Q.A bank receives an initial deposit of ₹2,00,000 and the cash reserve ratio (CRR) is fixed at 20%. Calculate

This is a direct application of the deposit-multiplier formula introduced with credit creation, now solved for a specific CRR.

Given: initial deposit = ₹2,00,000; CRR = 20% = 0.20.

Step 1 — deposit multiplier. Multiplier = 1 ÷ CRR = 1 ÷ 0.20 = 5.

Step 2 — total deposits created. Total deposits = Initial deposit × Multiplier = ₹2,00,000 × 5 = ₹10,00,000.

Step 3 — fresh credit created. The total deposit figure of ₹10,00,000 includes the original ₹2,00,000 that was actually deposited in cash; the amount genuinely created by the banking system through successive rounds of lending and re-depositing is the difference: ₹10,00,000 − ₹2,00,000 = ₹8,00,000. …

Apply the multiplier formula (1 ÷ CRR) directly, then independently verify the total using the geometric-series sum of the ro …

Do not report ₹8,00,000 as the 'total deposits' — that figure is only the fresh credit created; the total deposits figure (₹ …