Mains Paper II · 1 Indian Economy · 1.7 Banking and financial inclusion

1.7.9 Commercial banks: credit creation and portfolio management

A commercial bank keeps only a fraction of each deposit as reserves and lends the rest, so the banking system turns one primary deposit into deposits many times larger; how a bank spreads its funds over cash, investments and loans is its portfolio management.

  • APPSC Group 2 · Mains Paper II
  • Advanced level
  • 11 min read
  • Full course

Key terms

  • credit creation
  • primary deposits
  • derivative deposits
  • credit multiplier
  • money multiplier
  • high-powered money
  • CRR
  • SLR
  • cash drain
  • excess reserves
  • liquidity
  • profitability
  • safety
  • shiftability theory
  • anticipated income theory
  • real bills doctrine

What this note covers

  1. Core factsFoundation
  2. ExplainedStandard
  3. DeeperAdvanced
  4. Mains writingMains writing
  5. Common trapsFoundation
  6. Quick revisionFoundation

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