Total deposits in Indian commercial banks are Rs. 8,00,000 crore. The cash reserve ratio (CRR) is 5%, statutory liquidity ratio (SLR) is 4% and banks keep excess reserves equal to 1.5% of deposits. Calculate the maximum credit that can be created by the banking system.

Step-by-step solution

1. Convert percentages to fractions: CRR=5% =0.05, SLR=4% =0.04, excess reserve=1.5% =0.015.
2. Compute total required reserves = CRR + SLR = 0.05 + 0.04 = 0.09 (9%).
3. Total required reserves on deposits = 0.09 × 8,00,000 crore = 72,000 crore.
4. Excess reserves = 0.015 × 8,00,000 crore = 12,000 crore.
5. Total reserves maintained = required + excess = 72,000 + 12,000 = 84,000 crore.
6. Net reserves that can be lent out = deposits – total reserves = 8,00,000 – 84,000 = 5,24,000 crore.
7. Thus maximum credit that can be created is Rs. 5,24,000 crore.

Concept tested: Credit creation calculation

Published 7 October 2026 · How this solution was prepared and checked