No direct role to play in CD ratio of states: RBI

The Reserve Bank of India (RBI) has said credit-deposit (CD) ratio was a byproduct of the economic and business activity in the respective Indian states, and that the central bank had no direct role to play therein.

“We are not in a regime, where RBI would mandate the economic activities of growth and business,” RBI deputy governor Subir Gokarn told Business Standard here.

He noted that as the business and economic activities expanded in a state, more investment would be needed, which would raise the CD ratio.

Gokarn said RBI espoused the cause of a larger strategy on a macroeconomic level.

Uttar Pradesh, which is the second largest economy in India with Gross State Domestic Product (GSDP) of about Rs 315,000 crore, has a low CD ratio of 48 per cent.

In fact, UP stands a poor 13th out of 15 major Indian states on the CD ratio scale. Tamil Nadu has the highest CD ratio of over 100 per cent, followed by Maharashtra and Andhra Pradesh with over 90 per cent.

During chief economic advisor in the union finance ministry Kaushik Basu’s visit to Lucknow in May 2010, UP Principal Secretary (Planning) J N Chamber had raised the issue of CD ratio with him informally.

Chamber had urged the Centre should intervene to increase the CD ratio of backward states like UP and public sector banks be asked to boost credit off-take.

The current rate of investment in UP is around 20 per cent of the GSDP against the national average of 35 per cent. Thus, the present level of investment in UP is around Rs 60,000 crore, which needs to be doubled if the state has to develop at 10 per cent.

Meanwhile, the State Level Bankers’ Committee (SLBC) is taking steps to improve the CD ratio in districts, where it is lowest.