Credit-deposit ratio
Also called: CD ratio · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
The credit-deposit (CD) ratio is the share of a bank's deposits that it has lent out as credit. It shows how much of deposits is being used for lending. A very low ratio means deposits are lying idle or going into government bonds. A very high ratio means credit is growing faster than deposits, so the bank may run short of funds and have to rely on costlier borrowing.
CD ratio = total credit (advances) ÷ total deposits × 100
Example
A bank holds deposits of Rs 1,000 crore and has loans outstanding of Rs 800 crore. Its CD ratio is 80%. For Indian banks, the ratio was around 80% in 2024-25 because deposit growth lagged credit growth.
Don't confuse with
- CASA ratio: the share of cheap current and savings deposits in total deposits. It tells you how cheap a bank's funding is, not how much of it has been lent.
Related concepts
- CASA ratio
- Base rate
- Marginal Cost of Funds based Lending Rate
- External Benchmark Lending Rate
- Loan-to-value ratio
- Adverse selection
- Credit information company
- Letter of credit
- Factoring
- Trade Receivables Discounting System