Facts for Prelims (FFP)
Source: Live Mint
Context: Banks in India are facing challenges in attracting deposits during the financial year 2023-24.
- According to data from the RBI, the credit-deposit ratio, indicating the proportion of a bank’s deposit base used for loans, has reached its highest level in at least 20 years due to increased loan uptake, particularly in categories like home loans and other consumption loans.
- Currently standing at 80%, the credit-deposit ratio is at its highest since 2015.
- Customers are opting for high-return, equity-linked products, reducing the funds available for deposits in banks.
In FY24, while deposits grew by 13.5% to ₹204.8 trillion, non-food credit grew by 20.2% to ₹164.1 trillion, outpacing deposit growth.
This contrasts with FY23, where deposits grew by 9.6% and credit by 15.4%.
About Credit- deposit ratio:
The credit-deposit ratio is a financial metric used to assess the relationship between a bank’s lending activities (credit) and its deposit base.
It is calculated by dividing the total loans extended by the bank by its total deposits. The ratio indicates how much of a bank’s deposits are being used to provide loans.
A higher credit-deposit ratio suggests that a larger portion of the deposits is being lent out as credit, while a lower ratio indicates that more deposits are being held in reserve or invested in other assets.
It is an important measure of a bank’s liquidity and lending capacity.
