Page 69 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes
19 1,174,834 2,758,750 253,554
20 3,366,940 2,555,000 1,065,494
21 1,860,300 2,349,250 576,544
22 1,903,860 1,043,250 1,437,154
23 2,400,000 3,100,740 736,414
24 0 0 736,414
25 0 0 736,414
26 1,699,680 2,237,750 198,344
27 2,986,200 2,128,500 1,056,044
28 1,195,500 2,309,000 (57,456)
29 2,882,200 1,475,500 1,349,244
30 2,246,300 506,800 3,088,744
31 0 0 3,088,744
Total 44,917,294 41,385,850

Separately, Table 2 shows the new good funds credits to Bhatt account each day in August.
It also shows the cheques that cleared, as reported by the bank.
Questions

1. Draw the monthly report giving the real picture about:
(a) Total Cheques Written
(b) Average Cash Balance
2. For how many days, the firms have negative cash balance and also mention the day
of week, which has highest level of deposit and highest level of cheques written.
Source: Sudhindra Bhatt, “Financial Management – Principles and Practice”, Excel Books

4.4 Summary

Credit creation is one of the essential functions of a commercial bank. Credit is finance
that is made available by one party – lender, seller, or shareholder / owner – to another
party – borrower, buyer, or a business firm.

Credit is simply the opposite of debt; both are created instantly by the same contract. It is
a special sort of exchange transaction involving future payments, interest added to debt at
its time value.
The commercial banks create multiple expansions of their bank deposits and due to this,
these are called the factories of credit.

Credit creation constitutes the major component of money supply in the economy.
Commercial banks differ from other financial institutions in this aspect.

Commercial banks give loans and advances against some security to the public. But the
bank does not give the amount of loan directly. It opens an account in the name of the
borrower and deposits the amount in that account.

Reserve Bank of India is the first source of supply of money in the form of currency in
circulation. The central bank is the only note issuing authority of the country. The RBI
ensures availability of currency to meet the transaction needs of the economy.

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