Meaning: -Selective credit controls have been
taken to control money supply or credit, i.e. either to increase or decrease
the money supply to specific purposes. Such controls the flow of money into
unproductive channels or purposes. The selective controls are
QUALITATIVECREDIT
(SELECTIVE) CONTROL
1.
Ceiling on the Level
of Credit: -The ceiling (upper limit) on the level of
credit restricts the lending capacity of a bank to grant various advances
against certain controlled commodities or securities.
2.
Margin Requirements: -The RBI imposes minimum margin requirements, which vary from 20% to 80% for
lending against securities or commodities. Margin against a particular security
is decreased or increased in order to encourage or discourage the flow of
credit to a particular sector.
3.
Directives: -
The RBI issue directives (orders) to banks regarding advances. Directives are
issued in the following aspects.
·
Minimum margin requirements against securities.
·
Maximum limit on advances to borrowers.
·
The Percentage of CRR and Statutory Liquidity Ratio (SLR)
·
Minimum lock-in period, etc.
The RBI takes necessary action on
those banks, which fail to comply with its directives.
4.
Moral Suasion: -Under moral suasion, the RBI
issues periodical letters to bank to exercise control over credit. Such
periodical letters act as a remainder to the banking sector to follow credit
control norms (rule).
5.
Direct Action: - The
Centralbank may take direct action on commercial banks for not observing the
guidelines. The banks have to follow central bank directives or guidelines in
case of granting credit such as margin requirements.
6.
Publicity: -Central bank publishes
information regarding money market and credit situation in the market. This
information can be useful to the banks in framing credit policy and fixing
interest rates.
7.
Regulation of
consumer Credit: -The central bank frames guidelines relating to consumer credit. The
bank providing consumer credit to buy consumer durables and other items have to
follow such guidelines.
