Definition
Credit-Deposit Ratio (CD Ratio)
The Credit-Deposit Ratio is the proportion of a bank's deposits that it has lent out as advances, measuring how aggressively it is deploying its deposit base.
CD ratio is total advances divided by total deposits. A higher ratio means more of the deposit base is deployed in loans, supporting NIM but leaving less liquidity cushion. A low ratio suggests under-deployment, often parked in SLR government securities.
In India, system-wide credit growth running ahead of deposit growth has pushed CD ratios higher, prompting the RBI to flag the gap. Banks with stretched CD ratios face pressure to mobilise deposits, since loan growth cannot outrun the deposit franchise indefinitely.
Related terms
- CASA (Current and Savings Account)CASA refers to the combined balances in current and savings accounts, which are a bank's cheapest source of funds.
- Incremental CD RatioThe Incremental Credit-Deposit Ratio compares the change in advances to the change in deposits over a period, showing how new loans are being funded.
- Advances (Banking)Advances are the loans a bank extends to borrowers, forming the main interest-earning asset on its balance sheet.
- Deposits (Banking)Deposits are the funds customers place with a bank in current, savings and term accounts, forming the bank's primary and cheapest source of funding.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.