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Sem 5 Prep
← Money & BankingThe structure of Indian banking

Formulas for this chapter

RRB capital split

Central government 50% · State government 15% · Sponsoring public sector bank 35%

Any question on regional rural banks. The three shares must sum to the whole capital, which is the check to run before writing the answer.

sponsoring bank
The public sector bank that sponsors the RRB and contributes 35% of its capital

Credit creation

Total deposits = fresh deposit / reserve ratio Total credit created = total deposits - fresh deposit Deposit multiplier = 1 / reserve ratio After n rounds: first loan x (1 - (1-r)^n) / r

Whenever a fresh deposit and a reserve ratio are given. Read whether the question asks for total deposits or total credit, because they differ by the original deposit.

reserve ratio
Fraction of every deposit not lent on; in India CRR plus SLR
n
Number of lending rounds, when the cascade is cut short

Lendable funds at one bank

Lendable = deposits x (1 - CRR% - SLR% - vault cash%) Maximum credit-deposit ratio = lendable / deposits

When a question asks what a single bank can lend, as opposed to what the system can create. Add every reserve percentage before multiplying once.

vault cash%
Cash held at branches for operations, over and above the CRR
Step 3 of 31
The real wordsTheory

The three conditions for scheduling

Learn all three, because a list question here is nearly free marks.

1. It must have paid-up capital and reserves of an aggregate value of at least ₹5 lakh.

2. It must be carrying on the business of banking in India.

3. It must be a corporation or a cooperative society, and not a partnership or sole proprietorship firm.

Note how low the money threshold is. The binding conditions in practice are the second and third.

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