Economics • Banking & FinanceHard
In evaluating rural credit absorption capacity in Sikkim, how does the credit-deposit ratio serve as a vital metric for banking regulators?
A. It measures the proportion of total deposits mobilized within the state that is deployed as credit within the same region.✓ Correct Answer
B. It calculates the ratio of foreign exchange reserves held by cooperative banks.
C. It determines the statutory liquidity ratio requirements for rural branches.
D. It assesses the profitability of central bank monetary policy operations.
💡 Solution & Explanation
The credit-deposit ratio indicates how effectively banks channel local savings into productive credit investments within a given geographic area, highlighting regional disparities in fund utilization. Statutory liquidity ratio is an independent regulatory reserve requirement. A low credit-deposit ratio implies that local deposits are siphoned off for deployment elsewhere rather than funding local enterprises.
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