Which of the following is not qualitative credit control measure of th...
The correct answer is option 'C' - SLR (Statutory Liquidity Ratio).
Explanation:
The Reserve Bank of India (RBI) uses various quantitative and qualitative measures to control credit in the economy. These measures are implemented to regulate the flow of credit and manage inflation.
Qualitative credit control measures are non-quantifiable measures that are aimed at influencing the credit behavior of banks and financial institutions. These measures are more flexible and discretionary compared to quantitative measures. They include:
a) Capital Rationing:
Capital rationing is a qualitative credit control measure where the RBI restricts or limits the amount of capital that banks can allocate for lending purposes. By imposing capital limits, the RBI ensures that banks have sufficient capital to meet regulatory requirements and maintain their financial stability. This measure helps in controlling excessive lending and prevents the banks from taking excessive risks.
b) Moral Suasion:
Moral suasion is a persuasive technique used by the RBI to influence the lending behavior of banks. It involves informal communication, discussions, meetings, and directives to convince banks to adopt certain credit policies. The RBI uses moral suasion to encourage banks to increase or decrease their lending activities in line with the monetary policy objectives.
c) SLR (Statutory Liquidity Ratio):
SLR is a quantitative credit control measure and not a qualitative measure. It refers to the percentage of a bank's net demand and time liabilities (NDTL) that it is required to maintain in the form of liquid assets such as cash, gold, government securities, etc. The purpose of SLR is to ensure the solvency and liquidity of banks. By adjusting the SLR, the RBI can control the flow of credit in the economy. An increase in the SLR reduces the funds available for lending, while a decrease in the SLR expands the lending capacity of banks.
d) Margin Requirement:
Margin requirement is a qualitative credit control measure that pertains to the lending against specific securities. The RBI can impose higher margin requirements, i.e., increasing the proportion of collateral that borrowers need to provide, to restrict the availability of credit for certain types of loans. Higher margin requirements reduce the amount of loans that can be availed against a given collateral, thus limiting credit expansion.
In conclusion, the correct answer is option 'C' - SLR, as it is a quantitative credit control measure rather than a qualitative measure.
Which of the following is not qualitative credit control measure of th...
C: SLR
The options you listed are all qualitative credit control measures of the Reserve Bank of India (RBI), except for the statutory liquidity ratio (SLR).
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Capital Rationing: Capital rationing is the process of limiting the amount of capital that a bank can lend to a particular borrower or sector. This is a qualitative measure that is used to ensure that banks do not lend excessively to risky or high-risk borrowers or sectors.
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Moral Suasion: Moral suasion is a non-coercive method of persuasion that is used by the central bank to influence the behavior of commercial banks. The central bank can use moral suasion to persuade banks to follow certain policies or practices, such as lending to priority sectors or maintaining a certain level of liquidity.
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Margin Requirement: The margin requirement is the percentage of the total value of a collateralized loan that must be paid in cash or other approved securities. By increasing the margin requirement, the central bank can make it more expensive for banks to lend, which can reduce the supply of credit in the economy.
The statutory liquidity ratio (SLR) is a quantitative measure of credit control that is used by the RBI to regulate the liquidity of commercial banks. It is the percentage of deposits that commercial banks are required to hold in the form of liquid assets such as cash, gold, and approved securities. By increasing the SLR, the RBI can reduce the amount of money that commercial banks have available to lend, which can reduce the supply of credit in the economy.
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