Mention any one factor affecting credit creation by banks.

Initial Cash Deposits.

Additional Information:-

Credit creation depends upon two factors.

1. Initial cash deposits
2. LRR

Credit Creation is directly related to initial cash deposits and inversely related to the Legal Reserve Ratio.

Credit Creation = Initial Cash Deposits 1/LRR

For example:-

Initial Cash deposits = ₹ 1,000

LRR = 10%

Credit Creation = 1,000 × 1/10%

Credit Creation = 1,000 × 100/10

Credit Creation = ₹ 10,000

More is the initial cash deposits, the higher the credit creation.

The lower the Legal Reserve Ratio (LRR) higher the credit creation.