Credit creation capacity of a bank depends on the cash reserve ratio and statutory liquidity ratio. If the initial deposit (O) is Rs. 1,000 and the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) is 5% and 20%, then the credit creation capacity will be as follows

[amp_mcq option1=”Rs. 3,000″ option2=”Rs. 5,000″ option3=”Rs. 6,000″ option4=”Rs. 2,000″ correct=”option1″]

The correct answer is A. Rs. 3,000.

The credit creation capacity of a bank is the amount of money that a bank can lend out based on a given amount of deposits. It is calculated by multiplying the initial deposit by the money multiplier, which is equal to 1 divided by the sum of the CRR and the SLR. In this case, the money multiplier is 1 / (0.05 + 0.2) = 4. Therefore, the credit creation capacity is 1000 * 4 = 3000.

Option B is incorrect because it is the amount of money that the bank can lend out if there is no CRR or SLR. Option C is incorrect because it is the amount of money that the bank can lend out if there is only a CRR. Option D is incorrect because it is the amount of money that the bank can lend out if there is only an SLR.