credit deposit ratio of indian banks

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1. Understanding the Ratio: The credit-deposit ratio is a measure of how much of the money banks have received in deposits is being lent out as loans.
2. Example: If the ratio is 80%, it means that for every 100 rupees deposited in the bank, they're lending out 80 rupees to borrowers.
3. Indicator of Bank Activity: A high credit-deposit ratio suggests that banks are actively lending money, which can be a sign of a healthy economy with lots of borrowing and spending.
4. Risk of Illiquidity: However, a high ratio also means that most of the bank's funds are tied up in loans rather than being kept in reserves. This can be risky because if too many borrowers default on their loans or if depositors want to withdraw their money all at once, the bank might not have enough cash on hand to meet these demands.
5. Potential Consequences: This could lead to problems like bank runs, where depositors panic and rush to withdraw their money, or the bank not being able to meet its financial obligations.
6. Balancing Act: Banks need to strike a balance between lending to stimulate economic growth and keeping enough reserves on hand to handle unexpected events. It's like walking a tightrope; they need to keep lending to keep the economy moving, but they also need to ensure they have enough liquidity to stay stable if things go wrong.
7. Monitoring by Regulators: Policymakers and regulators closely monitor the credit-deposit ratio to ensure the stability of the banking system. If the ratio becomes too high, it may signal the need for measures to encourage banks to build up their reserves or to moderate their lending activities to avoid potential systemic risks.

Understanding these points can help individuals grasp the significance of the credit-deposit ratio and its implications for the banking system and the economy as a whole.

So this could mean, interest rates will go up?

is unused limit of credit card counted in this ratio? because many have few crores which they never use and will never default on either, so no risk for bank 😄