|
.58
|
.71
|
.55
|
|
|
Haryana
|
2.14
|
.61
|
.96
|
.63
|
.25
|
.59
|
2.4,
1.73 |
|
| West
Bengal |
1.44
|
.61
|
.74
|
.59
|
.52
|
.44
|
|
.74
|
Madhya
Pradesh
|
.82
|
.6
|
.66
|
.55
|
.77
|
.53
|
|
|
Orissa
|
.83
|
.56
|
.65
|
.54
|
.35
|
.62
|
|
|
Chhatisgarh
|
.6
|
.52
|
.64
|
.45
|
.64
|
.3
|
|
|
Uttar
Pradesh
|
.58
|
.45
|
.51
|
.44
|
.3
|
.47
|
|
|
Assam
|
.48
|
.41
|
.44
|
.37
|
.37
|
.52
|
|
|
Jharkhand
|
.56
|
.34
|
.35
|
.35
|
.5
|
.3
|
|
|
Bihar
|
.24
|
.29
|
.27
|
.29
|
.16
|
.43
|
|
|
Uttaranchal
|
1.14
|
.27
|
.16
|
.39
|
.34
|
.46
|
|
|
** Most Foreign Banks operate out of Delhi and Mumbai; * Chennai
and Bangalore also have a notable presence of foreign banks. In most
states, their presence is negligible.
As is quite evident from this table, in most Indian states, lending (as a
proportion of deposits) is well below 75% - hardly indicative of
excessive borrowing. In two of India's most densely populated states,
i.e. in UP and Bihar, outstanding
loans correspond to less than 50% of all deposits. This would
suggest that for most states, lending norms are far too tight rather
than too liberal.
The notion of an "over-heated" economy can
apply only to 3 states - Tamil Nadu, Maharashtra and Andhra. But rather
than tighten lending in these specific states, the RBI has chosen to
raise interest rates across the board, punishing even those states
where credit
offtake is already far too low.
As it is, per-capita bank deposits vary
widely across major states - from a high of 8.7 cr/million in
Maharashtra to a mere .84 cr/million in Bihar. But what is most
troubling is that while 95% of Maharashtra's deposits have been made
available for
in-state credit, just 29% of Bihar's
deposits
have been loaned out to local account holders. Such stark differences between
credit/deposit ratios puts Bihar at an even greater disadvantage. That
the SBI and the Public Sector Banks are contributing to this huge
inequity is even more troubling. Rather
than mitigate inequities, with few
exceptions,
credit offtake from the SBI and Nationalized Banks is actually
exacerbating inequalities.
The other troubling point is that of the five states with the
best credit/deposit ratios, three are ruled by the Congress (or a UPA
ally) and earlier, Karnataka was also a Congress-ruled state. At the
time when this report was released, (before the Left was compelled to
withdraw support) only two of the
top ten states were ruled by the opposition BJP. On the other hand, of
the larger states with the poorest credit/deposit ratios, five out of
seven are non-UPA ruled states. Moreover, in opposition-ruled states
like Gujarat and Madhya Pradesh, the overall credit offtake data looks
better partly on account of higher lending from private banks.
This
then lends credence to charges of conscious discrimination against
states
that are not ruled by the Congress or key UPA allies.
However,
even within states like Maharashtra there are sharp disparities because
86% of
Maharashtra's credit and 85% of Maharashtra's deposits are attributable
to the Greater Mumbai region alone. Not only are there glaring
inequities across states, intra-state variations are equally pronounced.
