Write Short Notes on:
Qualitative Credit Control methods of the Central Bank.
Qualitative Credit Control methods of the Central Bank.
Qualitative Methods of credit control refers to the monetary policy by the central bank which includes
those instruments that focus on the selected sectors of the economy to control and regulate the money supply. It
includes:
A. Margin
Requirement:
Margin
requirement refers to the difference between the current value of the security
offered for loan (called collateral) and the value of loan granted. It is
a qualitative method of credit control adopted by the central bank in order to
stabilize the economy from inflation or deflation.
B. Rationing
of Credit:
Rationing of
credit refers to fixation of credit quotas for different business activities
which is introduced when the flow of credit is to be checked particularly for
speculative activities in the economy.
C. Moral Suasion:
Moral suasion
refers to the persuasion and pressure which central bank exert on the member
banks in order to follow its directives. These are generally not ignored
by the member banks as it comes directly from the upper authority. The banks
are advised to restrict the flow of credit during inflation and be liberal in
lending during deflation.
Qualitative Methods of credit control refers to the monetary policy by the central bank which includes those instruments that focus on the selected sectors of the economy to control and regulate the money supply. It includes:
A. Margin Requirement:
Margin
requirement refers to the difference between the current value of the security
offered for loan (called collateral) and the value of loan granted. It is
a qualitative method of credit control adopted by the central bank in order to
stabilize the economy from inflation or deflation.
B. Rationing of Credit:
Rationing of credit refers to fixation of credit quotas for different business activities which is introduced when the flow of credit is to be checked particularly for speculative activities in the economy.
C. Moral Suasion:
Moral suasion refers to the persuasion and pressure which central bank exert on the member banks in order to follow its directives. These are generally not ignored by the member banks as it comes directly from the upper authority. The banks are advised to restrict the flow of credit during inflation and be liberal in lending during deflation.
