Limitation of Credit Creation साख बनाने की सीमा

Limitation of Credit Creation Limitation of Bank Activity

There are lots of activities which help the bank for credit creation. Also there are lots of things which affect the credit creation. A bank has lots of roles and responsibilities towards the public & industries. Here, we are discussing some of issue which are the  Limitation of Credit Creation (साख बनाने की सीमा) –

Limitation of Credit Creation साख बनाने की सीमा 

ü Cash in Hand – a bank is able to make a credit creation with the amount which he has. If a bank has more amounts for loan or credit creation than after he give more loans and make a credit. Other side also, if there is a less amount in hands, a bank should not able to make a more credit creation.

ü Public habits towards banking - if people are using banking system aggressively than a bank able to make more credit creation. If people not using cheques then a bank is not able to make more credit creation.

ü Liquid Ration – a ratio which define the parameter of a bank have the cash for day to day uses. If the ratio is high then a bank has left a little amount for loan. Other side, if there is a low liquid ratio then a bank has more amount to loan or credit creation.

ü Leakages – there are lot of leakages in the bank system or in credit creation. For example if any person take a loan or not summit the cash in another bank or hold the entire amount in cash in hand. These things become the limitation of the credit creation.

ü Clearance of different cheque – there is one assumption in the process that there are quick services for clearance of different cheque. But there are lots of problem in the settlement.

ü Banking Behaviour – banking behaviour also influence the credit creation. For example if the bank is not giving the loan according to the requirement or equal to the excess amounts then also we are not able to make a healthy credit creation.

ü Central bank policy – if our central bank adopts a credit control policy than also our bank not able to make a health credit because central bank is the supreme of the entire bank and policy maker for the entire bank. Our environment also helps us to make a credit creation. If there is a positive environment for growth then public or industries take more loans for investment and there is a negative environment then public avoids the investment plan.