Study of relationship between credit-deposit ratio and interest rates for SCB

Abstract

The past few months have witnessed a huge increase in the average Credit- Deposit ratio (CDR) in Scheduled Commercial Banks (SCB) (Refer Appendix Table 1). But contrary to expectations, this increase has not been accompanied by an increase in interest rates. In our project, we have attempted to: • Analyze the data present across different segments of the Indian banks (national, old sector private, new private etc) to see if the growth is driven by certain specific sectors of the bank. • Explore if certain policy changes are responsible for this phenomena • Search for a possible slack in the banking sector which might explain why interest rates have not risen • Assess if the level of interest rates have been affected by sectoral composition and duration of loans • Identify similar episodes of sudden increase in CDR and try to find a correlation • Verify if increase in CDR will have a long term impact on the economy We expect to identify some possibly new trends in the Indian banking scenario and try to find an explanation for them by correlating them to theory.