New Delhi, Feb. 26 -- Is there an ideal credit-deposit (CD) ratio for the banking system or is the concept passe? This is an interesting debate, given the trends seen of late. The CD ratio of the Indian banking industry has been exceeding 80%, raising eyebrows.

The logic goes this way. If the cash reserve ratio (CRR) is 3% and the statutory liquidity ratio (SLR) 18%-both are mandatory carve-outs from deposits that banks must keep-then the CD ratio cannot be above the residual 79%. Yet, it is so, and none of the norms is reported to have been violated. This implies that the premise of a threshold and the sanctity of the 80% number needs to be revisited.

Data over the last five decades or so shows that the CD ratio was less than 80% until...