Definition
Incremental CD Ratio
The Incremental Credit-Deposit Ratio compares the change in advances to the change in deposits over a period, showing how new loans are being funded.
While the CD ratio is a stock measure, the incremental CD ratio is a flow measure: it is the rise in credit divided by the rise in deposits during a quarter or year. A reading above 100% means loan growth is outpacing fresh deposits, forcing banks to draw down excess liquidity or borrow.
The RBI and analysts watch incremental CD ratios to gauge funding stress. Persistently high readings signal that banks must lift deposit rates or slow lending, which is why deposit mobilisation became a key theme for Indian banks in recent years.
Related terms
- Credit GrowthCredit growth measures how fast bank lending to businesses and households is expanding year-on-year, making it one of the clearest real-time signals of demand and economic momentum in the economy.
- 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.
- 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.