FAQ: Which Is The Instrument Used By Rbi Under General Credit Control?


How many instruments are used in credit control?

These include bank rate policy, open market operations, Statutory Liquidity Ratio, Repo rate, Reverse Repo rate and Cash Reserve Ratio.

What are the instruments of credit control in the banking system?

Quantitative or traditional methods of credit control include banks rate policy, open market operations and variable reserve ratio. Qualitative or selective methods of credit control include regulation of margin requirement, credit rationing, regulation of consumer credit and direct action.

What are the instruments for credit policy?

Of the two types of instruments, the first category includes bank rate variations, open market operations and changing reserve requirements (cash reserve ratio, statutory reserve ratio). Policy instruments are meant to regulate the overall level of credit in the economy through commercial banks.

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What are the instruments of credit control explain it briefly?

These methods regulate the lending ability of the financial sector of the whole economy and do not discriminate among the various sectors of the economy. The important quantitative methods of credit control are- (a) bank rate, (b) open market operations, and (c) cash-reserve ratio.

Who controls the supply of money and bank credit?

The central bank of a country has complete control over the money supply and the credit in the best interest of the economy.

Which are 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 the main purpose of credit control?

Credit control ensures that only prospective customers who have a good credit history of making their debt repayments are preferred. This will ensure that the company will have enough cash flow and liquidity to maintain its operations.

How do you control your credit?

Best Practice Tips for more Effective Credit Control

  1. Ensure sales staff are familiar with company’s credit policy.
  2. Use a credit application form.
  3. Make a credit check on each new customer (bank references –v/s- trade references v/s Management accounts).
  4. Obtain a personal guarantee from “doubtful” customers.

What happens when CRR is increased?

When the CRR is increased, the amount of funds that a bank can lend decreases. Banks then try to encourage more deposits by increasing the interest rates. Rising interest rate usually discourage loan seekers as a higher interest rate means that the cost of money has increased.

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What is the importance of credit instrument?

The credit instrument enables the creditor to hold the host instrument to collect from his debtor. Credit instruments facilitate exchange transactions. To increase volume production, producer’s farmers, manufacture and merchants avail themselves credit both use of the proper credit instrument.

What is CRR and SLR?

CRR is the percentage of money, which a bank has to keep with RBI in the form of cash. On the other hand, SLR is the proportion of liquid assets to time and demand liabilities. CRR regulates the flow of money in the economy whereas SLR ensures the solvency of the banks.

What is control of money supply?

Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply. Other tactics central banks use include open market operations and quantitative easing, which involve selling or buying up government bonds and securities.

What can RBI do if it wants to control credit in the economy?

As such, credit policies are the best available option to boost the economy. To do this, the RBI announced the following measures: Banks will be given cash reserve ratio relief on incremental auto loans, retail housing loans and and all micro, small and medium enterprises loans.

What is credit control of RBI?

Credit control is an important tool of the monetary policy used by Reserve Bank of India (central bank) to control the demand and supply of money and flow of credit in an economy. RBI keeps control over the credit created by commercial banks.

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What is the meaning of 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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