Question

Name the institution that enjoys the monopoly of currency notes issue in India. Briefly explain two qualitative methods of credit control adopted by this institution.

Answer 1

The institution that enjoys the monopoly of note issue in India is Reserve Bank of India (RBI). It is the central bank of India.

Qualitative Methods of Credit Control -

(i) Credit rationing - The RBI may also specify a ceiling limit on the maximum level of credit which can be given on the stocks of selected commodities to limit the quantum of credit given to a specific industry or sector of economy. For example - The RBI may prescribe the limit for food credit for each year. This will ensure that excess credit will not flow to this sector of economy.
(ii) Moral Suasion - It is a method of request and advice to the commercial banks by the central bank. Central bank requests the commercial banks not to grant credit for speculative and non-essential activities. Since the 'central bank' is the symbol of financial authority and sovereignty, the commercial banks honour such requests. This method proves very effective under normal conditions of market and economy.