{"id":5639,"date":"2022-11-23T00:00:00","date_gmt":"2022-11-23T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/23-11-2022\/credit-deposit-ratio\/"},"modified":"2022-11-23T00:00:00","modified_gmt":"2022-11-23T00:00:00","slug":"credit-deposit-ratio","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/23-11-2022\/credit-deposit-ratio","title":{"rendered":"Credit-deposit Ratio"},"content":{"rendered":"<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Recently, as per the RBI data, the Credit-Deposit (CD) ratio of the Northern and Western Regions declined in 2022 while that of the North-Eastern, Eastern, Central and Southern Regions improved.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p style=\"text-align:center\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><img decoding=\"async\" alt=\"C:UsersvishaDesktopBL22_CD_ratio (1).jpg\" src=\"https:\/\/lh6.googleusercontent.com\/C31K_qxa9sKVZtTMDfJmyyJYEiHCUnbfebxQ0hqOI7ptZPWZefHhBVwuyvUkAU1dDSWtqQTtHqR3F9PPTtLBGJHDiyk6Kwj9J_pY6ssaUK0OoZTYxApk4jNjM3oCDUiwinkOEykFLFiXDdoii0AHcQZWziFu7jgPtuRYYLMf5H5R2BpC8MGemb57_wU41g\" style=\"height:281px; width:227px\" \/><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>What is credit-to-deposit (CTD) or loan-to-deposit ratio (LTD)?\u00a0<\/u><\/strong><\/span><\/span><\/span><\/p>\n<p style=\"text-align:center\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><img decoding=\"async\" alt=\"C:UsersvishaDesktopScreenshot 2022-11-23 153221.png\" src=\"https:\/\/lh6.googleusercontent.com\/XqIm6v_082K5cFG0l7iJJ71qVSBuke74uxXYWofeS8F3F70L7YusX1pNZ08OEeYDhJTRDolixJc9CXu0y2E_hWm8GECrNsE2Xo17-xTobRu4Nd-HutxtyPUiWezPqqYICtK9e80KkFA8CdSMHO3yB9v23i-oz6kablB7zukYsfNWpyagatXvWVuOMqGAcQ\" style=\"height:75px; width:272px\" \/><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The credit-deposit ratio broadly means the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>ratio of assets and liabilities of the banks.<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">It is <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>used for measuring a bank\u2019s liquidity<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> by dividing the bank\u2019s total loans disbursed by the total deposits received.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>It indicates how much of a bank\u2019s core funds are being used for lending<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> which is the main banking activity<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">CTD ratio helps in <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>assessing a bank\u2019s financial health.<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>A higher ratio indicates<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> that the loans disbursed are more than the deposits and vice-versa.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Limitations<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The LDR <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>does not measure the quality of the loans<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> that a bank has issued.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The LDR also <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>does not reflect the number of loans that are in default<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> or might be delinquent in their payments.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Importance<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>If the ratio is too low<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: banks may not be earning as much as they should and it also indicates that banks are not mobilizing their resources fully.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>If the ratio is too high<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">: it means that banks might not have enough liquidity to cover any unforeseen fund requirements, which may cause an asset-liability mismatch.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>A very high ratio is considered alarming<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> because, in addition to indicating pressure on resources, it may also hint at capital adequacy issues, forcing banks to raise more capital.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Source: <\/span><\/span><\/span><a href=\"https:\/\/www.thehindubusinessline.com\/money-and-banking\/credit-deposit-ratio-of-northern-and-western-regions-declined-in-2022-rbi-data\/article66165033.ece\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#1155cc\"><u>BL<\/u><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News Recently, as per the RBI data, the Credit-Deposit (CD) ratio of the Northern and Western Regions declined in 2022 while that of the North-Eastern, Eastern, Central and Southern Regions improved. What is credit-to-deposit (CTD) or loan-to-deposit ratio (LTD)?\u00a0 The credit-deposit ratio broadly means the ratio of assets and liabilities of the banks. It [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":5640,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-5639","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/1471955Screenshot_6.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/5639","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=5639"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/5639\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/5640"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=5639"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=5639"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=5639"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}