Examples of
intrastate variations:
STATE
|
Total
State Deposits
(1000 Cr)
|
Sample Districts
|
Deposits
in District
(1000 Cr)
|
Credit/Deposit
Ratio
|
Credit
Concentration
in Largest Metro Region
|
|
|
|
|
|
|
Tamil
Nadu
|
200
|
|
|
1.1
|
|
|
|
Chennai
|
95
|
1.3
|
50%
|
|
|
Coimbatore
|
20
|
1.7
|
|
|
|
Kancheepuram
|
9.3
|
.4
|
|
|
|
Nagapattinam
|
2
|
.63
|
|
|
|
Sivaganga
|
2
|
.65
|
|
|
|
Thiruvarur
|
1.3
|
.58
|
|
Maharashtra
|
832
|
|
|
.95
|
|
|
|
Greater Mumbai
|
672
|
1
|
86%
|
|
|
Pune
|
50
|
.74
|
|
|
|
Thane
|
31
|
.45
|
|
|
|
Nagpur
|
17
|
.6
|
|
|
|
Nanded
|
2.3
|
.48
|
|
|
|
Bhandara
|
.8
|
.43
|
|
| Andhra
Pradesh |
178 |
|
|
.92 |
|
|
|
Hyderabad
|
72
|
1.05
|
49%
|
|
|
Vishakhapatnam
|
17
|
.52
|
|
|
|
Rangareddy
|
11.6
|
.51
|
|
|
|
Chittoor
|
7.7
|
.57
|
|
|
|
W. Godavari
|
4.7
|
1.3
|
|
|
|
Adilabad
|
2.6
|
.65
|
|
| Rajasthan |
73 |
|
|
.82
|
|
|
|
Jaipur
|
22
|
1.1
|
40%
|
|
|
Udaipur
|
6.1
|
.46
|
|
|
|
Bhilwara
|
1.9
|
1.7
|
|
|
|
Jhunjhunu
|
1.7
|
.4
|
|
|
|
Dungarpur
|
.9
|
.32
|
|
|
|
Pratapgarh
|
.43
|
.5
|
|
| Karnataka |
210 |
|
|
.78
|
|
|
|
Bangalore Urban
|
137
|
.79
|
66%
|
|
|
Dakshin Kannada
|
10
|
.58
|
|
|
|
Bellary
|
4.4
|
1.1
|
|
|
|
Uttar Kannada
|
3
|
.33
|
|
|
|
Ramanagaram
|
1.9
|
.3
|
|
| Punjab |
101
|
|
|
.67
|
|
|
|
Jalandhar
|
20.4
|
.3
|
|
|
|
Ludhiana |
17.7 |
1.4 |
37%
|
|
|
Hoshiarpur
|
6.7
|
.24
|
|
|
|
Kapurthala
|
5.8
|
.24
|
|
|
|
Nawanshahr
|
3.5
|
.21
|
|
| Gujarat |
153
|
|
|
.65
|
|
|
|
Ahmedabad
|
44
|
.93
|
40%
|
|
|
Navsari
|
5.6
|
.16
|
|
|
|
Kheda
|
3.7
|
.24
|
|
|
|
Porbandar
|
2.3
|
.22
|
|
|
|
Dahod
|
.9
|
.39
|
|
|
|
Dangs
|
.12
|
.35
|
|
| West
Bengal |
188
|
|
|
.61
|
|
|
|
Kolkata
|
105
|
.84
|
77%
|
|
|
N.Parganas
|
20
|
.2
|
|
|
|
Hooghly
|
6.9
|
.24
|
|
|
|
Birbhum
|
2.4
|
.35
|
|
|
|
Dakshin Dinajpur
|
.68
|
.57
|
|
Madhya
Pradesh
|
82
|
|
|
.6
|
|
|
|
Bhopal
|
16
|
.4
|
|
|
|
Indore
|
13.8
|
1.05
|
29%
|
|
|
Jabalpur |
5.8
|
.4
|
|
|
|
Gwalior
|
4.4
|
.5
|
|
|
|
Sidhi
|
2.9
|
.13
|
|
|
|
Jhabua
|
.7
|
.31
|
|
|
|
Dindori
|
.24
|
.31
|
|
Orissa
|
54
|
|
|
.56
|
|
|
|
Khurda
|
17.7
|
.53
|
40%
|
|
|
Cuttack
|
4.5
|
.64
|
|
|
|
Jagatsinghpur
|
2.1
|
.26
|
|
|
|
Baleshwar
|
1.7
|
.88
|
|
|
|
Malkangiri
|
.25
|
.4
|
|
|
|
Boudh
|
.15
|
.67
|
|
Chhatisgarh
|
31
|
|
|
.52
|
|
|
|
Raipur
|
9.3
|
.87
|
65%
|
|
|
Bilaspur
|
6.5
|
.2
|
|
|
|
Durg
|
5
|
.46
|
|
|
|
Dhamtari
|
.48
|
.5
|
|
|
|
Kawardha
|
.33
|
.3
|
|
Uttar
Pradesh
|
214
|
|
|
.45
|
|
|
|
Lucknow
|
32
|
.5
|
15%
|
|
|
Noida
|
18
|
.28
|
|
|
|
Kanpur
|
14
|
.5
|
|
|
|
Ghaziabad
|
12
|
.56
|
|
|
|
Gorakhpur
|
6.5
|
.28
|
|
|
|
Sant Kabir Nagar
|
.74
|
.27
|
|
|
|
Chitrakoot
|
.45
|
.48
|
|
Bihar
|
69
|
|
|
.29
|
|
|
|
Patna
|
20
|
.24
|
24%
|
|
|
Muzaffarpur
|
3.4
|
.29
|
|
|
|
Buxar
|
1.1
|
.35
|
|
|
|
Arwal
|
.32
|
.22
|
|
As is
apparent from this data, in several states, there is massive credit
concentration in key metros with Greater Mumbai leading this trend. In
most states, credit concentration in the leading metro regions exceeds
40% and in Bengal, Karnataka and Chhatisgarh, it exceeds 65%. In
Tamil Nadu and Andhra Pradesh, it is roughly 50%.
