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Questions
Briefly explain two qualitative methods of credit control adopted by this institution.
Explain any three methods of qualitative credit control.
Solution
The methods used by the RBI to influence the flow of credit in particular directions of the economy are called qualitative methods. The two qualitative methods of credit control are as follows:
- Margin Requirements: A margin is the difference between the amount of the loan and the market value of the security offered by the borrowers against the loan. By changing the margin requirement, the central bank can alter the amount of loans made against securities by the banks.
- Rationing of Credit: Rationing of credit means fixation of credit quotas for different sectors of the economy.
- Moral Suasion: Under this method, the central bank adopts the policy of persuasion and moral influence on the commercial banks in order to get them to fall in line with its policy. The central bank frequently announces its policy and urges the commercial banks to adopt it.
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