Class 12 Finance Important Chapter 3 Credit Control Techniques of the RBI Solutions English Medium As Per The New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Important Solutions in English and select need one. AHSEC Class 12 Finance Additional Notes Download PDF. HS 2nd Year Banking Additional Solutions.
Class 12 Finance Important Chapter 3 Credit Control Techniques of the RBI
Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Additional Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Important Solutions English Medium for All Chapters, You can practice these here.
Credit Control Techniques of the RBI
Chapter: 3
| IMPORTANT QUESTION AND ANSWER |
Short Questions and Answers:
1. What is the main objective of credit control?
Ans: The main objective of credit control is to regulate the volume of credit in the economy to maintain economic stability. This involves influencing money supply, controlling inflation, stabilizing price levels, promoting employment, and ensuring economic growth. The RBI uses various tools such as the bank rate, CRR, and open market operations to control credit.
2. What is Bank Rate?
Ans: The Bank Rate is the rate at which the Reserve Bank of India lends to commercial banks for short-term loans. It is a tool used by the RBI to control credit creation in the economy. A reduction in the bank rate makes borrowing cheaper, while an increase raises the cost of borrowing, thereby reducing credit.
3. What is Cash Reserve Ratio (CRR)?
Ans: The Cash Reserve Ratio (CRR) is the minimum percentage of a commercial bank’s total deposits that must be kept with the Reserve Bank of India in the form of reserves. Increasing the CRR reduces the lending capacity of banks, while reducing the CRR increases it.
4. How does Open Market Operations (OMO) work?
Ans: Open Market Operations (OMO) involve the buying and selling of government securities by the RBI in the open market. When the RBI buys securities, it increases liquidity in the banking system, thereby increasing the money supply. Selling securities reduces liquidity and curbs credit expansion.
5. What is the role of Statutory Liquidity Ratio (SLR) in credit control?
Ans: The Statutory Liquidity Ratio (SLR) is the percentage of a bank’s net demand and time liabilities (NDTL) that must be kept in liquid assets. By increasing the SLR, the RBI reduces the lending capacity of commercial banks, thus controlling the money supply in the economy.
6. What is Credit Rationing?
Ans: Credit rationing is a selective credit control method where the RBI fixes credit quotas for commercial banks. This method ensures that credit is allocated to priority sectors while limiting credit to less desirable sectors. It helps control excessive credit creation in non-essential areas.
7. What is Moral Suasion in credit control?
Ans: Moral suasion is a non-coercive method used by the RBI to persuade commercial banks to follow its monetary policy guidelines. The RBI urges banks to adjust their lending behavior during inflationary or deflationary periods. It encourages banks to support or reduce lending as needed to maintain economic stability.
8. What are Directives issued by RBI?
Ans: Directives are written or oral instructions issued by the RBI to commercial banks. These directives regulate various banking operations, such as lending policies, loan approvals, and compliance with statutory requirements. They ensure that banks align with the national economic policy and manage credit in a controlled manner.
9. What is the effect of reducing the CRR?
Ans: Reducing the Cash Reserve Ratio (CRR) increases the liquidity in the banking system by reducing the reserve requirements of banks. This allows banks to extend more loans and create more credit, increasing the money supply and stimulating economic activity.
10. What is the purpose of Credit Control techniques?
Ans: The purpose of credit control techniques is to regulate the money supply in the economy to ensure stable prices, economic growth, and financial stability. These techniques help the RBI manage inflation, stabilize the exchange rate, control cyclical fluctuations, and ensure the availability of credit to priority sectors.
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