0Types of Credit Control Measures
A. Quantitative (General) Measures
These regulate the overall supply of money and credit in the economy.
1. Repo Rate
The rate at which RBI lends to commercial banks.
Increase → costlier borrowing → less credit → control inflation.
Decrease → cheaper borrowing → more credit → boosts growth.
2. Reverse Repo Rate
The rate at which RBI borrows from commercial banks.
Used to absorb excess liquidity from the system.
3. Cash Reserve Ratio (CRR)
The minimum percentage of deposits that commercial banks must keep as cash with RBI.
Higher CRR → less money for lending → reduces credit.
4. Statutory Liquidity Ratio (SLR)
Percentage of deposits banks must maintain in gold, cash, or approved securities before lending.
5. Open Market Operations (OMO)
Buying and selling of government securities by RBI to control liquidity in the market.
B. Qualitative (Selective) Measures
These control credit flow to specific sectors rather than the entire economy.
1. Margin Requirement
Difference between the value of a loan and the value of security offered.
Higher margin → less borrowing.
2. Credit Rationing
Limits the maximum loan amount to particular sectors.
3. Regulation of Consumer Credit
Controls installment credit for durable goods.
4. Moral Suasion
RBI advises banks to follow certain policies in the interest of the economy.
5. Direct Action
RBI can take direct action against banks violating credit policies.
Objective
Control inflation and deflation.
Maintain economic stability.
Promote growth by channelizing credit to productive sectors.
