Discuss the various methods of credit control as followed by rbi?
Answers
Qualitative method
controls the manner of channelizing of cash and credit in the economy. It is a 'selective method' of control as it restricts credit for certain section where as expands for the other known as the 'priority sector' depending on the situation.
Tools used under this method are:
Marginal requirement
Marginal requirement of loan = current value of security offered for loan-value of loans granted.
e.g.- a person mortgages his property worth Rs. 100,000 against loan. The bank will give loan of Rs. 80,000 only. The marginal requirement here is 20%.
In case the flow of credit has to be increased, the marginal requirement will be lowered. RBI has been using this method since 1956.
Rationing of credit
Under this method there is a maximum limit to loans and advances that can be made, which the commercial banks cannot exceed.
Publicity
RBI uses media for the publicity of its views on the current market condition and its directions that will be required to be implemented by the commercial banks to control the unrest.
Direct Action
Under the banking regulation Act, the central bank has the authority to take strict action against any of the commercial that refuses to obey the directions given by RBI. There can be a restriction on advancing of loans imposed by Reserve Bank of India on such banks. e.g. – RBI had put up certain restrictions on the working of the Metropolitan co-operative banks.
Moral persuasion
RBI being the apex bank persuades the commercial banks to follow its directions on the flow of credit.