Calculate the total deposits made by commercial banks when the primary deposit is 20 crores and cash reserve ratio is 20 % . Choose the correct option.

100 Crores

 The correct answer is option (4) : 100 Crores

To calculate the total deposits made by commercial  banks, we need to account for the cash reserve ratio (CRR). The cash reserve ratio is the portion of deposits that banks are required to hold in reserve and not lend out. The total deposits in the banking system are a multiple of the primary deposit, which is the initial deposit made by a customer.

Here's the reason for the calculation :

1. Primary Deposit : The primary deposit is 20 Crores, as given in the question.

2. Cash Reserve Ratio (CRR) : The CRR is 20%. This means that banks are required to hold 20% of the primary deposit in reserve. The remaining 80% can be used to create loans and generate additional deposits through the lending process.

Money Multiplier = 1/CRR

Given the CRR is 20% (or 0.20), the money multiplier is = 1/0.2= 5

The total deposits made by commercial banks can be calculated by multiplying the primary deposit by the money multiplier:

Total Deposits=Primary Deposit * Money Multiplier

                       = 20 * 5

                       = Rs100 Crores