When credit is due

Going beyond the chicken and egg conundrum, of which comes first, Bihar has achieved dramatic growth rates despite abysmally low Credit-Deposit Ratio. But who is responsible for this?

Historically, Bihar has protested against the persistent neglect by banks. It accounts for only 4.6 per cent of all bank branches in the country far behind states of comparable size branch. Population per bank in Bihar is 22,000 compared to the national average of 12,600.

The Economic Survey of 2012-13 recognises this states "In terms of financial inclusion indicators such as decadal growth rate in bank branches and percentage households availing of banking services, Bihar's performance is among the worst."

While it is a fact that the C-D ratio in Bihar at 29.1 per cent is below the national average of 78.1 per cent, it does not preclude the need for granting a Special Category Status; rather it reinforces the compelling need to improve both the investment climate and enhance absorptive capacity.

It is also ironic that for a state growing at 12 per cent, banks do not find adequate bankable projects.

The growth rates have been fuelled by construction, transport and tourism but also the primary sector.

There is also an urban bias in expansion of bank branches in the state as the number of rural branches have shrunk from 61.6 per cent to 54.6 per cent during 2008 to 2012.

A Special Category Status would enhance resources, incentivise private investment and enable greater access to external funds. The onus of correcting the hiatus between high growth and low C-D ratio rests on the banks individually and collectively.

If they financed green field investment both in industry and agriculture which are starved of credits it would create multiplier virtuous circles. A historically low C-D ratio has been a persistent grievance of Bihar. It would be ironic if the complainant becomes the accused! Credit must be given where it is due, for achieving success not because but despite low C-D ratio.

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