Total deposits of a group of commercial banks amount to ₹10,000 crore. The Cash Reserve Ratio is 5%, the Statutory Liquidity Ratio is 4%, and banks keep excess reserves equal to 1% of deposits. Calculate the maximum credit that can be created by this banking system.

Step-by-step solution

1. Compute the reserves that must be kept: CRR + SLR + ER = 5% + 4% + 1% = 10% of deposits.
2. Calculate total reserves: $10$ of ₹10,000 crore = ₹1,000 crore.
3. Credit that can be created is deposits minus total reserves: $₹10,000\text{ crore}-₹1,000\text{ crore}=₹9,000\text{ crore}$.
4. Thus the maximum credit is ₹9,000 crore.

Concept tested: Credit creation with excess reserves

Published 16 October 2026 · How this solution was prepared and checked