Study on Challenges being faced in maintaining required Credit Deposit Ratio by Banks in NIWARI District of Madhya Pradesh Study on Challenges being faced in maintaining required Credit Deposit Ratio by Banks in NIWARI District of Madhya Pradesh
Submitt ed To DIRECTORATE OF INSTITUTIONAL FINANCE, GoMP
Submitted By NABCONS, BHOPAL 2 Report on Low CD Ratio Study-NIWARI, MP
ACKNOWLEDGEMENT
NABARD Consultancy Services Pvt Ltd (NABCONS) is grateful to the Directorate of Institutional Finance (DIF) GoMP for awarding the assignment “Study on Challenges being faced in maintaining required Credit Deposit Ratio by Banks in Nine Districts of Madhya Pradesh”.
Our sincere thanks to Shri Anurag Jain (IAS), ACS Finance, GoMP, Shri Manoj Govil (IAS), Principal Secretary Finance, GoMP, Shri. Ganesh Shankar Mishra (IAS), Commissioner, DIF, Shri Satish Gupta, Joint Director, DIF, Shri S. D. Mahurkar FGM, Central Bank of India and Shri Vinayak Tembhurne FGM UBI, Convener of State Level Sub Committee on Low CD Ratio for the continuous encouragement, guidance and their support during the conduct of the study, providing valuable insights and inputs during the study.
The team sincerely acknowledges the kind cooperation received during eld study from the Lead District Managers (LDM) and District Development Managers, (DDM) NABARD in coordinating the district ofcials’ meetings and collection of necessary data.
We also thank Smt. T. S. Raji Gain, Principal Consultant NABCONS/CGM NABARD and Shri. S.K. Bansal, Former Principal Consultant, NABCONS/ Former CGM, NABARD, Bhopal and team NABCONS from Regional Ofce, Bhopal who provided needed infrastructure and support for the timely completion of study.
TEAM NABCONS
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Table of Contents
1. BACKGROUND 5 2. APPROACH AND METHODOLOGY 7 3. EXECUTIVE SUMMARY 8 4. OVERVIEW OF DISTRICT 13 5. DISTRICT AGRICULTURE PROFILE 15 6. INFRASTRUCTURE STATUS 17 7. DISTRICT BANKING PROFILE 18 8. HIGHLIGHTS OF PERFORMANCE OF BANKS 20 9. CREDIT DEPOSIT RATIO ANALYSIS 24 10. GOVERNMENT SCHEME PERFORMANCE: 26 11. STATUS OF SRLM FINANCING IN THE DISTRICT 27 12. CURRENT CREDIT GAP & POTENTIAL CREDIT DEPLOYMENT IN DISTRICT 28 13. FUNCTIONING OF SUB COMMITTEE ON LOW CD RATIO 30 14. INSTITUTIONAL MONITORING MECHANISM IN BANKS 31 15. PRESENCE OF NBFC/MFIS IN REGION 32 16. SUGGESTIONS FOR IMPROVING CD RATIO IN THE DISTRICT 33 17. ISSUES AND CHALLENGES 35 18. SUGGESTIVE POLICY CHANGES 37 19. ANNEXURES
Ÿ LIST OF PEOPLE INTERACTED Ÿ BRANCH VISIT REPORT Ÿ ADVANCES & DEPOSIT STATUS Ÿ PLP V/S ACP ACHIEVEMEN Ÿ PERFORMANCE OF GOVERNMENT SHCEME Ÿ FPO/SHG FINANCING Ÿ STAFFING PATTERN Ÿ BRANCH NETWORK Ÿ NPA STATEMENT
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1. BACKGROUN D For economic development of a region it is essential to have comprehensive nancial intermediaries and commercial banking sector that efciently collect the savings accessible from the public and disburse credit to the productive and demanding sectors in a well-organized manner. The role of nancial intermediaries and banking sector in mobilizing deposits and paying credits to various sectors of an economy leads to sustaining growth of the economy. Hence, the quality of functioning of the banking sector in turn marks the performance and productivity of other sectors of the economy.
The banking system in India has evolved to deliver a diversied, efcient and competitive nancial system with primary objective of improving the allocation of resources with better operational exibility. The Reserve Bank of India (RBI) has time and again stimulated the banking sector to expand its nancial coverage in the country.
