It paves way for the optimum utilization of money. Variations of reserve requirements affect the liquidity position of the banks and hence their ability to lend.
But, since the central bank is the leader of the money market and the lender of the last resort, al other rates are closely related to the bank rate. Let us discuss these methods one by one. The demand for bank credit cannot be wholly controlled by commercial banks or by the Central Bank, but it depends upon the actions if the businessmen.
It is not a statutory obligation. The RBI has power to vary the margin requirements depending upon the business conditions prevailing in the country. In case they desire to inject fresh funds in the cash market, they will conduct 'Reverse Repo' transactions.
Regulation of consumer credit: Central seek to control such credit in several ways. When RBI buys government securities the volume of credit increases and when securities are sold the volume of credit decreases.
The central bank The methods of credit control request and persuade member banks to refrain from increasing their loans for speculative or non-essential activities.
A rise in the value of deposit multiplier, on the other hand, amounts to the fact that the commercial banks can create more credit, and make available more finance for consumption and investment expenditure.
As a result, the market rate will go up.
But such markets are to be found only in advanced countries. Because of this, credit becomes dear and borrowing from banks becomes costly. But this method may lead to conflict between the central bank and commercial banks.
Qualitative or Selective Controls: Accordingly, control of credit is essential for stability and orderly growth of an economy. These methods are indirect in nature. Presently, this ratio stands at 9 percent. If margin percent is lessmore loans will be given. Regulation of consumer credit is designed to check the flow of credit for consumer durable goods.
Quantitative Methods of Credit Control: The bank rate is the rate at which the central bank of a country is willing discounts the first class bills. This Rate is increased during the times of inflation when the money supply in the economy has to be controlled.
Here there is no element of compulsion. Central seek to control such credit in several ways. Selective credit control is considered a useful supplement to general credit regulation and its effectiveness may be greatly enhanced when used together with general credit controls.
A fall in bank rate may, thus, prove an anti-deflationary instrument of control. In the monetary system of all countries, the central bank conquers an important place.
The Central Bank to regulate the consumer credit, fixes the down payments and the period over which the installments are spread. In India, from onwards, the Reserve Bank has been successful in using the method of moral suasion to bring the commercial banks to fall in line with its policies regarding credit.
Second, a large proportion of money in circulation should form part of the organised money market. · Quantitative Methods of Credit Control in Central Bank. By credit control, central bank tries to keep the level of credit in the balanced position available in the market.
For this purpose central bank uses some methods known as tools of credit control. Here the tools of credit control are fmgm2018.com /quantitative-methods-credit-control-central-bank.
This method is not used in isolation; it is used as a supplement to other methods of credit control. Direct action may take the form either of a refusal on the part of the Central Bank to re-discount for banks whose credit policy is regarded as being inconsistent with the maintenance of sound credit conditions.
· Some of the methods employed by the RBI to control credit creation are: I. Quantitative Method II. Qualitative Method. The various methods employed by the RBI to control credit creation power of the commercial banks can be classified in two groups, viz., fmgm2018.com · By using credit control methods RBI tries to maintain monetary stability.
There are two types of methods: Quantitative control to regulates the volume of total credit. Qualitative Control to regulates the flow of credit; Here is a brief description of the quantitative and qualitative measures of credit control fmgm2018.com Some of the methods employed by the RBI to control credit creation are: I.
Quantitative Method II. Qualitative Method. The various methods employed by the RBI to control credit creation power of the commercial banks can be classified in two groups, viz., quantitative controls and qualitative controls. Definition of credit control: Activity aimed at serving the dual purpose of (1) increasing sales revenue by extending credit to customers who are deemed a good credit risk, and (2) minimizing risk of fmgm2018.comDownload