Credit-deposit ratios of scheduled commercial banks and states’ income: An examination of dependencies through panel data approach

The purpose of this paper is two fold: First, it aims at studying the differentials, if any, in Credit-Deposit (C-D) ratio of Scheduled Commercial Banks among 17 major Indian states and, for this purpose, we have made use of two-way ANOVA. Extent of instability (through two alternative measures) among C-D ratios, as well as σ-convergence among the states with respect to the ratios were also examined. Second, the paper examines the nature and strength of interrelationship between C-D ratio and aggregated/disaggregated income of the Indian states. For this purpose, we have resorted to panel data estimation approach with both fixed effects and random effects modelling [by duly making use of Hausman's (1978) test procedure]. As per the main findings, there existed very wide variations in C-D ratios ofscheduled commercial banks among the states. Further, the states associated with higher per capita income, higher share of nonprimary sectors in income, and, lower population density exhibited a tendency to have a largerC-D ratio.