Question

How does RBI control credit

Answer 1

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The various methods employed by the RBI to control credit creation power of the commercial banks can be classified in two groups, viz., quantitative controls and qualitative controls. ... Quantitative or traditional methods of credit control include banks rate policy, open market operations and variable reserve ratio.

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Answer 2

Credit control is one of the important tools of monetary policy which functions to control liquidity in the market.

It is done by RBI in the following two ways:

1. Qualitative method: The methods under this category are rationing of Credit, publicity, Marginal requirement, Direct action and Moral suasion.

2. Quantitative method: The tools under this category are Bank rate, Cash reserve ratio( CRR) , Statutory liquidity ratio( SLR), etc.