why do we need to expend formal sources of credit in India ?
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We need to expand the formal souces because of :-
1.)Supervision : The formal sources work under the supervision of the RBI.The RBI monitors that the banks actually maintain cash balance and give loans to small cultivators and farmers too.
On the other hand, there is no organisation which supervises the credit activities of lenders in the informal sector.They can lend at any interest rate.
2.)Lower rate of interest : The rate of interest if the formal sectors is decided by the RBI.So normally,the interest rates are very low.
Banks might not be willing to give loans to certain borrowers if they already have a loan or if they don't have enough cash balance in that bank or if they don't have anything that they can use as a collateral.
1.)Supervision : The formal sources work under the supervision of the RBI.The RBI monitors that the banks actually maintain cash balance and give loans to small cultivators and farmers too.
On the other hand, there is no organisation which supervises the credit activities of lenders in the informal sector.They can lend at any interest rate.
2.)Lower rate of interest : The rate of interest if the formal sectors is decided by the RBI.So normally,the interest rates are very low.
Banks might not be willing to give loans to certain borrowers if they already have a loan or if they don't have enough cash balance in that bank or if they don't have anything that they can use as a collateral.
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