Brief Notes On Functions Of Controller Of Credit At Central Bank

A country only owns one Central bank. This bank is owned and controlled by the government. The central bank is an apex institution in the money market. They are popular for regulating the credit of the economy. They are different from commercial banks and do not aim for profit, but still, they get a good amount of profit. They have the power to control and regulate the other commercial banks in the banking system in the country. It has the ability to support the economic policy of the government.

Credit Controller

A credit control, also called credit management, is a policy that includes plans and strategies designed by a business or markets in order to enhance the sales of goods and services by extending credit to customers or clients. At the same time, a credit controller is empowered for analysing and reporting the status of financial activities. Customers with a good payment history are only given credit by businesses for ensuring the payment on goods and services. They help in identifying delinquent customers who have a poor credit history. This can help the bank to reduce the probability of lending to this customer and increase profitability.

Features of a credit controller

• A good credit controller can manage the debt accurately and maximise profits.
• A credit controller should have the ability to recognise and manage any complex company finances or cash flow.
• They need to respond and find a solution for the internal and external inquiries of the client.
• Credit controller should have insights on intricate legal loans, interest rates and payment plans,
• They need to evaluate the new credit requests and ensure timely payments of company debts.
• A credit controller needs to focus on areas like credit standards, collection policy, cash discount, etc.
• They prevent the company or bank from losses due to poor loans and develop a strategy to ensure profitable lending.

Credit Control by RBI

The RBI controls credit creation by commercial banks. RBI as a credit controller, is responsible for managing the debts. They are tasked to coordinate the debts from the pre-existing creditors and regulate the new requests for credits. Indirectly, credit controllers manage all money owed by the firm or organisation.

There are two types of credit control employed by RBI, which involve Quantitative/general methods and Qualitative/selective methods.

Quantitative/ general methods include

• Bank rate- Bank rate is the rate of interest at which RBI supplies funds to the banks during the insufficiency of money. When RBI increases the bank rate, commercial banks have to pay that much amount of interest on loans from them.

• Reserve ratios

•  Cash reserve ratio- The banks have to keep a particular minimum percentage of total deposits with RBI. This percentage is called Cash Reserve Ratio (CRR).
• Statutory liquidity ratio- The banks must have a minimum percentage of total deposits in the form of liquid assets like gold, money called SLR.
• Open Market Securities- The buying and selling of Government securities in the open market operations. 
• Policy rates- This rate includes Bank rate, repo rate, reverse repo rate and marginal standing facility.

Qualitative/ selection methods

• Credit rationing- Controlling the amount of credit in certain sectors and analysing whether they get sufficient credits.
• Margin requirements- RBI sets different margin requirements for different securities pledged by commercial banks. It influences the flow of credit in the economy.
• Moral suasion- In this method, RBI confronts commercial banks to take certain actions according to economic matters of the country.
• Consumer credit- RBI gives a time period for the repayments of the credits taken by the customer from commercial banks.
• Action-oriented- When the other methods do not work, RBI takes direct action on commercial banks through their rules and regulations.

Role of RBI as Credit Controller

The Reserve Bank of India plays a crucial role in controlling the credit of our country.

• The price level that is generally accepted in the market is maintained to sustain the stability of the economic health of our country.
• RBI regulates the correct circulation of money in a country’s finances.
• The fluctuations in economic activity that are in the trade cycle and their effects on employment, income, prices, etc., are managed by the credit controller.
• It has designed many methods to manage the credit-control of the economy, which plays a vital role in the cash flow of the country.
• RBI plays an important role during the insufficiency of funds or during the inflationary period by supplying monetary needs to the banks.

Conclusion

The Reserve Bank of India has so many operations and responsibilities to be done, but as credit control plays a very crucial part in the growth of the economy, RBI has designed and constructed many methods to manage them accurately. The most important part of a country’s economy is to regulate the fluctuations in the trade cycle, business transactions and other banking operations. RBI, as the Central Bank of India, has contributed to the secure and safe functioning of data and client banking operations.