How can 'Jan-Dhan Yojana' be used as an instrument to increase the supply of money by the commercial banks?
How can 'Jan-Dhan Yojana' be used as an instrument to increase the supply of money by the commercial banks?
A large section of the population in India does not have access to the banking system. 'Jan-Dhan Yojana' prompts people to open their bank accounts. When more accounts are opened, then some of the cash balances with the people (or idle cash lying with people) are bound to reach the banking system as cash deposits or primary deposits. This increase enables commercial banks to increase their cash reserves with the central bank. If ACR (additional cash reserves with the RBI) = Rs.10,000 and if CRR = 4%, then the additional demand deposits the banks can create 14%×10,000 = Rs. 2,50,000. This is how Jan-Dhan Yojana may be used as an instrument to increase the supply of money by the commercial banks.
A large section of the population in India does not have access to the banking system. 'Jan-Dhan Yojana' prompts people to open their bank accounts. When more accounts are opened, then some of the cash balances with the people (or idle cash lying with people) are bound to reach the banking system as cash deposits or primary deposits. This increase enables commercial banks to increase their cash reserves with the central bank. If ACR (additional cash reserves with the RBI) = Rs.10,000 and if CRR = 4%, then the additional demand deposits the banks can create 14%×10,000 = Rs. 2,50,000. This is how Jan-Dhan Yojana may be used as an instrument to increase the supply of money by the commercial banks.
