Credit Control Measures by RBI What is a

Credit Control Measures by RBI

What is a Credit control? Credit Control is an important tool used by the Reserve Bank of. India, a major weapon of the monetary policy used to control the demand supply of money (liquidity) in the economy.

Methods to Control credit There are two methods that the RBI uses to control the money supply in the economy. They are 1. Quantitative control measures 2. Qualitative (or) Selective Credit Control measures

The quantitative credit control instruments are 1. Repo rate 2. Reverse repo rate 3. bank rate 4. cash reserve ratio 5. Satutory Liquidity Ratio and 6. open market operations

The main instruments used in Qualitative methods are 1. Margin Requirements 2. Regulation of Consumer Credit 3. Direct Action 4. Rationing of credit 5. Moral Suasion

Repo Rate Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend

Reverse Repo Rate The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate

3. Ban k Rat e It is the rate at which the RBI lends money to the commercial banks for their liquidity requirements.

Cash Reserve Ratio (CRR) All commercial banks are required to keep a certain amount of its deposits in cash with RBI. This percentage is called the cash reserve ratio.

Statutory Liquidity Ratio (SLR): Banks in India are required to maintain a certain per cent of their demand time liabilities in government securities and certain approved securities(in the form of gold, cash and bonds ).

Open Market Operation: Direct buying and selling of government securities by the central bank in the open market is called as open market operations.

� Qualitative Credit control measures 1. Margin Requirements

2. Regulation of Consumer Credit

3. Direct Action

4. Rationing of credit

5. Moral Suasion

Conclusion