Credit to deposit ratio
CD Ratio
The credit to deposit ratio shows what share of the deposits a bank has collected it has lent out as loans. It measures how fully the bank is using its cheapest source of funds.
Formula
CD ratio
Credit to Deposit Ratio (%) = Total Advances ÷ Total Deposits × 100
Benchmark: Too low wastes deposits; too high means loans are funded by expensive borrowings
Reading the number
A bank cannot lend every rupee it collects. Some must sit as reserves with the RBI, and some is held in government securities. So a CD ratio well below 100 percent is normal. A very low ratio means the bank is collecting deposits it cannot deploy, and paying interest on money that earns nothing. A ratio above 100 percent means the bank has lent more than its deposits and is funding the difference with borrowings from other banks or the RBI, which cost more.
Read it with the funding mix from the common-size balance sheet. A bank that funds 75 percent of its balance sheet from deposits can run a high CD ratio comfortably. A bank funding only 43 percent from deposits and the rest from borrowings has a CD ratio that flatters, because much of its "credit" is not funded by deposits at all.
Indian example
Related ratios
Glossary terms
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