It
may also be observed that several government-appointed nominees on the
board of the RBI happen to have significant industrial or
business interests in urban centres like Chennai, Coimbatore, Hyderabad
and Navi Mumbai (with credit/deposit ratios that exceed 1). Given that
we have a finance minister, the head of the RBI and several other
government-nominated appointees on the board of the RBI, it is perhaps
not too surprising that Tamil Nadu fares as well.
While
there may well be other factors in the mix (such as enterpreneurial
preferences swayed by availability of
skilled manpower and the general investment environment, or the ability
of borrowers to demonstrate credit-worthiness or loan viability), there
remains a nagging suspicion
that parochial and political biases in policy-making, banking directives, sanctioning of
projects, and the design and administration of central schemes
may have also played a part.
Where that
is
the case, the people of the country - especially those from neglected
states (or regions) have every right to demand the recall and
impeachment
of a government that puts partisan concerns above the broad interests
of the citizens of the nation. At
the very least, the people of the Hindi-belt amd other disenfranchised
regions must demand an enquiry as
to why such a small portion of their deposits leads to local credit
allocations.
One of the
main reasons for Indira Gandhi's bank
nationalization program was to encourage balanced credit growth so as
to ensure
more equitable development within the country.
But today,
the Congress
regime appears to be (at least partially) responsible for extremely
unbalanced growth. While it may be hard to say if this is due to a
policy of conscious partisanship, benign neglect or sheer indifference,
there does seem to be the perception that rather
than pay genuine attention to the development needs of the country as a
whole, the Congress-led government is carrying out (or has endorsed) a
set of policies that reflect blatant favoritism towards
selected business
and industrial cronies. Some might even argue that it is also kowtowing
to
the interests of foreign capital along with favored local
industrialists over and above the nation's broad interests.
Even if that weren't the case, the onus would be on the government to
demonstrate its sincerity to the people of those states and districts
that have been disfavored or left out. If there were certain objective
factors affecting the credit dispensation in some states (or regions),
the government ought to be aware of them, and actively working to
rectify the conditions that might be the cause of such low credit
offtake in the disaffected districts and states. As remedies, it could
offer targeted development schemes that
could create a more favorable environment for higher credit offtake; or
it could provide developmental loan guarantees to the poorest states
and regions. But it is apparent that such inequities have either not
been noticed by government policy makers, or they have not merited any
serious debate or critical policy analysis.
In either case, the government stands indicted for its
utter failure in ensuring equitable development through balanced credit
offtake. Whether by intent or by default, its policies have led to
serious inflationary pressures and developmental bottlenecks even as
much of the country remains starved of productive investment. This has
happened at least partly because the high concentration of credit in
key metros has led to unmanageable increases in land prices that is
then contributing to vicious cycle of high inflation.
Rather than control lending where costs of production
are rising due to high land prices, it appears that both private and
government owned banks are approving more loans in the already
over-saturated metros, even as most small towns and semi-urban areas
are experiencing a credit drought.
Although India is not typically associated with the
problems of crony capitalism, it is quite clear from the nation's
highly-skewed credit landscape that India is not entirely free from the
sorts of distortions that results from crony capitalism. In a vibrant
democracy, such elements of crony-capitalism cannot be tolerated for
too long.
Without financial democracy, the right to vote becomes
a very empty right. States and districts who suffer from
under-investment will have to overcome all sectarian divisions so that
they can understand what is really going on in the realm of political
finance. They will need to transcend the sort of caste and
religion-based identity politics (which has been promoted by the
Congress and its allies) that prevents them from recognizing how they
might be victims of serious fiscal neglect, or perhaps even major
financial fraud. Caste quotas or religious perks like Hajj subsidies
are no substitute for genuine development which in the end requires a
vibrant credit market for local investment.
Seeing as how India's credit markets have developed in
such a lop-sided manner, one must inevitably conclude that the
Congress-led regime has been promoting policies that have let such a
situation develop.
Those who wish to see India on the path of more
equitable progress have no choice but to press for other (and more
inclusive) options. If India is to grow at a fast pace, it cannot allow
all credit allocations to be concentrated in just a handful of metros.
Growth must be distributed and spread in a manner that benefits all
sections of Indian society.