In Credit creation,the formula for estimation of credit is 1/RR*CR.If CR are 10,000 and RR is 10%,then the estimated credit created would be 1,00,000.My doubt is that,let the bank get deposits of 10,000 from public.It would make a RR of 1000.Then the available balance[9,000] only could be given as loans by the bank na,how can it give a loan amount of 1,00,000 when the available money is 10,000 which too would be given to RBI as reserve as in this case.Plz help me fast friendz.


Yes, the banks received a deposits of Rs 10,000 from public which are considered as primary deposits. The bank will maintain a RR of Rs 1000(because RR is given as 10%). The remaining balance i.e. Rs 9000 can be given for loan purposes. But we know the loans offered by bank are not in cash terms. The bank opens an account for the person who is taking loan and the amount to be offered as loan is shown in the person's account. So, the amount of  Rs 10,000 is still with the bank.The bank is not giving a loan amount of Rs 1,00,000. Rather, he is creating a credit or money. This money is not to be given to RBI. 

To get a detailed explanation of the topic 'The process of creation of money' , refer to the following link.

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