The credit efficiency has emerged as a big challenge for the banks. The quality of loans and advances provided to the borrowers is important to maintain adequate liquidity and also to improve the profitability of banks. This research paper focuses, how Credit-Deposit ratio and Net NPAs to Net Advances ratio are useful in analyzing the credit efficiency of the banks. The study not only compares the proportion of net NPAs as a percentage of net advances and credits to deposits but also examines the significance of difference by applying the statistical `t' test and the `f' test (ANOVA). This research paper also offers some meaningful suggestions to improve the financial soundness and the profitability of the banks selected for this study. In tune with the international practices and as per the recommendations made by the Narshimam’s Committee on the financial systems, the Reserve Bank of India has introduced norms for asset classification and provisoning for advances of the banks so as to move towards greater consistency and transparency in the published annual report and accounts.1

As per these guidelines, the classification of assets of the banks are done on the basis of objective criteria, which ensures a uniform and consistent application of the norms. Moreover, the provisioning is to be made, according to the classification of assets based on the period for which, the asset has remained non-performing, the availability of security and the realizable value thereof. Since the Verma committee recommendations have stressed so much on the role of non-performing assets in determining where banks stand, this study too toes that line largely. The present paper has also introduced a new category of credit efficiency parameters called credit-deposit ratio (CDR), besides the net NPAs to net advances ratio (NNNAR).

The credit deposit ratio indicates, how efficiently the bank has been able to make the funds available to its customers by way of loans and advances out of the funds generated through various deposit schemes.2.The necessary financial data for the period from 1996-97 to 2001-02 of the selected banks has been obtained from the published annual reports.7 A sample of five banks has been considered for this two-dimensional dynamic credit efficiency exercise. The sample include State Bank of Bikaner and Jaipur (SBBJ), Bank of Rajasthan (BOR), HDFC Bank (HDFC), Global Trust Bank (GTB) and Bank of Baroda (BOB). The credit efficiency parameters include the following two ratios: net NPA to net advances ratio (NNNAR) and the credit-deposit ratio (CDR). Many statistical methods such as mean, standard deviation, co-efficient of variation (c.v.), analysis of variance (‘f’ test) and students ‘t’ test have been applied to crystalise the accounting data and also to critically examine the credit efficiency of banks selected for this study.8 In order to analyze the significance of difference between banks with respect to NPA as a percentage of net advances and the credit deposit

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