Demand deposits which come back to the commercial banks through their lending process are known as secondary deposits
True or False with Reasons:
“Demand deposits which come back to the commercial banks through their lending process are known as secondary deposits.”
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True,
Secondary Deposits are those deposits that arise due to loans given by the banks to the people.
Explanation:-
Primary Deposits are the cash deposits of people with Commercial Banks in different deposit accounts such as savings accounts, current accounts, term deposit accounts, and other deposits.
On the other hand, Secondary or Derivative Deposits are those deposits that arise due to loans given by the banks to the people.
- The total of Primary and secondary Deposits is equal to the total demand deposits of the Commercial Banks.
- It must be noted that Primary Deposits indicate savings of the depositors with the banks, while Secondary Deposits indicate borrowings of the depositors from the banks.
- Commercial banks can create secondary deposits by way of loans many times more than their cash reserves. So, secondary deposits are always more than primary deposits.
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