Credit – Deposit Ratio

What is Deposits of banks?

 Deposits of banks are its liability and consist of deposits of public and other
banks.
 Deposits of public form largest part of deposits and include demand and time
deposits.
 Demand deposits include all liabilities which are payable on demand and
includes current deposits, demand liabilities portion of savings bank deposits,
demand drafts, balances in overdue fixed deposits etc.
 Time deposits are those which are payable otherwise on demand and
includes fixed deposits, staff security deposits, time liabilities portion of savings bank
deposits etc.
 Net Demand and Time Liabilities (NDTL) is sum of demand and time liabilities
(deposits) of banks with public and other banks wherein assets with other banks is
subtracted to get net liability of other banks.
 Banks allocate deposits it receives towards cash reserves, SLR requirement
(investment in Government and other securities) and credits (loans) to corporate and
individuals which are assets for banks.

Credit
(Loans)

Deposit
(Demand +
Time)
SLR Cash
(Investemnts) Reserves
What is Bank Credits?

 Bank credits (loans) comprises of food and non food credit.

 Food credit (2.2% of total bank credit1) is provided by banks to Food Corporation of
India, State Government and State cooperative agencies for purchase of food.
 Non food credit (97.8% of total bank credit) comprises of credit given to agriculture,
industries, retail (personal loans) and service sector.
 Chart below shows sectoral breakup as % of Non food Credit.

 Chart below shows industry sector breakup.

Source: RBI, Data as on 30th November 2012

1 th
Total Bank Credit till 14 December 2012
Credit-Deposit Ratio (C/D Ratio)

 Credit-Deposit ratio is proportion of loan created by banks from deposits it receives. In

other words its capacity of banks to lend.
 High ratio indicates banks are generating more credit from its deposits.
 C/D Ratio is impacted by certain factors like credit-deposit growth, cash reserves and
investments (SLR) made by banks.
 Banks gives credit after allocating its deposits to cash reserves and SLR. Therefore
increase in cash reserves or investment deposit ratio2 will reduce banks capacity to lend,
thereby lowering C/D ratio.
 Chart below shows C/D ratio and investment ratio trend of banks.

Source: RBI

 From the above chart, we can observe that when banks increase their investments, their
credits decline and vice versa.
 Post 2005, investment-deposit ratio has declined and C/D ratio has increased indicating
banks are investing less in government and other securities and giving more credit to
public.

2
Investment-deposit ratio is banks investments in Government and other securities/total deposits and it explain
how much of deposits are being invested in Government and other securities.
  Low deposit growth (means public are holding cash or investing in gold or real estate
rather than depositing in banks) will result in lower amount to lend out and fall in C/D
Ratio.
 Credit growth depends on economy. When economy is booming, companies for
expansion borrow more and personal loans increase as purchasing power increases
thereby increasing bank credits. This in turn will result in higher C/D ratio.
 Chart below shows movement of credit growth with GDP growth.

Source: RBI

 From above chart, it’s evident that there is correlation between GDP and credit growth.
 Deposit and Bank credit currently3 stand at ` 64339bn and ` 49626bn respectively.
 Chart below shows credit and deposit growth.

Source: RBI, Data FY13 is till 14th December 2012

3 th
Till 14 December 2012
 Chart below shows allotment of deposits to bank credits, cash reserves and investments
as % of deposits and in absolute terms.

Source: RBI, Data FY13 is till 14th December 2012