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)
- weak administrative machinery
- high population density
- high capital-output ratio
Q.2) A decrease in tax to GDP ratio of a country indicates which of the following? (2015)
- Slowing economic growth rate
- Less equitable distribution of national income
Select the correct answer using the code given below.
- 1 only
- 2 only
- Both 1 and 2
- Neither1 nor 2