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Question
The Central bank may take direct action against the defaulting commercial banks.
Solution
- The Central Bank may refuse rediscounting facilities to those commercial banks, which may be granting too much credit for speculative and unproductive purposes in excess of their capital and reserves.
- The Central Bank may restraint them from granting advances against the collateral securities of certain commodities.
- It may charge a penal rate of interest on those banks which want to borrow from it, beyond prescribed limit.
- The Central Bank may threaten a commercial bank to be taken over by it, if it fails to follow the Bank's policies and instructions.
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