A bank has Rs 5 million in cash The minimum reserve ratio is 20 What is maximum potential increase in total deposits?

To calculate the maximum potential increase in total deposits, we can use the formula based on the reserve ratio. The reserve ratio of 20% means that the bank must hold Rs 1 million (20% of Rs 5 million) as reserves. The remaining Rs 4 million can be loaned out. Using the money multiplier (1/ reserve ratio), which is 5 (1/0.20), the maximum potential increase in total deposits is Rs 4 million multiplied by 5, resulting in Rs 20 million. Thus, the total potential deposits could increase to Rs 25 million (original deposits plus new deposits).