Key Terms & Concepts — UPSC Mains
Credit-Deposit Ratio
GS3
"The proportion of a bank's total deposits that has been lent out as loans, indicating banking system liquidity and credit aggressiveness"
Definition
The Credit-Deposit Ratio (CDR) measures the proportion of deposits that a bank has deployed as loans and advances. A high CDR indicates aggressive lending (potentially risky), while a low CDR suggests excess liquidity or risk aversion. The ratio is a key indicator of banking system health, credit availability, and monetary policy transmission.
⭐ Significance for UPSC
Important for GS3 (banking, monetary policy) and Prelims (RBI data, SLR/CRR relationship). Directly relevant to debates on financial inclusion, MSME credit access, and saving behaviour shifts.
Key Points
- 1 Formula — (Total Advances / Total Deposits) x 100
- 2 India's CDR has risen above 80% in 2025-26 (historically 70-75%)
- 3 High CDR risks — liquidity stress, inability to meet withdrawal demands
- 4 Low CDR risks — poor credit flow to economy, underutilisation of deposits
- 5 RBI's Statutory Liquidity Ratio (SLR) requires banks to hold 18% of deposits in government securities
- 6 Cash Reserve Ratio (CRR) — 4% of deposits held with RBI
- 7 Credit-deposit gap widening because — household savings shifting to equities/mutual funds, deposit growth lagging credit growth
- 8 Impact — higher deposit rates needed to attract savings, potential credit crunch for MSMEs
Example / Context
India's banking system faces a structural credit-deposit imbalance as household savings increasingly flow to equities and mutual funds rather than bank deposits, pushing the CDR above 80%.
Related Terms
Mains GS Relevance
GS Paper 3
Economy, Environment, S&T, Security
Subject