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What does the credit-deposit ratio measure in the banking sector?
- a)The ratio of loans disbursed by a bank to its total assets.
- b)The ratio of a bank's total deposits to its total liabilities.
- c)The ratio of loans disbursed by a bank to its total deposits.
- d)The ratio of a bank's profits to its shareholders' equity.
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
What does the credit-deposit ratio measure in the banking sector?a)The...
- Context: Banks in India are facing challenges in attracting deposits during the financial year 2023-24.
- 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.
Most Upvoted Answer
What does the credit-deposit ratio measure in the banking sector?a)The...
Explanation:
The credit-deposit ratio in the banking sector is a crucial metric that measures the ratio of loans disbursed by a bank to its total deposits. This ratio provides insights into how effectively a bank is utilizing its deposits to extend credit to borrowers.
Here is a breakdown of the components involved in the credit-deposit ratio:
Credit-Deposit Ratio:
- The credit-deposit ratio is calculated by dividing the total loans disbursed by a bank by its total deposits.
- It indicates the extent to which a bank is lending out the funds it has received in the form of deposits.
Significance:
- A high credit-deposit ratio suggests that the bank is lending out a significant portion of its deposits, which can lead to higher profitability through interest income.
- On the other hand, a low credit-deposit ratio may indicate that the bank is not utilizing its deposits efficiently to generate income.
Importance:
- Monitoring the credit-deposit ratio is essential for banks to maintain a balance between lending activities and deposit inflows.
- It helps in assessing the risk exposure of a bank and ensuring that it has enough liquidity to meet its obligations.
In conclusion, the credit-deposit ratio is a key indicator for evaluating a bank's lending practices and financial health. By analyzing this ratio, stakeholders can better understand how efficiently a bank is managing its deposits to support its lending activities.
The credit-deposit ratio in the banking sector is a crucial metric that measures the ratio of loans disbursed by a bank to its total deposits. This ratio provides insights into how effectively a bank is utilizing its deposits to extend credit to borrowers.
Here is a breakdown of the components involved in the credit-deposit ratio:
Credit-Deposit Ratio:
- The credit-deposit ratio is calculated by dividing the total loans disbursed by a bank by its total deposits.
- It indicates the extent to which a bank is lending out the funds it has received in the form of deposits.
Significance:
- A high credit-deposit ratio suggests that the bank is lending out a significant portion of its deposits, which can lead to higher profitability through interest income.
- On the other hand, a low credit-deposit ratio may indicate that the bank is not utilizing its deposits efficiently to generate income.
Importance:
- Monitoring the credit-deposit ratio is essential for banks to maintain a balance between lending activities and deposit inflows.
- It helps in assessing the risk exposure of a bank and ensuring that it has enough liquidity to meet its obligations.
In conclusion, the credit-deposit ratio is a key indicator for evaluating a bank's lending practices and financial health. By analyzing this ratio, stakeholders can better understand how efficiently a bank is managing its deposits to support its lending activities.
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What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer?.
What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What does the credit-deposit ratio measure in the banking sector?a)The ratio of loans disbursed by a bank to its total assets.b)The ratio of a banks total deposits to its total liabilities.c)The ratio of loans disbursed by a bank to its total deposits.d)The ratio of a banks profits to its shareholders equity.Correct answer is option 'C'. Can you explain this answer?.
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