What is Net Demand and Time Liabilities (NDTL) - Explanation with an example

 Net Demand and Time Liabilities

In India, Reserve Bank of India (RBI) uses various tools and measures to balance the economy. NDTL is one of the tool that RBI provides to other banks. Basically, NDTL stands for Net Demand and Time Liabilities.

How NDTL is connected with Bank?

• Let's understand in a simple language. Bank is a company that works for profit. It gets cash as a deposit from customers and lends that money to the borrowers. 
• Bank earns interest from the money lent to borrowers. But, it has to pay the interest on the money taken from the depositors. Now, basically the money lent to borrowers is the asset for the bank and money taken from the customers (depositors) is the liability for the bank.

Now, let us break the term 'NDTL' one by one.

Demand Liabilities: 

Demand Liabilities of a particular bank include:

1. Current Deposits
2. Portion of Demand Liabilities in Saving Deposits
3. Margins against Letter of Credit
4. Balances delayed in fixed deposits, recurring deposits payable on demand
5. Outstanding Demand drafts, Mail transfers, Telegraphic transfers and unclaimed deposits.
6. Credit Balances of the Cash Credit account
7. Deposits kept as security for advances that are payable on demand.

Time Liabilities:

Time liability of a bank are those liabilities which are payable on demand. Time liabilities include:

1. Fixed deposits, Recurring and Cumulative deposits
2. Part of Saving deposits, Staff Security deposits
3. Deposits that are held as Securities for advances that are not payable on demand
4. Gold deposits

Other Demand and Time Liabilities:

All the miscellaneous liabilities not covered under demand liabilities and time liabilities are other Demand and Time Liabilities.

Other Demand and Time Liabilities include:

1. Interest on Deposits
2. Unpaid Dividend
3. Bills Payable
4. Branch adjustment account's Net Credit Balance
5. Any amount due in banking system other than the nature of deposits or borrowing
6. Gold Borrowed from abroad
7. Margin on bills purchased etc.

Assets of a Bank:

Following are the assets of a Bank:

1. Balances with other banks in Current account
2. Balances with Banks or other financial institutions in other accounts
3. Loans that are available in the Banking system
4. Any amount due from the other banks or in the banking system.

Definition

• The Net Demand and Time Liabilities (NDTL) is the difference between the sum of demand and time liabilities of a bank and assets of a bank.

Thus, the Net Demand and Time Liabilities can be calculated by using the following formula:

NDTL = Demand and Time liabilities - Deposits as the assets

For example, If a bank has the deposits worth 10,000 with the other bank and its total demand and time liabilities is 20,000, then the Net Demand and Time Liabilities will be (20,000 - 10,000) 10,000.

FAQ

What is treated as liability for others?

The following type of transactions are to be treated as Liability to others:

1. Loans from abroad by Indian Banks
2. Money to be provided on a call outside the banking system
3. Amount received from the client remaining unchanged