An initial deposit of ₹1,000 crore is made and the reserve ratio is 20%. How much credit (loans) do banks create in all?

Explanation

1. 01

   Total deposits = 1,000 × 5 = 5,000.

2. 02

   Credit created = total deposits − initial deposit = 5,000 − 1,000 = ₹4,000 crore.