Bank balance sheet
Topic: Banking, Credit Creation and Monetary Policy · NCERT: Class 12, Ch 3 "Money and Banking"
Meaning
A bank balance sheet records what a bank owns (assets) and what it owes (liabilities). Its assets are its reserves (cash in its vault plus its deposits with RBI) and the loans it has given. Its main liability is deposits, because the bank owes that money to depositors. Both sides must balance.
- Assets = Reserves + Loans
- Liabilities = Deposits
- Net worth = Assets − Liabilities
The balance sheet shows how credit creation works: every new loan adds an asset, and when the money comes back to the bank, it adds a new deposit.
Example
Leela deposits ₹100, and the cash reserve ratio is 20%. The bank keeps ₹20 as reserves and lends ₹80.
- Assets: ₹20 reserves + ₹80 loans = ₹100
- Liabilities: ₹100 deposits
When the ₹80 comes back as a new deposit, deposits rise to ₹180, and the process continues.
Related concepts
- Credit creation
- Bank reserves
- Money multiplier
- Currency deposit ratio
- Reserve deposit ratio
- Bank run
- High-powered money
- Currency in circulation
- Money supply
- M1