1. What is Credit Deposit Ratio?

The Credit Deposit Ratio (CDR) provides insight into how much of a bank's funding is being used to extend loans. It measures the proportion of a bank's total deposits that are being utilized for lending activities.

2. How Does the Calculator Work?

The calculator uses the Credit Deposit Ratio formula:

Where:

• \( Total\ Advances \) — Total amount of loans and advances extended by the financial institution
• \( Total\ Deposits \) — Aggregate amount of funds held by the financial institution from customers

Explanation: The ratio indicates what percentage of a bank's deposits are being used for lending purposes, which is a key indicator of a bank's lending activity and liquidity position.

3. Importance of Credit Deposit Ratio

Details: A higher CDR indicates that a larger portion of deposits is being used for lending, which can be profitable but also increases risk. A lower CDR suggests more conservative lending practices and potentially better liquidity. Regulatory authorities often monitor this ratio to ensure financial stability.

4. Using the Calculator

Tips: Enter the total advances and total deposits amounts in the same currency units. Both values must be positive numbers greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a healthy Credit Deposit Ratio?
A: Typically, a CDR between 70-80% is considered healthy, though this can vary by regulatory requirements and economic conditions.

Q2: Why is CDR important for banks?
A: CDR helps assess a bank's lending capacity, profitability potential, and liquidity risk management.

Q3: Can CDR exceed 100%?
A: Yes, if a bank lends more than its deposit base through other funding sources like borrowings or capital.

Q4: How often should CDR be monitored?
A: Banks typically monitor CDR regularly, and regulators may require quarterly or monthly reporting.

Q5: Does a high CDR always indicate good performance?
A: Not necessarily. While high CDR can indicate efficient use of deposits, it may also signal liquidity risk if not managed properly.