Option 1: Rs. 5 -> This would result from incorrectly dividing reserves by CRR, which is not the correct approach.
Option 2: Rs. 100 -> This assumes no money multiplication effect, ignoring the fractional reserve banking mechanism.
Option 3: Rs. 500 -> Using money multiplier formula (1/CRR = 1/0.20 = 5), total deposits = 100 × 5 = Rs. 500.
Option 4: Rs. 20 -> This represents 20% of reserves (the reserve requirement itself), not total deposits created.
Hence, Option 3: Rs. 500 -> With a Cash Reserve Ratio of 20% (0.20), the money multiplier is calculated as 1/CRR = 1/0.20 = 5. When banks have reserves of Rs. 100, they can create total deposits equal to Reserves × Money Multiplier = 100 × 5 = Rs. 500. This demonstrates the credit creation capacity of banks under fractional reserve banking, where banks only need to hold a fraction (20%) of deposits as reserves while lending out the rest. -> correct