The matter of poor C D ratio rst came in the eyes of RBI in 1980, that the most of the backward regions of the India have yet not attained the national average of C D ratio. RBI rst advised PSBs to achieve a CDR of 60 percent in their rural and semi urban branches on a continuing basis. This was done in order to encourage reduction in inter-regional imbalance in credit delivery and to persuade banks to lend in the same areas where they mobilized deposits.
In both, in concept and origin this target was provided as advisory to banks in order to correct the „known ignorance in their lending portfolio. The CD ratio is not meant as a yardstick to evaluate the performance of PSBs at the regional, state, or district levels. But, to all intent and purposes, the credit deposit ratio is now quoted as a yardstick to assess the commitment of SCBs.
Credit is an engine of growth. It plays vital role in creating additional purchasing power in the hands of the mass of the economy. Purchasing power in the form of credit is one important aspect of credit while its real signicance arises when it utilize to invest in the productive purposes. By investment, it helps in capital formation and therefore income, employment and output.
In an economy the penetration of credit could be measured in terms of credit deployed against the deposit received, technically C D Ratio denotes it. Credit-
5 Report on Low CD Ratio Study-NIWARI, MP deposit ratio is the proportion of loan-assets created by banks from the deposits received. The higher the ratio, the higher the loan-assets created from deposits and vice-versa.
Fairly, it is straightforward indicator of the performance of Banking Sector. But in its own way, it sheds a lot of light on the type of society and economy we live in. The importance of disbursing credit out of mobilized deposits for productive purpose is well documented in various studies of Finance, and Economic Growth.
Historically, the issue of C D ratio has considered as most debated monetary matter for regional growth and development due to unequal deployment of bank credit among the various states/districts of the country. Some of the states of our country especially from central region, northeastern, and eastern India has witnessed poor C D ratio since the nationalization of banks.
In the state of Madhya Pradesh too this regional disparity in credit deployment/off take and consequently low Credit Deposit ratio has been persistent in select districts (Eastern Belt). Nine districts in Madhya Pradesh have been consistently facing the chronic issue of low CD ratio below 40%.
The matter was discussed in the SLBC meeting held on 6th July 2019, and it was decided that Directorate of Institutional Finance (DIF) may arrange a study on Challenges being faced in maintaining required Credit Deposit ratio by banks in nine districts of Madhya Pradesh through NABCONS.
1.1 OBJECTIVE OF STUDY In the light of the above stated background, the Directorate of Institutional Finance (DIF) GoMP commissioned a study to examine the reasons for low CD ratio in the nine districts of Madhya Pradesh. The study aims to analyze the deposit and credit data of nine districts, understand functioning of banks, potential in districts, reasons for low credit deployment/off take and recommendation for improvement of CD ratio in the nine districts.
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2. APPROACH AND METHODOLOGY
2.1 APPROACH The study comprised of both primary and secondary research. The primary research was focused on collection of data from various stakeholders such as Lead District Manager (LDM), Banks, DIC, and Agriculture department, other line departments and SRLM ofcials. A minimum of four branches with three low CD ratio branch and one high CD ratio branch were visited during the eld visit along with concerned district ofcials. A Sub Committee meeting of low CD ratio was also conducted during the visit to the districts, with a view to interact with various banks and line departments.
2.2 METHODOLOGY 2.2.1 Secondary research Information related to Credit and Deposit, Sectoral Advances, Banking infrastructure, Potential linked plan, annual credit plan achievement, govt scheme achievements were sought from the Lead District Manager (LDM) & SLBC in a prescribed form for the district, developed in consultation with DIF ofcials.Trend analysis of this data was conducted to assess the gaps and issues related to CD ratio.
2.2.2 Primary research Two-day eld visit was designed to assess the ground challenges and understanding the viewpoints of district ofcials/bankers. During the primary research the data was collected from Bank Branches on processes, NPAs, credit growth plan etc. Information was also collected from district ofcials such as DIC, SRLM, Agriculture, Dairy and other line departments.
2.3 LIMITATIONS OF STUDY Data availability was one of the biggest challenge and limitation of the study. The data sought as per the prescribed format was not complete in all respect. Data of advances from outside district was not available with LDM, DIC or banks in the district; the same was also not available with SLBC.
The ability of district ofcials to articulate their views of specics of low CD ratio also came to be a challenge.
