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LATEST NEWS UPDATES | Fragmented Bengal funds other states

Fragmented Bengal funds other states

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published Published on Dec 8, 2011   modified Modified on Dec 8, 2011
-The Telegraph
 
RBI governor D. Subbarao has expressed concern over Bengal’s low credit-deposit ratio, which means that funds from the cash-starved state are actually meeting the borrowing needs elsewhere.

The erstwhile Left government used to blame banks for the skewed ratio. But bankers have blamed it on the poor credit absorption capacity of rural Bengal because of fragmented land holdings — a fallout of the land reforms.

After a meeting with chief minister Mamata Banerjee, Subbarao told reporters that the credit-deposit ratio (the percentage of deposits lent by banks to borrowers in the state) for Bengal was 62 per cent against the national average of 74 per cent.

According to RBI data, all scheduled commercial banks operating in the state lent only Rs 1,99,582 crore while they mobilised Rs 3,13,348 crore as deposits from the state — the credit-deposit ratio stood at 63.69 per cent.

In comparison, the credit-deposit ratio for states such as Andhra Pradesh was 110 per cent. In other words, states like Bengal with a low credit-deposit ratio funded the borrowing needs of people in Andhra Pradesh.

“We would ask banks in the state to extend credit so that the credit-deposit ratio is improved,” the RBI governor said. “However, the state government would also have to take steps to increase the demand for loans from the agriculture and manufacturing sectors,” he added.

Senior bankers said they had performed better in the second quarter ended September in terms of credit delivery to priority areas like agriculture and small-scale industries. But they are yet to cross nearly half the path to achieve 100 per cent financial inclusion by March 2012.

Former finance minister Asim Dasgupta had blamed banks for the low credit-deposit ratio of the state. Bankers, however, said the credit/loan absorption capacity of people in the state had been low. “Small landholdings and low credit absorption capacities of people in rural Bengal are reasons for the low credit-deposit ratio in the state,” said a senior official of a government-owned bank.

“Following the land reforms, many small farmers and agricultural workers have got small pieces of land, which limited their ability to borrow,” he explained. “In Bengal, 95 per cent of farmers are small or marginal and account for 84 per cent of landholdings.”

The Bengal government’s Economic Review 2010-11 shows that the credit-deposit ratio in rural Bengal is the lowest at 34.56 per cent, compared with that of Gujarat (46.22 per cent), Maharashtra (74.03 per cent), Kerala (72.61 per cent), Tamil Nadu (95.56 per cent), Punjab (53.94 per cent) and Uttar Pradesh (47.63 per cent).

The ratio in rural Bengal is much lower than the national average of 59.39 per cent.

A senior official of Nabard, which focuses on agriculture and rural credit, also said that “the fragmented, small landholdings limited the credit absorption capability of people, and banks were finding it difficult to lend” in Bengal.

“In order to circumvent this problem, Nabard has launched in the state a scheme for lending to joint liability groups — the first such scheme initiated by Nabard in the whole country,” he added.

No special relief

The RBI chief said no special treatment would be extended to Bengal to tide itself over temporary mismatches in its cash flow of receipts and payments. “No exception will be made in respect to ways and means advances (WMA) to Bengal,” Subbarao said.

States get advances from the RBI under the WMA scheme to meet their temporary needs. A state gets advances for 90 days in a financial year under the normal WMA. From April till July this year, Bengal had already taken normal WMA for 40 days and special WMA for 79 days.


The Telegraph, 8 December, 2011, http://www.telegraphindia.com/1111208/jsp/frontpage/story_14854374.jsp


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