How was RBI controlling the commercial banks?

RBI controls the commercial banks through the followingmeasures: (I)RBI Fixes the Bank Rate and Repo Rate:Bankrate is the interest rate at which the RBI lends funds to other commercial banks in the country. Itis also called the discount rate. In order to controlthe supply of currency in the economic system, RBIoften uses the bank rate. On the other hand. RepoRate is the rate at which commercial banks willborrow the funds from the RBI against thesecurities. In order to make credit dearer, RBIincreases these rates. (il)Variable Reserve Ratios:The commercial bankshave to keep a certain proportion of their totalassets in the form of liquid assets so that they arealways in a position to honour the demand forwithdrawal by their customers. Generally, thefollowing two reserves are required to be maintained: (a) Cash Reserve Ratio: CRR refers to thepercentage of deposits of the commercial bankswhich they have to maintain with the RBI incash form. (b) Statutory Liquidity Ratio: SLR refers to thepercentage of deposits to be maintained asreserves in the form of gold or foreignsecurities by commercial banks. By varyingreserve ratios, lending capacity of commercialbanks is affected. (iii)Fixing Margin Requirements:The margin refers to the "proportion of the loan amount which is not financed by the bank". By increasing or decreasing margin requirements, the RBI tries to control the lending capacity ' banks. (Iv)Credit Rationing:RBI can fix the upper limit of credit amount to be granted for various purposes; This can help in lowering the credit exposure of commercial banks to undesirable sectors. read less