Rationing of credit is a tool used in
(A). Og quantitative credit control
(B). qualitative credit control
(C). both qualitative and quantitative credit control
(D). None of the above
Answers
Option (B) is the correct answer.
Rationing of Credit is used in "Qualitative Credit Control".
Extra Information:
There are 2 instruments of Credit control followed by the RBI. They are:
1. Quantitative Credit Control
2. Qualitative Credit Control
Quantitative Credit Control refers to the control of flow of money across the whole country in an overall point of view.
Qualitative Credit Control refers to the control of flow on money only across a particular sector present in the country. E.g. Controlling flow of money in Agricultural Sector (or) Industrial Sector, etc.
Rationing of Credit refers to the control of flow of money by fixing some limits to the number of loans given or any other aspects to prevent inflation.
For example, if a bank decides to offer Housing Loan at a very low rate of interest, then people will start taking loan in large numbers due to which demand for the loan amount in the market rises. Due to this, the cost of building houses, raw materials, workforce, etc. will start to rise paving path for Inflation to occur. Hence to control the Inflation, RBI steps in to regulate the number of loans given as well as setting a standard rate of interest in order to prevent Inflation from occurring. This is called Rationing of Credit.