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What is the basis of credit creation in commercial banks?
- a)The amount of deposits made by the depositors.
- b)The cash reserve ratio set by the RBI.
- c)The banking habits of the people.
- d)The willingness of people to borrow.
Correct answer is option 'A'. Can you explain this answer?
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What is the basis of credit creation in commercial banks?a)The amount ...
The text states that the ability of banks to create credit depends on the fact that banks need only a small percentage of cash to deposits. This means that the amount of deposits made by the depositors is the basis of credit creation in commercial banks. Banks can lend and create credit based on the excess reserves they have, which is the remaining amount after keeping a fixed percentage of deposits in cash reserves.Interesting additional fact: Credit creation plays a crucial role in the economy as it allows banks to provide loans and support economic activities. By creating credit, banks can stimulate investment, consumption, and overall economic growth.
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What is the basis of credit creation in commercial banks?a)The amount of deposits made by the depositors.b)The cash reserve ratio set by the RBI.c)The banking habits of the people.d)The willingness of people to borrow.Correct answer is option 'A'. Can you explain this answer?
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