India’s banking system boasts impressive outreach and deposit mobilisation, but behind this narrative lies an enduring paradox. While banks collect massive deposits across the country, the recycling of these funds into productive credit remains deeply uneven. A state-wise analysis of Credit-to-Deposit ratios and Gross State Domestic Product growth from 2012 to 2024 reveals a systemic mismatch: states with high CD ratios do not necessarily record higher growth, and vice versa.The CD ratio, essentially the share of local deposits reinvested as credit within the same geography, is often seen as a proxy for banking system vitality. Classical economic theory, particularly the neoclassical growth model, assumes that efficient capital allocation leads to increased output. By this logic, states with higher CD ratios should outperform others in economic growth. Yet empirical data contests this assumption.
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