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Question
Under which qualitative tool does the RBI fix the maximum limit on loan and advances that can be made, which the commercial banks cannot exceed?
Under which qualitative tool does the RBI fix the maximum limit on loan and advances that can be made, which the commercial banks cannot exceed?
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Solution
The correct option is C Rationing of credit
Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. For certain purposes, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.
Rationing of credit
Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. For certain purposes, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.
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