Niwari is the new district formed in October 2018, the data was not available for past few years and the analysis was done based on the available data of June and September 2019. 7 Report on Low CD Ratio Study-NIWARI, MP
3. EXECUTIVE SUMMARY
Carved out of Tikamgarh, Niwari is the newly formed (52nd) district of Madhya Pradesh, formed in October 2018. Niwari district encompasses a geographical area of 1317sq kmwith 12% of area covered under forest. The district has population of 4.05 lakh. Niwari is smallest district of Madhya Pradesh in both area and population. The schedule caste population in the district is 24.4% and tribal population is 3%. Niwari has population density of 307 people per sq km.
Main source of income in the district is from the agriculture and industries and per capita income is INR29656/- against INR 43426/- per capita income of Madhya Pradesh.
Total cropped area is 82920 thousand hectares, which is 63% of total land area. Wheat, Urad, Soybean and Groundnut are the majorly produced crops.
Niwari has 01 Industrial Estates, with around 30-40 industrial units. The industrial areas are covering area of 7 hectare. Niwari is a major player in producing construction stone. There are various construction stone mining and crushing sites where high quality construction stone mined. Other major industries in Niwari are y ash bricks, Paver blocks and pulses mills. Apart from Pulses mills no other agriculture processing units in Niwari, while there is scope in groundnuts & tomato processing.
BANKING PROFILE Banking services in the District are covered through a network of 31 branches as on 30.09.2019. As of September 2019, there were 03Public Sector Banks (PSBs), 01 Private Bank, 1 Regional Rural Bank (RRB), 1 District Central Cooperative Bank (DCCB).
RRB constitutes 48% of the banking network in the district with 15 branches, followed by DCCB 20% with 6 branches and Public Sector Banks constitute 29% of the banking network in the district with 09 branches. Private sector banks constitute 3% of banking network in the district.
Per branch population served in Niwari district is13064 people compared to Madhya Pradesh State average of 10,209 people and all-India average of 9,280 people. The per branch population served in Niwari is more than twice compared to
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Hoshangabad and Indore district (high CD ratio) and around 1.3 times of MP State average. This signies the importance of evaluating the branch network and requirement of additional branches in the district. Specialized branches such as Agriculture, MSME & Retail could also be considered.
STATUS OF PERFORMANCE (DEPOSITS & ADVANCES) The aggregate deposits of all banks in the District recorded a growth of 14% as on 31.03.2019 in one quarter from June 2019. In absolute terms, deposits grew by INR 138 crore during June-Sept 2019.
The aggregate credit of banks in the District recorded a growth of 21% as on 31.03.2019 in one quarter from June 2019. In absolute terms, advances grew by INR 71.71 crore during June-Sept 2019.
The share of PSBs, RRB and Cooperative in the total deposits was 70%, 21% and 8% respectively. Private Banks has 1% share of Deposits as on 31st September 2019. The share of PSBs, RRB and Cooperative in total advances was 46%, 17% and 21% respectively. The share of Private Banks was13% in advances as on 31st September 2019.
The per capita credit of Madhya Pradesh (43853) is 4 times higher than per capita credit of Niwari district (10313). The per capita credit of Niwari is less than half of per capita credit of Jhabua (23303) &Barwani (21474) district (High CD Ratio Districts).
STATUS & PROGRESS OF CD RATIO CD Ratio of Niwari District stands at 37% as on September 2019. CD ratio of Niwari district registered positive growth of 2% over last quarter.
Private bank and DCCB have the highest CD Ratio among all the banks in the district with average CD Ratio of 750% and 86%. Second best CD ratio recorded byRRB with 31% average CD ratio followed by PSBs, who have registered average CD Ratio of 25%. It is interesting to note that the CD ratio of the Lead Bank is lower than the district CD ratio.
PSBs accounting for 70% advances share have seen negative growth in CD ratio from 25% to 24%. Whereas, RRB did not witness any change in CD ratio.
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DCCB registered growth of 14% from 79% to 93% Private sector banks have witnessed highest growth in CD ratio from 520% to 980%.
PSBs, which enjoys 29% of branch network have 47% share in advances, while Private banks having only 3% share in branch network have 13% share of advances. DCCB with 19% share of branch network have 21% shares in advances. RRB with 48% share of branch network contributes only 19% share in total district advances.
PERFORMANCE OF SUB COMMITTEE ON LOW CD RATIO The Low CD Ratio Sub Committee Meeting is being clubbed with DLCC and is not conducted separately. This losses the signicance and importance of Low CD ratio discussions as DLCC meeting has other priority agendas. The Sub Committee meeting on low CD ratio should be convened separately with very specic agenda of reviewing performance of low CD ratio banks and branches with focus on monitor able action plan.
