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) –
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| 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.
