If credit growth continues to outpace deposits in the banks, then it will lead to which one of the following scenarios? |ForumIAS

Q. If credit growth continues to outpace deposits in the banks, then it will lead to which one of the following scenarios?

[A] Banks will see increased profitability and stability

[B] Banks may face liquidity challenges

[C] Banks will see a significant increase in current and savings account deposits

[D] Banks will approve fewer loans to prevent excess liquidity in the system

Answer: B

Notes:

Explanation – If credit growth (the amount of money banks lends out) continues to outpace deposits (the money people keep in the bank), banks could face liquidity challenges. This means they might struggle to have enough readily available funds to meet withdrawal demands or other financial obligations.

Source: The Hindu

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