A recent discussion around Credit–Deposit (CD) ratios has raised an important question: why do states like Uttar Pradesh, Bihar, and Jharkhand receive a smaller share of bank loans compared to their deposits, while other states often show much higher lending levels?
The answer lies in a mix of economic structure, risk perception, and industrial development—not simply bank reluctance.
What Is the CD Ratio?
The Credit–Deposit (CD) ratio shows how much of the money deposited in banks in a state is given out as loans in the same state.
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A 60% CD ratio means ₹100 deposited → ₹60 is lent locally
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The remaining funds are used for lending elsewhere in the banking system
As per recent data:
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Bihar: ~60.21%
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Uttar Pradesh: ~60%
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Jharkhand: ~52%
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National average: ~82%
Meanwhile, some states like Andhra Pradesh, Telangana, and Tamil Nadu show CD ratios above 100%, meaning they receive more credit than their local deposits.
Where Does the “Extra” Money Go?
Banks do not keep state-wise “locked” money pools. Deposits from all states go into a central banking system, and loans are distributed based on demand and creditworthiness.
So if a state has:
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Lower loan demand
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Higher risk perception
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Fewer large borrowers
…the surplus funds are deployed in states where credit demand is stronger.
Why CD Ratios Are Lower in Some States
Experts point to several structural reasons rather than “reluctance”:
1. Lower Industrial and Corporate Borrowing
States like Maharashtra, Tamil Nadu, and Telangana have:
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More industries
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Large corporate borrowers
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Infrastructure-heavy projects
This naturally increases loan demand and CD ratios.
In contrast, Bihar, Jharkhand, and parts of UP have:
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Fewer large industries
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More agriculture and informal-sector activity
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Smaller average loan sizes
2. Risk Perception and Credit Recovery
Banks assess:
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Repayment history
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Default rates
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Income stability
In regions with:
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Irregular incomes
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High informal employment
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Seasonal economic cycles
lenders tend to be more cautious, affecting credit expansion.
3. Economic Structure of the Region
A large part of the workforce in these states is:
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Self-employed
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In agriculture
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In the informal sector
This segment often lacks:
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Formal income proof
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Credit history
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Collateral assets
making it harder to approve large-scale lending.
4. Impact of Disasters and Migration
Frequent challenges such as:
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Flooding in parts of Bihar and UP
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High labor migration
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Documentation gaps
also indirectly affect loan eligibility and banking penetration.
5. Lower Large-Scale Credit Demand
High CD ratios in states like Andhra Pradesh (over 100%) are often driven by:
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Infrastructure projects
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Power, ports, and industrial loans
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Corporate borrowing
Without similar large projects, credit absorption remains lower.
Do Banks “Avoid” These States?
Not exactly. Banks lend wherever there is:
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Strong demand
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Lower risk
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Higher repayment confidence
The issue is less about avoidance and more about economic readiness and credit absorption capacity.
What If CD Ratio Reaches 100%?
A 100% CD ratio would mean:
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All deposits in a state are lent locally
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Stronger credit flow into businesses and households
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Potential boost to MSMEs, agriculture, and startups
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Greater local investment and job creation
However, this also requires:
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Strong industrial base
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Better credit infrastructure
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Higher formal employment
The Bottom Line
Lower CD ratios in UP, Bihar, and Jharkhand are not simply due to banks being hesitant. They reflect deeper economic realities—such as industrial concentration, credit demand, and risk assessment.
Improving the CD ratio depends not just on banking policy, but on job creation, industrial growth, financial inclusion, and stronger local credit ecosystems.
