Credit creation by commercial banks is determined by: (Choose the correct alternative)

Question

499 viewsJanuary 3, 2024MCQs (M&B)Money and Banking

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Anurag Pathak28.36K January 3, 2024 0 Comments

(a) Cash Reserve Ratio (CRR)

(b) Statutory Liquidity Ratio (SLR)

(c) Initial Deposits

(d) All of the above

score 0 · Answer 1 · 2024-01-03T04:21:13+00:00

Ans – (d)

Explanation:-

Credit creation is determined by initial deposits and LRR (Legal Reserve Ratio)

The legal Reserve Ratio consists of two components:

1. Cash Reserve Ratio (CRR)
2. Statutory Liquidity Ratio (SLR)

For example

Initial Deposits = ₹ 5,000

LRR = 10%

Total Credit Creation = Initial Deposits × 1/LRR

Total Credit Creation = 5,000 × 1/10%

Total Credit Creation = 5,000 × 10

Total Credit Creation = ₹ 50,000

Additional Information:-