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Gujarat makes little use of the banking system. For a state that boasts of a large entrepreneurial class, this is surprising. According to the 2011 Census, only 57.9 per cent of the households in Gujarat access banking services. This is lower than the national average of 58.7 per cent. Banking statistics sourced from the Reserve Bank of India confirm Gujarat’s poor record on financial inclusion.
The per capita outstanding bank credit in Gujarat is lower than the all-India average. Delhi and Maharashtra top the states in terms of per capita bank credit. This is understandable given that Delhi is the seat of most large public sector enterprises and Mumbai is the business capital of India. What is surprising is the distance between these leaders and Gujarat.
Per capita bank credit in Gujarat, at Rs.31,935 in 2010-11, was lower than the all-India average of Rs.33,667. It was nearly one-tenth of Delhi’s Rs.3,06,141 and nearly one-third of Maharashtra’s Rs.96,974. Even Tamil Nadu and Punjab, with over Rs.50,000, and Haryana and Karnataka, with over Rs.40,000 of per capita bank credit, were way ahead of Gujarat.
The detailed break-up of bank credit shows that Gujarat manages a better-than average performance only in terms of industrial bank credit. Even in this case, Gujarat is not the leader - it is merely above the average. It ranks fifth after Delhi, Maharashtra, Punjab and Tamil Nadu. The per capita outstanding industrial credit in the latter two is over 30 per cent higher than Gujarat’s. Maharashta’s per capita outstanding industrial credit is 2.4 times higher and Delhi’s is 7.7 times higher than Gujarat’s.
Gujarat does not lead in terms of industrial credit in any specific industry either. It does not lead in chemicals or petroleum or even gems and jewellery. Although Gujarat has the largest petroleum refinery and the largest total refining capacity in the country and although these are capital intensive, they do not borrow from commercial banks.
Gujarat’s borrowing for petroleum refining is lower than Maharashtra’s and Tamil Nadu’s besides Delhi’s. This is possible if Indian Oil Corporation borrows in Delhi or Maharashtra and not in Gujarat. But, what is surprising is that Gujarat does not even lead in gems and jewellery or textiles.
The case of gems and jewellery is particularly striking. The total outstanding bank credit to the gems and jewellery sector in Gujarat was Rs.7,422 million as of March 2011. At the same time the outstanding credit for the same industry in Andhra Pradesh was Rs.11,350 million. In Karnataka it was Rs.27,149 million, in Tamil Nadu it was Rs.18,797 million, in West Bengal it was Rs.12,146 million and even in Punjab it was higher than Gujarat at Rs.9,786 million. Of course, Maharashtra was way ahead at Rs.192,983 million. Even in the case of textiles, Maharashtra, Tamil Nadu, Punjab and Delhi beat Gujarat in terms of outstanding bank credit.
The poor credit offtake by industries in Gujarat raises questions regarding the existence of a large entrepreneurial class in the state, or at least their sources of funds. There are greater reasons to doubt the existence of the famed entrepreneurial class or their sources of funds.
According to RBI, outstanding industrial credit in Gujarat was Rs.1,055 billion as of March 2011. And, according to the Annual Survey of Industries, the factory sector of Gujarat had an outstanding borrowing of a similar value, Rs.1,098 billion.
Usually, the total outstanding industrial borrowing by commercial banks, as per RBI, is twice the borrowing of the factory sector according to the ASI. This implies that in India, the non-factory sector’s borrowing from banks is around twice the non-bank sources of funds of factories. In simpler words, the borrowing of the small scale industries from banks is roughly twice the size of the largely informal sources of funds of factories. And, in the same simple words, in Gujarat, the small-scale sector’s borrowing from banks is low compared to the size of the largely informal sources of funds of the factory sector.
Gujaratis simply do not borrow from banks like other Indians - whether it is for entrepreneurship or for consumption.
Personal loans in Gujarat average at Rs.4,886 per person against a national average of Rs.5,536. Delhi, Kerala, Maharashtra, Tamil Nadu and Karnataka have a bank borrowing of over Rs.20,000 per person. South India, that depends upon micro-finance, chit funds and other similar sources a lot more than the rest of the country also borrows a lot more from banks than Gujarat. Andhra Pradesh had a borrowing of Rs.8,343 per person.
Loans for purchase of consumer durables in Gujarat is abysmally low at Rs.16 per person, while the national average is Rs.54 per person. In this respect, Gujarat is better than only Chhattisgarh and Bihar. Gujarat’s borrowing for education is lower than that in Jharkhand and Orissa. Its use of personal credit cards is lower than that of Uttar Pradesh, West Bengal, Assam and Orissa. In this respect it ranks 7th from the bottom amongst the 21 larger states.
Several movements of the past have led to the spread of banking services deep into the interiors of India. Nationalisation in 1969 was the first such instance. Post liberalisation, erstwhile financial institutions ICICI and HDFC turned aggressive in providing bank loans. For a while, loans were marketed by banks as forcefully as FMCG companies pushed consumer products. In spite of these multiple waves of change Gujarat’s record at financial inclusion is the least impressive.
The top three states in terms of bank branches per million population are all in the north - Delhi tops the list with 171 branches per million population.
Himachal Pradesh is a close second with 170 and then is Punjab with 157. Uttarakhand and Haryana rank fifth and sixth. So, the north seems to be well covered by bank branches. All the southern states are above average (which is 83 branches per million population). Kerala ranks fourth at 150 branches, Karnataka, Tamil Nadu and Andhra Pradesh with 117, 106 and 99 branches rank seventh, eighth and ninth. Jammu & Kashmir follows next with 96 branches per million people.
Surprisingly, industrial states like Gujarat and Maharashtra rank lower (and just above the all-India average) with 92 and 86 branches per million population. Interestingly, Kerala and Jammu & Kashmir are the top rankers in terms of private sector banks per million population. Maharashtra’s rank improves by this measure but that of Gujarat worsens.
Gujarat’s performance in terms of bank deposits per person is lower than the all-India average. At Rs.50,147 it ranked tenth (out of the 21 larger states) compared to an all-India average of Rs.50,210. Delhi, Maharashtra, Karnataka, Punjab and Kerala are the top five states (in that order) in terms of bank deposits per person.
Low leverage may be a virtue (although not for an entrepreneurial class), but low penetration of bank branches and low deposits per person are signs of an underdeveloped state. In 2011-12 and in the first half of 2012-13, Gujarat has started to show some acceleration in bank credit. Its growth in this respect is higher than the national average. In its company are other states that often accelerate faster than Gujarat. These include Jammu & Kashmir, Chhattisgarh and Haryana.