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प्रश्न
Why are the banks required to keep only a fraction of deposits as cash reserves?
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उत्तर
There are two reasons:
- Not all depositors approach the banks for withdrawal of money at the same time, and also that normally they withdraw a fraction of deposits.
- There is a constant flow of new deposits into the banks.
Therefore, to meet the daily demand for withdrawal of cash, it is sufficient for banks to keep only a fraction of deposits as cash reserves.
संबंधित प्रश्न
Credit creation by commercial banks is determined by (Choose the correct alternative)
Explain the credit creation role of commercial banks with the help of a numerical example.
Explain the concept of ‘inflationary gap’. Also explain the role of ‘legal reserves’ in reducing it.
Banks are able to create credit many times more than initial deposits through ______.
______ is the rate of interest charged by the central bank on loans given to the commercial bank.
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.
Why is it important to ensure access to cheap formal sector credit to the rural poor?
Explain the role of legal reserve ratio and Bank rate in correcting inflationary gap in an economy.
''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.
Explain briefly the process of credit creation by commercial banks.
What is money multiplier?
