Question

Read the extract given below and answer the questions that follow:

MONEY CONTROL NEWS June 12, 2023/07: 05 PM IST The Reserve Bank of India (RBI) on June 12 imposed monetary penalties on four cooperative banks citing various rule violations. These are Cooperative Bank of Rajkot, Telangana State Cooperative Apex Bank Ltd, The Bihar State Cooperative Bank Ltd and Jowai Cooperative Urban Bank Ltd. The RBI's enforcement operations are conducted by the Enforcement Department. The RBI's EFD was set up in April 2017 to separate enforcement action from the supervisory process. The EFD identifies actionable violations from the inspection reports, risk assessment reports and scrutiny reports. Market intelligence reports, references from the top management and complaints are also used for investigation.

1. Which type of credit control method of the RBI has been highlighted in the above case study?
2. Citing reasons state the advantage of credit card over currency notes.
3. Briefly explain the following credit control methods adopted by the Central Bank:
   1. Publicity
   2. Moral suasion

Answer 1

1. The extract highlights the direct action credit control mechanism. The RBI penalised four cooperative banks for various regulation infractions. The RBI uses direct credit control measures, such as issuing penalties, to ensure compliance with banking regulations.
2. The advantage of credit card over currency notes are:
   1. Convenience: Credit cards provide greater convenience than carrying monetary notes. They are convenient for in-person and online transactions, as they eliminate the need for actual cash.
   2. Safety and Security: Credit cards offer superior security against theft and loss. If a credit card is lost or stolen, it can be blocked and replaced. However, money notes are typically irrecoverable. Credit card transactions can be traced and monitored to prevent fraud.
3. Credit control methods adopted by the Central Bank:
   1. Publicity: The Central Bank shares information with the public to educate and influence borrowers and lenders. The process involves releasing guidelines, policies, and warnings about the economic conditions to influence lending habits and ensure financial stability.
   2. Moral suasion: The central bank persuades and encourages commercial banks to follow its policies and regulations. The central bank can achieve monetary and credit conditions through informal contact, meetings, and speeches, rather than explicit mandates or orders.