Credit-Deposit Ratio
The Credit-Deposit (CD) Ratio measures the proportion of a bank's deposits that have been deployed as loans, serving as a key indicator of how aggressively a bank is utilising its deposit base for lending.
The Credit-Deposit ratio is calculated by dividing a bank's total outstanding loans and advances by its total deposits, expressed as a percentage. A ratio of 75%, for instance, means that for every ₹100 of deposits mobilised, the bank has lent out ₹75. The remaining ₹25 is held in liquid form—as cash reserves, government securities under the Statutory Liquidity Ratio (SLR), or deposits with the RBI under the Cash Reserve Ratio (CRR).
The Reserve Bank of India monitors the CD ratio across the banking system as a gauge of credit flow to the economy. Historically, the system-wide CD ratio has moved between 70% and 80%. When the ratio climbs sharply—as it did during the credit boom of 2006–2008 and again in 2022–2023—it signals that deposit growth is lagging behind loan growth, which can create funding pressure. During the post-pandemic credit cycle, India's CD ratio crossed 78% in 2023, prompting RBI to caution banks about asset-liability mismatches.
A very high CD ratio (above 80%) can be a warning sign. It means the bank has little buffer to absorb sudden deposit outflows or to fund incremental credit demand without raising expensive borrowings. It also implies that the bank may be taking on more credit risk relative to its stable funding base. Conversely, a very low CD ratio (below 60%) might indicate conservative lending or difficulty in finding creditworthy borrowers—neither is ideal from a return-on-assets perspective.
The CD ratio also has regional significance. The RBI and state governments track district-level and state-level CD ratios to assess whether banking credit is flowing adequately to underbanked regions. Many smaller states and union territories historically showed low CD ratios, reflecting underdeveloped credit infrastructure rather than low deposit mobilisation.
For equity analysts, the CD ratio is a useful gauge of a bank's growth trajectory versus its funding sustainability. A bank with a rising CD ratio alongside stable deposit growth is expanding credit efficiently, but if deposits are stagnating while loans accelerate, the bank may need to rely on bulk deposits or market borrowings at higher costs, compressing net interest margins.