Authors : Shweta Yadav; Sachin Awasthi

Volume/Issue : Volume 11 - 2026, Issue 8 - August

Google Scholar : https://tinyurl.com/374ucsuj

DOI : https://doi.org/10.38124/ijisrt/26aug1004

Note : A published paper may take 4-5 working days from the publication date to appear in PlumX Metrics, Semantic Scholar, and ResearchGate.

Abstract : Banking development is generally expected to promote economic development by mobilising savings, allocating credit and financing productive investment. However, India continues to exhibit substantial interstate differences in both banking activity and economic performance. This study empirically examines whether stronger regional banking intermediation is associated with higher economic development across Indian states. The credit-deposit (C/D) ratio of scheduled commercial banks is employed as the measure of banking intermediation, while per-capita Net State Domestic Product (NSDP) at constant 2011– 12 prices represents real economic development. The study conducts two complementary analyses. First, a cross-sectional analysis compares the end-March 2021 C/D ratios of 28 states with their 2021–22 real per-capita NSDP. Second, a decade-change analysis examines whether changes in C/D ratios between 2011 and 2021 are associated with real per-capita income growth among 26 comparable states. Descriptive statistics, Pearson and Spearman correlations, quartile comparisons and heteroskedasticity-robust ordinary least squares regressions are employed. Considerable interstate variation is observed in both banking intermediation and income. However, the cross-sectional relationship between the C/D ratio and real per-capita income is positive but statistically insignificant. Similarly, increases in C/D ratios over the decade do not significantly explain differences in real per-capita income growth. The findings indicate that credit intensity alone is insufficient to explain regional economic development. The developmental contribution of banking appears to depend on credit quality, sectoral allocation, infrastructure, financial inclusion and the ability of regional economies to transform finance into productive investment.

Keywords : Banking Development, Credit-Deposit Ratio, Economic Development, Regional Disparity, Per-Capita NSDP, India.

References :

1. Acharya, D., Amanulla, S., & Joy, S. (2009). Financial development and economic growth in Indian states: An examination. International Research Journal of Finance and Economics, 24, 117–130.
2. Arora, R. U., & Anand, P. B. (2021). Regional financial disparity in India: Can it be measured? Journal of Institutional Economics, 17(5), 836–860. https://doi.org/10.1017/S1744137421000291
3. Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1–2), 261–300. https://doi.org/10.1016/S0304-405X(00)00072-6
4. Burgess, R., & Pande, R. (2005). Do rural banks matter? Evidence from the Indian social banking experiment. American Economic Review, 95(3), 780–795. https://doi.org/10.1257/0002828054201242
5. Chakravarty, S. R., & Pal, R. (2013). Financial inclusion in India: An axiomatic approach. Journal of Policy Modeling, 35(5), 813–837. https://doi.org/10.1016/j.jpolmod.2012.12.007
6. Demetriades, P. O., & Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51(2), 387–411. https://doi.org/10.1016/S0304-3878(96)00421-X
7. Ghosh, S., & Sahu, T. N. (2021). Financial inclusion and economic status of the states of India: An empirical evidence. Economic Notes, 50, e12182. https://doi.org/10.1111/ecno.12182
8. King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737. https://doi.org/10.2307/2118406
9. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688–726.
10. Pal, R. (2011). The relative impacts of banking, infrastructure and labour on industrial growth: Evidence from Indian states. Macroeconomics and Finance in Emerging Market Economies, 4(1), 101–124. https://doi.org/10.1080/17520843.2011.548621
11. Pradhan, K. C., & Sharma, R. (2022). Assessing the spatiotemporal financial inclusion and its determinants: A sub-national analysis of India. Asia-Pacific Journal of Regional Science, 6, 635–681. https://doi.org/10.1007/s41685-022-00245-8
12. Reserve Bank of India. (2021). State-wise credit-deposit ratio of scheduled commercial banks according to place of sanction (Table 136). Reserve Bank of India.
13. Reserve Bank of India. (2023). Handbook of statistics on Indian states 2022–23: Per capita net state domestic product at constant prices (Table 26). Reserve Bank of India.
14. Sehrawat, M., & Giri, A. K. (2015). The role of financial development in economic growth: Empirical evidence from Indian states. International Journal of Emerging Markets, 10(4), 765–780. https://doi.org/10.1108/IJoEM-05-2014-0064
15. Sharma, R., & Bardhan, S. (2017). Does regional financial development matter for growth? Evidence from Indian states. International Economic Journal, 31(4), 621–646. https://doi.org/10.1080/10168737.2017.1403460