ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Commercial Banks performs the function of credit creation.

Detailed explanation-2: -Answer: Commercial banks can expand the deposits they receive through loans, resulting in an expansion of the monetary base of a country. This is credit creation.

Detailed explanation-3: -Credit Control is a role of the Reserve Bank of India’s central bank, which regulates credit, or the supply and the demand of money or liquidity in the economy. The central bank controls the credit extended by commercial banks to their customers through this function.

Detailed explanation-4: -In the process of credit creation, banks keep some share of their deposits as minimum reserves to meet the demand of their depositors. Thus, banks lend out the excess reserves for loans and investment purposes, and the interest earned becomes income for the banks.

Detailed explanation-5: -This leads to the transfer of money from the Central bank to the commercial banks, as well as an increase in the credit creation capacity of the financial institutions. As a result, the central bank has the capacity to boost the supply of credit by purchasing government assets.