Q.A commercial bank receives an initial fresh deposit of ₹50,000. If the Cash Reserve Ratio (CRR) fixed by the RBI is 20%, calculate

The credit multiplier shows how far an initial deposit can be expanded by the banking system under a fractional reserve system. …

Step 1 — Identify the credit multiplier.

Step 2 — Total credit creation (aggregate deposits in the banking system).

$\text{Total Credit Creation} = \text{Initial Deposit} \times \frac{1}{\text{CRR}} = 50{,}000 \times 5 = ₹2{,}50{,}000$ …

Cross-check by summing the geometric series round by round. Round 1: deposit ₹50,000, reserve ₹10,000 (20%), loan ₹40,000. Round 2: this ₹40,000 is redeposited, reserve ₹8,000, loan ₹32,000. Round 3: loan becomes ₹25,600, and so on, each round 80% of the one before it. The sum of this infinite geometric series is $\dfrac{\text{First term}}{ …

Reporting the multiplier's output (₹2,50,000) as the 'new' credit created, without subtracting the original deposit — the question distinguishes total credit creation (aggregate deposits, including the original sum) from the NET new …