Q3 · UPPSC current affairs · 28 September 2026 · News · Credit Deposit Ratio and Bank Liquidity Dynamics

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English हिंदी

In the context of monetary economics and banking dynamics, consider the following statements:1.Loans create deposits, establishing a dual relationship between banking liquidity and credit.2.An elevated Credit-Deposit (CD) ratio automatically indicates severe systemic funding vulnerability in all cases according to recent RBI findings.

A 1 only

B 2 only

C Both 1 and 2

D Neither 1 nor 2

Correct answer: (a) 1 only

Explanation

Statement 1 is correct because commercial bank lending creates equivalent deposits in the banking system, establishing a dual relationship between liquidity and credit. Statement 2 is incorrect because an RBI report explicitly stated that an elevated Credit-Deposit ratio does not automatically indicate systemic funding vulnerability.

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