The balance sheet of a bank is shown below (amounts in Rs).
| Assets | Liabilities |
|---|---|
| Reserves Rs 100 | Deposits Rs 500 |
| Loans Rs 400 | |
| Total Rs 500 | Total Rs 500 |
If the bank is fully loaned up, what reserve ratio is it required to keep?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 20 per cent
A fully loaned-up bank holds just the required reserves. The reserve ratio is reserves as a share of deposits.
Reserve ratio = 100 ÷ 500 = 0.2 = 20 per cent
Reserves divided by loans (100 ÷ 400) gives 25 per cent, which is the wrong base.
Note: Small tables inside a chapter, such as a bank’s balance sheet, are a favourite place for questions. Read them line by line.
NCERT (2026-27): “3.3.2 Limits to Credit Creation and Money Multiplier … Since the bank is only expected to keep 20 per cent of its deposits as reserves, thus, reserves of Rs 100 (20per cent of 500 = 100) can support the deposits of Rs 500. In other words, our bank can give a loan of Rs 400. Table 3.3 demonstrates its balance sheet. |