FAQ: What Is Selective Credit Control?

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What is the purpose of selective credit control?

Some General Considerations. Selective credit controls are intended to encourage or discourage specific types of investment and expenditure by influencing the lending policy of banks and similar credit institutions.

What is selective credit control by RBI?

Selective credit control is a tool in the hands of Reserve Bank of India to restrict bank finance against sensitive commodities. These sensitive commodities generally include: (i) Minimum margin for lending against security of specified commodities is fixed.

How does selective credit control work?

According to this method of selective credit control the commercial banks are instructed to encourage borrowing for certain purposes and discourage certain, other types of borrowing. For example, during inflationary period, the central bank may curtail the commercial banks from lending to enable consumers to buy T.V.

What is selective credit control class 12?

It refers to credit control policy of the Central Bank that seeks to increase the flow of credit to priority sectors of the economy. It would also mean restricting the flow of credit to certain sectors, particularly those related to speculative business activity.

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What are the methods of credit control?

The following are the important methods of credit control under selective method:

  • Rationing of Credit.
  • Direct Action.
  • Moral Persuasion. ADVERTISEMENTS:
  • Method of Publicity.
  • Regulation of Consumer’s Credit.
  • Regulating the Marginal Requirements on Security Loans.

What is not a selective method of credit control?

d Variable Reserve Ratio Cash Reserve Ratio is aimed to control only volume of credit quantitative method not both volume and purpose of credit for which bank gives loans. Qualitative method and selective control method are used for these purposes. It has a number of limitations.

Which of the following is a selective credit control?

Credit rationing is a selective (qualitative) credit control method.

How does RBI control credit in the economy?

Buying and selling of government securities by the RBI in the open market is called open market operations. When RBI buys government securities the volume of credit increases and when securities are sold the volume of credit decreases. This leads to contraction of credit in the economy.

Which is the tools of qualitative credit control?

Margin Requirements, Moral Suasion, Selective Credit Control, Direct Action, Rationing of Credit are the qualitative tools used to control the credit.

What is selective method?

Selective credit control refers to qualitative method of credit control by the central bank. The method aims, unlike general or quantitative methods, at the regulation of credit taken for specific purposes or branches of economic activity.

What is meant by credit control?

Credit control is a business strategy that promotes the selling of goods or services by extending credit to customers. Credit control focuses on the following areas: credit period, cash discounts, credit standards, and collection policy.

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What is reverse repo rate?

Definition: Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

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