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Which condition is essential for banks to create credit?

medium Q14 of 15
Banking Awareness - Basics Of Banking & Banking Terminology
Which condition is essential for banks to create credit?
AAvailability of deposits
BHigh inflation rate
CBudget surplus
DIncrease in gold reserves
Step-by-Step Solution

  1. Step 1: Identify prerequisite

    Banks need funds to lend.

  2. Step 2: Apply banking logic

    Deposits provide the necessary funds for lending.

  3. Final Answer:

    Availability of deposits → Option A

  4. Quick Check:

    No deposits means no base for loans ✅
Quick Trick: No deposits = no credit creation.
Common Mistakes:
  • Linking credit creation with inflation alone.
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