Quantitative Measures v/s Qualitative Measures of Credit Control

Quantitative Measures v/s Qualitative Measures of Credit Control

Here is a brief description of the qualitative and quantitative measures.

The quantitative measures of credit control are :

• Bank Rate Policy: The bank rate is the Official interest rate at which RBI rediscounts the approved bills held by commercial banks. For controlling the credit, inflation and money supply, RBI will increase the Bank Rate.
  
• Open Market OperationsOpen market Operation refers to the purchase and sale of the Government securities by the Reserve bank of India from / to public on its .....: OMO The Open market Operations refer to direct sales and purchase of securities and bills in the open market by Reserve bank of IndiaThe Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 with ...... The aim is to control volume of credit.
  
• Cash Reserve RatioThe Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India, with reference to the .....: Cash reserve ratio refers to that portion of total deposits in commercial Bank which it has to keep with RBI as cash reserves.
  
• Statutory Liquidity Ratio: It refers to that portion of deposits with the banks which it has to keep with itself as liquid assetsProportion of listed unit trust’s or mutual fund portfolio that is kept in cash or easily encashable assets to meet any request for redemption. (Gold, approved govt. securities etc.)
  
  • If RBI wishes to control credit and discourage credit it would increase CRR & SLR.
    

Qualitative credit is used by the RBI for selective purposes. Some of them are

• MarginAn advance payment of a portion of the value of a stock transaction. The amount of credit a broker or lender extends to a customer ..... requirements: This refers to difference between the securities offered and amount borrowed by the banks.
  
• Consumer Credit Regulation: This refers to issuing rules regarding down payments and maximum maturities of instalment credit for purchase of goods.
  
• RBI Guidelines: RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.
  
• Rationing of credit: The RBI controls the Credit granted / allocated by commercial banks.
  
• Moral Suasion: psychological means and informal means of selective credit control.
  
• Direct Action: This step is taken by the RBI against banks that don't fulfil conditions and requirements. RBI may refuse to rediscount their papers or may give excess credits or charge a penal rate of interest over and above the Bank rate, for credit demanded beyond a limit.