Module 7: Credit-Deposit (CD) Ratio & Capital Flight (Figure 5.6.3)

The Credit-Deposit (CD) ratio reflects the proportion of locally mobilized deposits that commercial banks reinvest back into the regional economy as advances and loans.

CD Ratio Trajectory in Bihar vs India:

• Bihar's CD ratio increased from 34.0 percent in 2018-19 to 36.1 percent in 2019-20.
• During the same period, the All-India average CD ratio declined from 78.2 percent to 76.5 percent.
• Despite modest improvements, Bihar's CD ratio (36.1%) remains less than half of the national benchmark.

Figure 5.6.3: CD Ratio of Major Indian States (2019-20):

• States exceeding 100%: Andhra Pradesh (125.3%), Tamil Nadu (107.5%), and Maharashtra (102.0%).
• States below Bihar: Only Jharkhand and Himachal Pradesh had lower CD ratios than Bihar among major states.

Investment plus Credit-to-Deposit (ICD) Ratio:

The ICD ratio accounts for bank investments in State Government securities, municipal bonds, and public sector debentures. In 2019-20, the ICD ratio in Bihar was 91.6% for Cooperative Banks, 51.8% for RRBs, and 41.8% for Commercial Banks. Even under ICD metrics, bank involvement remains sluggish.

Implications of a Low CD Ratio:

A low CD ratio signifies severe flight of capital from an economically disadvantaged state like Bihar to more industrialized regions. If Bihar's CD ratio were raised from ~42% to the national level of ~79%, an immediate capital injection of approximately Rs. 98,400 crore would be infused into the local economy.