Net Demand and Time Liabilities

Indian Economy glossary

Also called: NDTL · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT

Meaning

Net Demand and Time Liabilities (NDTL) is the total money a bank owes to its customers (demand liabilities plus time liabilities, mainly deposits), minus the money it has placed with other banks (interbank assets).

  • Formula: NDTL = (Demand liabilities + Time liabilities) − Interbank assets
  • NDTL matters because the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) are both worked out as a share of NDTL. NDTL is not the same as total deposits.
  • NDTL therefore decides how much money a bank must lock away and how much it can lend.

Explanation

Components: demand and time liabilities

  • Liability: money a bank owes to someone else. A customer's deposit is a liability for the bank, because the bank must pay it back.
  • Demand liabilities: money the bank must pay back whenever the customer asks.

  • Examples: savings account and current account deposits.

  • Time liabilities: money the bank must pay back only after a fixed period.

  • Example: fixed deposits.

  • Interbank assets: money a bank has placed with other banks. This is subtracted, which is why the word "net" is used.

How NDTL is calculated: worked example (₹ crore)

  • Demand liabilities = 600
  • Time liabilities = 400
  • Gross liabilities = 600 + 400 = 1,000
  • Minus interbank assets = 50
  • NDTL = 1,000 − 50 = 950

How NDTL decides reserves and lending

  • CRR (share of NDTL kept as cash with the RBI):
  • At a CRR of 3%: 950 × 3% = ₹28.5 crore kept with the RBI.

  • This money earns no interest.

  • SLR (share of NDTL the bank keeps itself in liquid assets such as cash, gold and G-secs):

  • At an SLR of 18%: 950 × 18% = ₹171 crore.

  • Left for lending: 950 − 171 − 28.5 = ₹750.5 crore.

  • Effect of a CRR cut on the same NDTL:
  • At a CRR of 4%: 950 × 4% = ₹38 crore locked away.
  • At a CRR of 3%: ₹28.5 crore locked away.
  • So ₹9.5 crore is freed for lending.

What makes NDTL rise or fall

  • More deposits (savings, current or fixed) → NDTL rises → the bank must keep more CRR and SLR reserves in rupee terms.
  • Fewer deposits → NDTL falls → required reserves fall.
  • More money placed with other banks (interbank assets) → NDTL falls slightly, because these are subtracted.
  • Key point: the RBI can change reserves in two ways.
  • It can change the ratio (CRR or SLR).
  • It cannot fix NDTL itself. NDTL depends on the bank's own deposits.

In India

  • Who manages it: the Reserve Bank of India (RBI), set up in 1935, applies CRR and SLR to each bank's NDTL.
  • Laws behind the ratios that use NDTL:
  • CRR: RBI Act, Section 42. It is kept with the RBI as an average daily balance [2].

  • SLR: Banking Regulation Act, Section 24. The bank keeps it itself, as cash, gold or unencumbered government securities (bonds not already pledged for a loan) [2].

  • The 2025 CRR cut:

  • Announced in June 2025, the CRR was cut by 100 bps (1 percentage point) in four steps of 25 bps, from 4% to 3% of NDTL [1].
  • 3.75% from the fortnight starting 6 September 2025 [1].
  • 3.5% from 4 October 2025 [1].
  • 3.25% from 1 November 2025 [1].

  • 3.0% from 29 November 2025 [1].

  • SLR: our notes give the current level as 18% of NDTL (this should be checked against the latest RBI data). It peaked at 38.5% in 1990.

  • Effect on the money multiplier (how many rupees of deposits one rupee of reserves can support):
  • Simple multiplier = 1 / CRR, ignoring SLR and cash held by the public.
  • CRR 4% → multiplier 25.
  • CRR 3% → multiplier about 33.3.
  • So ₹100 of fresh reserves can now support about ₹3,333 of deposits instead of ₹2,500.

Don't confuse with

  • Total deposits: CRR and SLR are not calculated on total deposits. They are calculated on NDTL, which is liabilities minus interbank assets.
  • Demand liabilities vs time liabilities: demand liabilities (savings and current accounts) must be paid whenever the customer asks. Time liabilities (fixed deposits) are paid only after a fixed period. NDTL includes both.
  • CRR vs SLR: both use NDTL as the base. CRR is kept with the RBI as cash, earns no interest and comes from RBI Act s.42. SLR is kept by the bank itself in cash, gold or G-secs and comes from Banking Regulation Act s.24.
  • NDTL vs required reserves: NDTL is the base. The reserve is the ratio × NDTL (e.g. 3% × ₹950 crore = ₹28.5 crore).

Prelims Hooks

  • NDTL = (Demand liabilities + Time liabilities) − interbank assets. Both CRR and SLR are calculated on NDTL, not on total deposits.
  • Demand liabilities = savings and current account deposits. Time liabilities = fixed deposits.
  • CRR was cut to 3% of NDTL in four 25-bp steps, effective from the fortnight starting 29 November 2025 [1].
  • Act trap: CRR comes from RBI Act s.42 (kept with the RBI, no interest). SLR comes from Banking Regulation Act s.24 (kept by the bank). Questions often swap the Acts.
  • SLR assets are cash, gold and unencumbered G-secs [2]. The SLR peaked at 38.5% in 1990.
  • Simple money multiplier = 1/CRR. Cutting CRR from 4% to 3% raises it from 25 to about 33.3.

Mains Points

  • CRR cut as a transmission tool:
  • When the RBI cuts the repo rate, banks are slow to cut their loan rates. This is because they have already promised fixed rates to people who hold deposits with them.
  • A cut in CRR on NDTL (100 bps in 2025) directly frees cheap funds that banks can lend [1].

  • So a CRR cut backs up a repo cut and helps lower loan rates.

  • The SLR, captive borrowing and financial repression:

  • Banks must hold a share of NDTL in G-secs. This gives the government captive buyers (a fixed group who must buy its bonds) and keeps its borrowing cheap.
  • But it locks up bank money, so less is lent to private firms. This is a form of financial repression.

  • Cutting the SLR from 38.5% (1990) to 18% was a key part of banking reform (GS-III).

  • NDTL as the link between deposits and credit:

  • Every rise in deposits raises NDTL, which in turn raises the reserves a bank must lock away.
  • The RBI can therefore change how much credit banks can create without changing the repo rate, just by changing the ratios applied to NDTL.
  • This is useful when the RBI has to weigh growth against price stability, which is its main legal objective under the RBI Act [2].

Related concepts

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Sources

  1. 1RBI notification: CRR reduction to 3% of NDTL in four tranches (2025)rbidocs.rbi.org.in · tier 1
  2. 2RBI: Monetary Policy, Overviewrbi.org.in · tier 1