Kerala's war over credit-deposit ratio takes serious turn

D Jose in Thiruvananthapuram

The confrontation between planners and commercial banks over the declining credit-deposit ratio of banks in Kerala has taken a serious turn with the state Planning Board asking the government to end all financial deals with public sector banks which have a CD ratio of less than 40 per cent.

A planning board meeting attended by Chief Minister E K Naynar and four of his Cabinet colleagues has said the State Bank of Travancore should replace Canara Bank as the lead bank since its CD ratio is much below the state average.

The meeting asked the finance minister to talk to banks whose CD ratio is less than 40 per cent though they have more than Rs 10 billion deposits. The ratio should be increased up to 60 per cent in the coming three years.

In another significant move, the board directed the district collectors to bring all loan schemes under the district planning committees.

The action was prompted by the fall -- about 22 per cent from 66.6 per cent in 1987 to 44.4 per cent in 1996 -- in the CD ratio of banks in the state in the last decade. The ratio in Tamil Nadu is 91.1 per cent, Karnataka 67.65 per cent and Andhra Pradesh 75.73 per cent.

The State Bank of Travancore's CD ratio is 45.3 per cent as against Canara Bank's 31.3 per cent. The banks attribute the low CD ratio to the poor credit absorption capacity of the state economy.

A senior banker said that lending could not be increased due to the virtual stagnation in the industrial and agricultural fronts. He said the banks were never wary of financing sound projects but lamented that they were not forthcoming. The officer said that the credit side looked negative due to a steep increase in deposits mainly on account of increased remittances from non-resident Indians in the Gulf and other countries.

However, the planners are not ready to accept the banks's version. The Planning Board vice-chairman said ''dearth of projects'' was an excuse to divert funds to other states. How can they complain of lack of projects when the ninth plan has drawn up more than 10.5 million projects to be implemented by the local bodies, he asked.

Board vice-chairman I S Gulati said the bank managements were showing a very negative attitude to the campaign, which is being acclaimed by many in the country. He said many banks operating in the state did not even have cells to process project proposals. As a result, investors have been forced to visit their headquarters in other states to get their proposals processed.

The board is worried about the low CD ratio as the state is required to mobilise Rs 520 billion during the ninth plan to achieve an annual growth rate of 7.5 per cent. The private sector investment envisaged for achieving this target is estimated at Rs 300 billion, most of which has to come from banks and other financial institutions.

The board action has put bankers in a quandary. The Canara Bank chairman has sought an urgent meeting with Gulati to explain the bank's position. The state government may approach the Centre for removing Canara Bank from the lead bank position.

Canara Bank is the convenor of the task force set up by the Reserve Bank of India to recommend steps for improving the CD ratio of banks in Kerala.