District-level Assessment of Credit Depth in Uttar Pradesh

By Nishanth K, IFMR Finance Foundation

In this post we assess the state of bank credit depth for the state of Uttar Pradesh (UP) and the variation in credit depth across the 75 districts of UP during the 2004-12 period. We define ‘credit-depth’ as the ratio of total bank credit outstanding to gross domestic product (CGDP) of a particular sub-economy. This is a commonly used measure for the adequacy of credit relative to GDP.

At an all-India level, CGDP went from 38% in 2004-05 to 88% in 2011-12. During this same period, CGDP in UP went from 37% to 68%. It will be observed that despite a similar starting point, UP grew below the national average during this seven year period and ended with a significantly lower level of credit depth.

In addition, this growth in credit depth seems to be largely driven by a substantial increase in concentration of bank credit within a few districts of the state. This is evident from the graph below: among the districts1 in UP considered, the top seven districts ranked on the basis of credit depth in 2004-05 witnessed a significant increase in credit depth (the median CGDP of these seven districts increased from 40% in 2004-05 to 72% in 2011-12). In comparison, although the median credit depth of bottom seven districts also increases significantly, it is still a mere 24% in 2011-12. This is low when compared to both the median of district level credit depth (68%) and the median credit depth of the top seven districts (72%).

The highest district CGDP in 2004-05 was only 54% whereas in 2011-12 this had risen dramatically to almost 200% for Lucknow. In comparison, districts such as Kaushambi (5% in 2004-05 and 9% in 2011-12) and Auraiyya (7% in 2004-05 and 10% in 2011-12) have seen their credit depth levels remain low in this time period. In some districts such as Chitrakoot, Sant Ravi Das Nagar and Etah, there has worryingly been a decrease in credit depth of about 2-4%.

In 2004-05, the bank credit outstanding in the district of Lucknow alone accounted for about 11% of total outstanding in the state. As of 2011-12, bank credit in Lucknow accounted for 19% of the state’s total outstanding credit. Therefore, although there has been increase in the overall credit depth of the state, it is evident that this increase is skewed by the increase in credit supplied to certain districts. This potentially has significant growth consequences for the state.

In the next post, we provide a more detailed discussion of the working paper that evaluates the Tamil Nadu data in detail with respect to the growth dynamics of credit depth.

1 – For the sake of continuity we have omitted the districts that were created post 2004-05. This does understate values for parent districts following the separation of the new district. We have also omitted districts for which GDP data was not available. Hence, our analysis considers only 69 districts.