Different Monetary ratios: Currency Deposit Ratio, Cash Deposit ratio, Credit Deposit Ratio, Reserve Deposit Ratio

 

DIFFERENT TYPE OF MONETARY RATIOS:

The Currency Deposit Ratio (cdr):

The currency deposit ratio (cdr) is the ratio of money held by the public in currency to that they hold in bank deposits.

Significance of Currency Deposit Ratio (cdr): 

• It reflects people’s preference for liquidity. 
• It is a purely behavioral parameter which depends, among other things, on the seasonal pattern of expenditure. 
• For example, cdr increases during the festive season as people convert deposits to cash balance for meeting extra expenditure during such periods.

Cash Deposit ratios (CDR):  

Cash-deposit ratio of scheduled commercial banks is the ratio of cash in hands and balances with the RBI as percentage of aggregate deposits.

                                 

Here, cash in hand is actually physical currency available with bank to be given as loan 

Balance with RBI is nothing but CRR balances with RBI. 

Significance of Cash Deposit Ratio :

• It indicates how much cash banks maintain for each rupee of deposit they accept. 
• Cash Deposit Ratio will always be higher than CRR as settlement balance is also included. 
• The use of plastic money, Internet payments, electronic funds transfer, and so on, reduces this ratio near to CRR.

Credit Deposit Ratio: 

• The credit-deposit ratio is the ratio of assets in the form of loans disbursed and liabilities of the banks in the form of deposits.
• Credit-deposit ratio  is used for measuring a bank’s liquidity.
• The  ratio helps in assessing a bank’s financial health.
• Higher credit-deposit ratio indicates that there is strong demand for credit in the economy.
• Lower credit-deposit ratio indicates that there is poor credit growth in the economy.

The Reserve Deposit Ratio:

• When the money is deposited with the bank ,certain amount of that deposit is kept as reserves, giving rest of the amount in the form of loans.
• Reserve money consists of two things – vault cash in banks and deposits of commercial banks with RBI. 
• Reserve deposit ratio (rdr) is the proportion of the total deposits commercial banks keep as reserves.
• For illustration: CRR+SLR ie 4.5 % +18%=22.5 ie out of 100 Rs deposited with bank ,22.5 Rs are to be reserved with the bank and rest 77.5 Rs are to be given to the customers in the form of loan.
• Higher the Reserve Deposit Ratio, lesser is the money with bank to give in the form of loans and hence less liquidity in the economy.