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प्रश्न
How do commercial banks create deposits? Explain.
उत्तर
Commercial banks play the important role of ‘money creator’ in the economy. They have the capacity to generate credit through demand deposits. These demand deposits make credit more than the initial deposits.
The process of money creation can be explained by taking an example of a bank XYZ. A depositor deposits Rs.10,000 in his savings account, which will become the demand deposit of the bank. Based on the assumption that not all customers will turn up at the same day to withdraw their deposits, bank maintains a minimum cash reserve of 10 % of the demand deposits, i.e. Rs.1000. It lends the remaining amount of Rs.9000 in the form of credit to other customers. This further creates deposits for the bank XYZ. With the cash reserve of Rs.1000, the credit creation is worth Rs.10,000. So, the credit multiplier is given by:
Credit multiplier = 1/CRR = 1/10% = 10
The money supply in the economy will increase by the amount (times) of credit multiplier.
APPEARS IN
संबंधित प्रश्न
Accepting deposits from the public is the................................. function of Commercial Bank.
(secondary / general / primary / incidental)
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is
called:( choose the correct alternative)
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
State whether the following statement is True or False with reason:
Commercial Banks cannot give interest on deposits.
Write answers in ‘one’ or ‘two’ paras each.
What are the primary functions of commercial banks?
Explain the following concepts or give definitions.
Savings deposits
Distinguish between:
Central Bank and Commercial Bank
Fill in the blank with appropriate alternatives given below
__________ is a primary function of commercial banks.
Give reason or explain the following statement:
Rate of interest on fixed deposit is high.
Distinguish between:
Current account and saving account
Distinguish between:
Cash credit and overdraft facility
Write short note on:
E-banking facility
State with reason whether you agree or disagree with the following statement.
Commercial banks perform many general utility services.
Answer in detail:
Explain the process of credit creation.
What is credit creation?
What role of RBI is known as 'lender of last resort'?
Demand deposits include ______
Commercial Bank was facing a financial crisis due to the crisis of non-performing assets. It went to the RBI for help. What role will RBI play in such a case?
Identify the correctly matched pair of the items in Column A to that of Column B
| Column A | Column B | ||
| 1 | Money | (a) | Supply of Money |
| 2 | Commercial Bank | (b) | Store of Value |
| 3 | Central Bank | (c) | Credit Control |
| 4 | M4 | (d) | Circulation of Money |
M3 = ______
