With reference to the Credit- deposit Ratio, consider the following statements:1.It indicates how much of a bank's core funds are being used for lending.2.A higher credit-deposit ratio may prevent banks from reducing deposit rates despite a rate cut from the central bank.Which of the statements given above is/are correct?

Q. With reference to the Credit- deposit Ratio, consider the following statements::
1.It indicates how much of a bank’s core funds are being used for lending.
2.A higher credit-deposit ratio may prevent banks from reducing deposit rates despite a rate cut from the central bank..
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C

Notes:

It is the ratio of how much a bank lends out of the deposits it has mobilised. It indicates how much of a bank’s core funds are being used for lending, the main banking activity. A higher ratio indicates more reliance on deposits for lending and vice-versa.

Banks may not reduce deposit rates despite the rate cut due to high credit-deposit ratio.

Source- Article

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