Question

Discuss briefly about 'Moral suasion'.

Answer 1

Moral suasion is a qualitative method of credit control, being used by the central bank. Under this method, the Central Bank merely uses its moral influence on the commercial banks. It includes the advice, suggestion request and persuasion with the commercial banks to co-operate with the Central Bank. If the commercial banks do not follow the advice extended by the Central Bank, no penal action is taken against them. The success of this method depends upon the cooperation between the Central Bank and Com­mercial Banks and the respect the Central Bank commands from other banks.