Bankers are not merely purveyors of Money, but also, in an important sense, manufactures of money.
Please Explain me this statement.
15 Replies
nikhil
((CA Final) Article)
(363 Points)
Replied 12 December 2010
as from my point of view nabeel is trying to coat example of RBI (that it can manufacture money).....
Sunshine
(Helping All)
(10575 Points)
Replied 12 December 2010
this relates to credit creation function of bank...i think .....
Vikrant
(Chartered Accountant)
(601 Points)
Replied 12 December 2010
| Originally posted by : Sneha.... sunshine | ||
 |
this relates to credit creation function of bank...i think ..... |
 |
correct....
Nabeel
(CA)
(3288 Points)
Replied 13 December 2010
ok. thanx... i wont be able to understand the meaning of this line...
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 13 December 2010
Hi,
Banks are not only lending money but also manufacture money dont get confused that RBI alone prints money commercial banks invites deposits from customers so they are maufacturers of money
CS LLB Pulkit Gupta
(https://www.facebook.com/pages/Life-and-Promises/553962034682487)
(16631 Points)
Replied 13 December 2010
This is Credit Creation and Limitations of a Bank
For more detailed answer follow below mentioned link:-
https://www.indiastudychannel.com/resources/108889-Credit-Creation-Limitations-Bank.aspx
ViveK
(.)
(312 Points)
Replied 13 December 2010
| Originally posted by : Vikrant | ||
|
|
Originally posted by : Sneha.... sunshine this relates to credit creation function of bank...i think ..... correct.... |
|
yes exactly this is right
for easy understanding
suppose u have 1000 rupees u deposit in bank and u know that bank will make loan out of this money(after maintaining CRR) to another person and if the other person(after getting loan) makes a payment by check then it will be deposited in another bank and the 2nd bank can also make loan out of the money(after maintaining CRR) so this proces(credit creation) will continue this the CRR at each stage reduce it to minimum
credit creation depends upon the CRR(cash reserve ratio) higher the ratio lesser the cash deposited in the next bank
suppose CRR is 10%
deposited in credit given 1st bank 1000 900 2nd bank 900 810 3rd bank 810 729 and so on (at each stage credit is created and total credit created out of 1000 at 10% CRR will be 10000
hope u understand not sure weather i made it clear or not :)
for deeper understanding read about money supply(M1 M2 M3measures of money supply)
CA SUMIT LAL
(PROPRIETOR)
(83 Points)
Replied 13 December 2010
It means banks not only provide finance to the world at large for their day to day business and personal activities, but also using the multiplier effect, utilises the money to the extent that its own possible limitations get shortnend at that point.
bhavesh sir
(Director BEI)
(335 Points)
Replied 14 December 2010
agree with sneha and pulkit's reply !!!
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