Branch CD Ratio and Gross NPA Before a Dairy Loan
A district central cooperative bank branch has deposits of Rs 48.60 lakh and advances of Rs 34.02 lakh at the end of March. Of the advances, Rs 4.20 lakh are overdue for more than 90 days and Rs 1.80 lakh are overdue for 30 to 90 days. The branch's annual targets are a credit-deposit (CD) ratio not exceeding 65% and a gross NPA ratio below 8%. The branch also holds Rs 6.00 lakh in cash and Rs 3.00 lakh in its current account with the RBI. It plans to sanction a dairy loan of Rs 5.00 lakh, to be fully disbursed and classified as standard. The manager wants to know the current CD ratio, the current gross NPA ratio, and whether the dairy loan can be approved without breaching either target. Assume deposits stay unchanged and the new loan is added to advances.
1. Calculate the current CD ratio and gross NPA ratio. State which figures are included and which are excluded.
Read the worked answer
CD ratio = advances ÷ deposits × 100.
- Advances = Rs 34.02 lakh.
- Deposits = Rs 48.60 lakh.
- CD ratio = 34.02 ÷ 48.60 × 100 = 70.00%.
Gross NPA ratio = gross NPAs ÷ gross advances × 100.
- Only the Rs 4.20 lakh overdue for more than 90 days is treated as NPA.
- The Rs 1.80 lakh overdue for 30 to 90 days is a special mention account (SMA-1), not an NPA.
- Gross NPA ratio = 4.20 ÷ 34.02 × 100 = 12.35% (approximately).
Cash of Rs 6.00 lakh and the Rs 3.00 lakh current account balance with the RBI are assets but are not advances, so they do not enter the CD ratio or NPA ratio. The branch already breaches both targets: CD ratio 70% is above the 65% ceiling, and gross NPA 12.35% is above the 8% ceiling.
2. Can the dairy loan be approved without breaching either target? Show the post-loan figures.
Read the worked answer
Add the Rs 5.00 lakh standard dairy loan to advances:
- New advances = 34.02 + 5.00 = Rs 39.02 lakh.
- Deposits remain Rs 48.60 lakh.
- New CD ratio = 39.02 ÷ 48.60 × 100 = 80.29%, above the 65% ceiling.
- Gross NPAs remain Rs 4.20 lakh because the new loan is standard.
- New gross NPA ratio = 4.20 ÷ 39.02 × 100 = 10.76%, still above the 8% ceiling.
The loan does not cure either breach. It worsens the CD ratio and only dilutes the NPA ratio slightly, because the existing NPAs stay in the numerator. The manager cannot approve the loan on the assumption that it meets both targets. Approval would need either additional deposits, recovery/upgradation of NPAs, or a specific relaxation from higher authorities with a corrective plan.
3. What additional deposits are needed to bring the CD ratio to 65% after the loan, and what NPA recovery is needed to bring gross NPA below 8%?
Read the worked answer
Post-loan advances = Rs 39.02 lakh.
For CD ratio of 65%:
- Required deposits = 39.02 ÷ 0.65 = Rs 60.03 lakh (approximately).
- Additional deposits needed = 60.03 − 48.60 = Rs 11.43 lakh.
For gross NPA below 8% on post-loan advances:
- Maximum permissible gross NPA = 8% of 39.02 = Rs 3.12 lakh (approximately).
- Current gross NPA = Rs 4.20 lakh.
- Recovery/upgradation required = 4.20 − 3.12 = Rs 1.08 lakh (at least; rounding means recover slightly more than Rs 1.08 lakh to be safely below 8%).
So the branch needs both a deposit mobilisation of about Rs 11.43 lakh and an NPA reduction of about Rs 1.08 lakh, or a combination of measures, before the dairy loan can fit within both targets.