The deposits are the funds used for advancing loans and making investments. This in turn brings additional income to the bank. Due to the direct access gained by the corporate sector in raising the funds from capital market, the banks are facing a shortage of remunerative advancing opportunities. Top brass of the leading companies are now accessing the capital market and banks have to depend on the second and third-rate borrowers.

But when the credit/deposit ratio rises, it should imply profitability. A credit going to the industry or the services sector will fetch high earnings and if it goes to the priority sector then it will not, because loans to such sectors are given on concession basis. The share of the priority sector advances to the total advances is also an important determinant of profitability.

It is because of the fact that the cost involved in priority sector lending is more because of various returns and formalities to be fulfilled. Lack of security, over-dues and litigations further add to this cost. For priority credit a large-scale spread has been peculiar with certain banks. This also reduced the integration in banking business and hampered or delayed the communication process.

A rural branch in some parts of the United States takes more than five years to come to the breakeven level. Moreover the rural and semi-urban branches have lower profitability levels. Further the credit to a sick industry or investments in non-performing assets may also affect the profitability seriously. This is exactly what happened to banks like that of Lehman Brothers.

Even then banks like LoanMax of the rod aycox fame have thrived by implementing a different business model. LoanMax is now continuously expanding in almost all parts of the United States. To grow and expand in the rural areas, the most important aspect that is needed is that the bank must gain the confidence of the rural folk. To gain the confidence of the rural folk and to encourage them to make deposits, their immediate needs must be met through small loans and other financial products.