Why in news
- An RBI report stated that a elevated Credit-Deposit (CD) ratio does not automatically indicate systemic funding vulnerability.
Key terms
Ratio showing how much money banks have lent out of the total deposits collected.
Requirement that banks hold sufficient high-quality liquid assets to withstand a 30-day stressed liquidity scenario.
Basel III metric requiring banks to maintain a stable funding profile in relation to off-balance-sheet assets and activities.
Process where commercial bank lending generates equivalent deposits elsewhere in the banking system.
What is the Credit-Deposit Ratio?
- The Credit-Deposit ratio measures the proportion of a bank's total deposits that are disbursed as loans.
- It reflects balance sheet utilization and potential structural liquidity mismatches in the commercial banking sector.
Core findings of the RBI assessment
- Clarifies that credit creation inherently generates secondary bank deposits across the broader financial system.
- Emphasizes that CD ratios must be evaluated alongside Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), and capital adequacy rather than in isolation.
Why it matters
- Prevents unwarranted market panic during periods of rapid credit growth outstripping deposit mobilization.
- Highlights regulatory reliance on Basel III prudential liquidity buffers over raw accounting ratios.
Prelims facts
- Loans create deposits in monetary economics, establishing a dual relationship between liquidity and credit.
Mains discussion
- Assessing financial stability risks associated with structural deposit lags during high economic credit cycles.
Source: Business Standard
Same topic · past papers
UPSC has asked this before
These previous-year questions sit on the same topic. Open one to practise the earlier ask.
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2026 · Q99 · General Studies · 2 marks
Consider the following statements about the Non-Banking Financial Companies (NBFCs) in India: 1. NBFCs cannot accept demand deposits. 2. All the NBFCs operating in India have to be registered with the RBI. 3. NBFCs form part of the payment and settlement system and can issue cheque drawn on itself. 4. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to the depositors of deposit taking NBFCs. Which of the statements given above is/are correct? -
2020 · Q50 · General Studies · 2 marks
If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be -
2020 · Q70 · General Studies · 2 marks
With reference to the Indian economy, consider the following statements: 1. 'Commercial Paper' is a short-term unsecured promissory note. 2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation -
2024 · Q42 · General Studies · 2 marks
Consider the following statements: 1. In India, Non- Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India. 2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs). 3. In India, Stock Exchanges can offer separate trading platforms for debts. Which of the statements given above is/are correct? -
2021 · Q15 · General Studies · 2 marks
In India, the central bank's function as the 'lender of last resort' usually refers to which of the following? 1. Lending to trade and industry bodies when they fail to borrow from other sources 2. Providing liquidity to the banks having a temporary crisis 3. Lending to governments to finance budgetary deficits Select the correct answer using the code given below