The review of meeting of Sub Committee and of DLCC meeting agenda and proceedings highlighted that the CD ratio review is being done bank wise, which does not result in much action. The CD ratio review may be conducted branch wise with specic branch wise plan, which could be reviewed further.
OBSERVATIONS AND SUGGESTIONS Stagnant Scale of Finance- The Scale of Finance (SoF) has not been increased from last three years. The SoF, should be increased with increasing cost of cultivation & ination. The increased SoF would have signicant impact on KCC enhancement and consequently leading to healthy and positive CD Ratio.
ACP v/s Business Targets- Branches are generally not aware about the branch ACP targets. The branches are concerned about the bank internal business targets (set by regional manager), which are not in sync with ACP target and does not have relevance with CD ratio. The internal business targets are generally xed as 10-15% increase over last FY outstanding.
Lack of District Specic Focus- There are no specic targets for low CD ratio districts within overall regional targets. The regional manager does not have any specic plan for low CD ratio districts. The priority of the bank is to achieve bank
10 Report on Low CD Ratio Study-NIWARI, MP region business targets, which consist of multiple districts. The region target may be achieved by larger share from one or two districts and hence the district specic focus is often lost. In most cases these districts are often low CD ratio districts, where there is no focused approach.
Branch Protability and Operating Performance. Most of the branches are very comfortable reporting prot (TPM) in spite of have very low CD ratio. While in reality majority of the brancheswould be in loss, if only advance and other non-fund base income is taken into consideration.
Enhanced role of Business Correspondents in advances- The BCs since operating on ground and are in direct touch with the people, could become as loan sourcing and repayment touch point for bank branches, wherein the BCs receive commission on the loans sourced + loans repayment. Niwari district has around 108 business correspondents operating. The BCs on an average are managing 1000 accounts and interacts with dozens of people on a daily basis. Currently BCs are not engaged for extending/sourcing loan applications. A commission structure with a mix of loan sourcing and loan repayment could be developed for less than INR 50k loans.
Dedicated MSME & Agriculture Branches- Niwari with 76% irrigated area and good Industrial area/belt has good potential in agriculture and industrial production. During the visit to the district the study team noticed that there are not dedicated MSME and agriculture branches set up in the district. Dedicated branches for MSME and agriculture could be promoted in the district to enhance faster credit in agriculture and MSME sector.
CHALLENGES Outstanding based targets- Business targets of branch are based on outstanding gures for both (Deposits and Advances) and not on fresh disbursements (as in ACP). This approach limits the scope of nancing to an extent as top up loans; revision of CC limits and lower repayment can achieve the outstanding targets. The outstanding targets are usually 10-15% of last FY outstanding.
Comfort Zone- The interaction with the branch managers highlighted that majority of branches are in losses, if only advance income is taken into consideration. While on the ground most branch managers stated that the
11 Report on Low CD Ratio Study-NIWARI, MP branch is in prot and is meeting the banks internal targets and thus are happy with their own performance. The branche protability is not the resultant of income by advances but interest margin received by branches on deposits kept to Head Ofce under Transfer Price Mechanism.
Low % of High value advances- The team observed during branch visit and discussion with branch managers that advance accounts above 10 lakh and 15 lakh were only 3-4% and 1-2% of total advance accounts. With a view to increase the advance portfolio, branches may be sensitized, trained and motivated to increase the high-ticket size advance cases.
Shortage of Staff- Shortage of staff came out as one of the biggest impediments by branches and it was observed also that many branches were operating on only two people including cashier.
Non-coverage of RRB under the CGTMSE cover was highlighted as a challenge. It was stated that if CGTMSE cover can be extended to RRBs, they would be able to increase their Non Farm exposure to a great extent. RRB is proving out to be the Achillies Heel for lack of growth of credit in the district with maximum branch network coverage in the district. The systemic/structural issues of RRB, wherein they have been put under close watch for increasing NPA, needs corrective measures.
CONCLUSION Niwari district has good potential in agriculture and with increased irrigation facilities the production and investment in agriculture will prosper. With bifurcation of district from Tikamgarh, Niwari got major share of industries & has good industrial prole.
Taking into consideration the present growth trend of deposit and credit of two quarters in the district would reach to 40% CD ratio in 2019-20&CD ratio will reach to around49% by 2021-22.
If ACP + SRLM targets both are met, the CD ratio would jump to 67% witnessing improvement of 31%.
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