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प्रश्न
What is meant by credit creation?
What is credit (or money) creation?
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उत्तर
Credit creation refers to the creation of demand deposits by banks in process of making loans. It signifies that power of commercial banks by which they create secondary deposits on the basis of primary deposits.
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संबंधित प्रश्न
Define Credit Multiplier.
Access to adequate and timely credit at affordable rates is critical for the rural poor to alleviate high cost debt and invest in livelihood opportunities. Despite the Government of India's best efforts, financial inclusion of the rural poor has been beset with multiple challenges. Lack of adequate banking infrastructure and human resources in rural areas, unplanned expansion leading to unviable bank branches and low levels of financial literacy amongst the rural populace have been some of the key challenges.
The most vulnerable communities, who often had no formal credit history or ability to provide collateral, have often been the worst affected. Inability to access loans from banks meant that the poorest had to resort to moneylenders for loans at unreasonably high rates of interest that invariably led them into a toxic debt trap.
In this context, the SHG-Bank Linkage programme, formalised by the National Bank for Agriculture and Rural Development (NABARD) in 1995, synthesizes 'formal financial systems' (in terms of a formal institution providing credit) with the 'informal sector' (comprising of rural poor with no formal credit history), has emerged as a preferred vehicle for providing financial services to the hitherto unbanked poor.
Community Based Repayment Mechanisms (CBRMs) have been institutionalised at branches involved in financing SHGs to monitor and ensure timely repayment of loans by SHGs. The number of SHGs with outstanding bank loans stands at nearly 5 million today, implying that the program has brought formal banking services to over 50 million women.
There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option.
Assertion (A): Micro-credit can help empower women and make them financially independent.
Reason (R): Micro-credit involves small loans provided at reasonable interest rates that can help people start their own ventures.
''The process of credit creation by commercial banks comes to an end when the total of required reserves become equal to the initial deposits."
With the help of a numerical example, prove that the given statement is true.
If legal reserve ratio is 20%, the value of money multiplier would be ______.
Which of these banks formulates the credit control tools?
What are secondary (derivative) deposits?
Why are the banks required to keep only a fraction of deposits as cash reserves?
What is the unique function of commercial banks in the money supply?
The deposit multiplier formula is ______.
If CRR is 20% and initial deposit is ₹1000, total deposits created are ______.
