Reserve Bank of India’s Governor D. Subbarao recently expressed his concern over the poor credit-deposit (CD) ratio of banks in West Bengal. At 63 per cent, the State is far behind the national average of 74 per cent.

According to Finance Minister Amit Mitra, out of the 37,000 villages in the State, 27,767 villages had no bank branches as on December 10.

“There is a huge gap between the demand and supply, and we need to address this,” he told newspersons after his meeting with the RBI Governor at the State Secretariat recently.

Chit funds dominate

Quoting statistics revealed by the State Level Bankers’ Committee, Mitra said, “In case of agriculture and allied activities, the banks have been able to fulfil only about 29 per cent of their targeted action plan for the current year, while over 70 per cent is left to be achieved as on September 30. In case of lending to micro- and small enterprises also, the situation is similar with over 70 per cent of their targeted plan still unfulfilled.”

Banks, however, have a different tale to narrate. According to senior bank officials, the poor penetration in the eastern and north-eastern region is because of the lack of proper infrastructure, connectivity and politics, among other reasons.

Though demand for credit is lower in the two regions, mobilising deposits is a bigger challenge given the presence of a large unorganised chit-fund market there.

“Deposit growth has slowed down across the country in general and the eastern and north-eastern region in particular. The credit offtake has slowed down even further due to the challenging economic environment. This has had an impact on the CD ratio of banks in the eastern and north-eastern region, where a majority of the transactions are low-ticket in size,” a senior official said.

RBI urges States

Subbarao, after his meeting with the Committee’s representatives in the State recently, said that State Governments should be more vigilant and take prompt action against multi-level marketing by chit funds.

“Chit funds are into multi-level marketing and the responsibility of checking and prosecuting them is with the State Government. RBI does not regulate chit fund firms,” Subbarao said.

The RBI on its part has already written to the various State Governments asking them to be vigilant against such companies. “We have also been running training sessions for police department and officials to help them put a check on this,” he said.

Chit funds, present in most parts of the country, are a highly flourishing business in West Bengal. According to RBI sources, the worst affected districts are 24 Parganas North and South, Hooghly, Malda, and Medinipur.

According to a senior official with a public sector bank: “While chit fund-companies are operating across the country, it is much more prevalent in the eastern and north-eastern region, as there is a political nexus.”

Credit-deposit Ratio

The RBI Governor, however, said that the State’s credit-deposit ratio was likely to go up to 65 per cent in 2012-13, up from 63 per cent during the past fiscal.

“There has been an improvement in the CD ratio, and we have asked banks to take it up to 68 per cent in 2013-14,” Subbarao said.

According to the Governor, 8 of the 18 districts of the State that had a ratio below 40 per cent are Bardhaman, Bankura, Birbhum, Hoogly, Murshidabad, Nadia, Purulia, 24 Parganas North and South, and Medinipur West.

“We have asked banks to take it up by five percentage points by March 2013, and they have agreed to do so,” he said.

According to Subbarao, West Bengal also lagged behind most other states in extending credit linkages to self-help groups (SHGs). “We have asked banks to provide linkage to additional 1.5 lakh self-help groups for extension of credit, other than those who have returned the loans and have good credit ratings,” he said.

Of the 11.16 lakh SHGs in the State, only 9.69 lakh are credit-linked by banks, Finance Minister Mitra said.

“West Bengal has disbursed only about Rs 551 crore to SHGs, while the disbursal in Andhra Pradesh is as high as Rs 8,171 crore and that in Tamil Nadu stands around Rs 2,000 crore,” Mitra added.

Banks are looking at improving the penetration of financial services either by way of branches, business correspondents/facilitators, or by using mobile vans and technology platforms, according to senior bank officials.

Banks’ plans

UCO Bank, for instance, had targeted to open 50 branches in the north-eastern region.

According to its Executive Director N.R. Badrinarayanan, the bank has already opened 23 branches and plans to open the rest by the end of this fiscal.

The bank also plans to open one zonal office in Agartala. The bank has already set up a circle office in Guwahati to boost credit offtake, business and financial inclusion in the north-eastern region.

“Our credit-deposit ratio in the eastern and north-eastern regions is upwards of 30 per cent, and we are taking all possible efforts to boost this further. This is on top of our radar for the next three to four months,” Badrinarayanan said.

As on September 30, the bank had covered 1,703 villages having population more than 2,000 and 107 villages having population less than 2,000. It has opened 6,81,046 accounts and also issued close to 1,24,235 smart cards.

“We are planning to appoint business correspondents to give a boost to our financial-inclusion programme,” he said.

Allahabad Bank, which has a ratio of about 58 per cent in West Bengal, is also working on a plan to improve its business in the region, said Executive Director T.R. Chawla. The bank’s ratio in the north-eastern region was a tad lower than that in the State.

“We are working on improving the CD ratio in the eastern and north-eastern region. We are yet to crystallise a plan. We will do it soon,” he said.

According to Bhaskar Sen, Chairman And Managing Director, United Bank of India, the credit-deposit ratio of the bank for West Bengal came down to 64 per cent last year from 65 per cent two years ago.

“This is primarily on account of a drought-like situation and slowdown in credit demand. But now with economy showing some signs of revival, we expect firm decisions to be made by corporates on their capex plans. This will infuse fresh investments and will accelerate the CD ratio,” he said.

Out of the total 1,693 branches of United Bank of India, as on September 30, nearly 63 per cent were in the eastern region and about 17 per cent in the north-eastern region.

Achieving a ratio of 68 per cent by March 2014 would not be a difficult task for the bank, he said, and added, “We will deliberate on this and draw up a roadmap.”

The bank also plans to cover all villages with a population of 1,600 to less than 2,000 by the end of this fiscal.

(This article was published on December 26, 2012)
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