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Credit-deposit (CD) ratio

  • IASbaba
  • November 25, 2022
  • 0
Economics
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In News: RBI’s data on State-wise C-D ratio of scheduled commercial banks according to place of utilisation was released.

  • Ratio of the Northern and Western Regions declined in 2022 even as that of the North-Eastern, Eastern, Central and Southern Regions improved.
  • States that saw improvement are: Haryana, Himachal Pradesh, and Rajasthan
  • States that saw a decline are: Punjab, Chandigarh, and Delhi

About CD ratio:

  • Credit-Deposit Ratio = Total Advances/Total Deposits *100
  • It is the ratio of how much a bank lends out of deposits it has mobilised.
  • It indicates how much of each rupee of deposit goes towards credit markets in a particular region.
  • For example, a CD ratio of 75% means that three-fourth of deposits of banks has been given out as loans.
  • A very low ratio indicates banks are not making full use of their resources (i.e. deposits), shows poor credit growth.
  • Alternatively, a high ratio indicates more reliance on deposits for lending purposes and may be risky.
  • It may become difficult to cover any unforeseen fund requirements, may affect capital adequacy and asset-liability mismatch.
  • CD ratio helps in assessing a bank’s liquidity and indicates its health.
  • RBI does not stimulate a minimum or maximum level for the ratio.
  • It is used as a broad indicator for measuring the inter-State disparities in banking development and the role of banking in economic activity.

Source The Hindu BusinessLine

Previous Year Question

Q.1) Despite being a high saving economy, capital formation may not result in significant increase in output due to (2018)

  1. weak administrative machinery
  2. illiteracy
  3. high population density
  4. high capital-output ratio

Q.2) A decrease in tax to GDP ratio of a country indicates which of the following? (2015)

  1. Slowing economic growth rate
  2. Less equitable distribution of national income

Select the correct answer using the code given below.

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither1 nor 2

 

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