Phase IFoundation
Background
Overview
A widening credit-deposit wedge is a key indicator of financial sector health and liquidity. It can impact banks' profitability, lending capacity, and overall financial stability, which are critical concerns for economic policy and UPSC examinations.
The credit-deposit wedge refers to the difference in the growth rates of bank credit and bank deposits. When credit growth significantly outpaces deposit growth, it indicates a potential funding challenge for banks, as deposits are a primary source of funds for lending.