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Methods of Credit Control (in Hindi)
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Here Navdeep Kaur is discussing Qualitative methods of Credit Control

Navdeep Kaur is teaching live on Unacademy Plus

Navdeep Kaur
JRF Awardee, NET qualified with over 7 years of teaching experience & Expert in NTA UGC NET JRF.

Unacademy user
very nice sir
M S Mustafaa
5 months ago
mam anti deflationary shayad ulta batadiya
gud job mam tankuu soo much
Madam aap bahot ache se padhate ho.. No doubt.. But aap ek concept ko pehele pura padhke fir uska explaination karo... Aa line by line explain karte ho to wo link nahi hota ha
vryyyyyyyyy intersting mam
  1. Banking and Financial Institutions With MCQs RBI Methods of credit control By Navdeep Kaur

  2. Methods of credit control by central bank. Methods of Credit Control Quantitative or General Methods Qualitative or Selective Methods 1. Credit Rationing 2. Direct Action 3. Moral Persvasion 4. Publicity 5. Regulation of Consumer's Credit 6. Regulating the Margnal Requirements 1. Bank Rate 2. Open Market Operations 3. Variable Cash Reserve Ratio on Security Loans.

  3. Quantitative Method: (i) Bank Rate: The bank rate, also known as the discount rate, is the rate payable by commercial banks on the loans from or rediscounts of the Central Bank. A change in bank rate affects other market rates of interest. An increase in bank rate leads to an increase in other rates of interest and conversely, a decrease in bank rate results in a fall in other rates of interest. Aelberate manipulation of the bank rate by the Central Bank to influence the flow of credit created by the commercial banks is known as bank rate policy. It does so by affecting the demand for credit the cost of the credit and the availability of the credit.

  4. An increase in bank rate results in an increase in the cost of credit; this is expected to lead to a contraction in demand for credit. In as much as bank credit is an important component of aggregate money supply in the economy, a contraction in demand for credit consequent on an increase in the cost of credit restricts the total availability of money in the economy, and hence may prove an anti-inflationary measure of control. Likewise, a fall in the bank rate causes other rates of interest to come down. The cost of credit falls, i. e., and credit becomes cheaper. Cheap credit may induce a higher demand both for investment and consumption purposes. More money, through increased flow of credit, comes into circulation. A fall in bank rate may, thus, prove an anti-deflationary instrument of control. The effectiveness of bank rate as an instrument of control is, however, restricted primarily by the fact that both in inflationary and recessionary conditions, the cost of credit may not be a very significant factor influencing the investment decisions of the firms.

  5. (i) Open Market Operations: Open market operations refer to the sale and purchase of securities by the Central bank to the commercial banks. A sale of securities by the Central Bank, i.e., the purchase of securities by the commercial banks, results in a fall in the total cash reserves of the latter. A fall in the total cash reserves is leads to a cut in the credit creation power of the commercial banks. With reduced cash reserves at their command the commercial banks can only create lower volume of credit. Thus, a sale of securities by the Central Bank serves as an anti-inflationary measure of control

  6. Likewise, a purchase of securities by the Central Bank results in more cash flowing to the commercials banks. With increased cash in their hands, the commercial banks can create more credit, and make more finance available. Thus, purchase of securities may work as an anti-deflationary measure of control. The Reserve Bank of India has frequently resorted to the sale of government securities to which the commercial banks have been generously contributing. Thus, open market operations in India have served, on the one hand as an instrument to make available more budgetary resources and on the other as an instrument to siphon off the excess liquidity in the system

  7. (iii) Variable Reserve Ratios: Variable reserve ratios refer to that proportion of bank deposits that the commercial banks are required to keep in the form of cash to ensure liquidity for the credit created by them. A rise in the cash reserve ratio results in a fall in the value of the deposit multiplier. Conversely, a fall in the cash reserve ratio leads to a rise in the value of the deposit multiplier.

  8. A fall in the value of deposit multiplier amounts to a contraction in the availability of credit, and, thus, it may serve as an anti-inflationary measure. A rise in the value of deposit multiplier, on the other hand, amounts to the fact that the commercial banks can create more credit, and make available more finance for consumption and investment expenditure. A fall in the reserve ratios may, thus, work as anti-deflationary method of monetary control. The Reserve Bank of India is empowered to change the reserve requirements of the commercial banks. The Reserve Bank employs two types of reserve ratio for this purpose, viz. the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR)

  9. The statutory liquidity ratio refers to that proportion of aggregate deposits which the commercial banks are required to keep with themselves in a liquid form. The commercial banks generally make use of this money to purchase the government securities. Thus, the statutory liquidity ratio, on the one hand is used to siphon off the excess liquidity of the banking system, and on the other it is used to mobilise revenue for the government. The Reserve Bank of India is empowered to raise this ratio up to 40 percent of aggregate deposits of commercial banks. Presently, this ratio stands at 25 per cent. The cash reserve ratio refers to that proportion of the aggregate deposits which the commercial banks are required to keep with the Reserve Bank of India. Presently, this ratio stands at 9 percent.

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  11. Banking and Financial Institutions With MCQs RBI Methods of credit control By Navdeep Kaur

  12. II. Qualitative Method: The qualitative or selective methods of credit control are adopted by the Central Bank in its pursuit of economic stabilisation and as part of credit management. (i) Margin Requirements: Changes in margin requirements are designed to influence the flow of credit against specific commodities. The commercial banks generally advance loans to their customers against some security or securities offered by the borrower and acceptable to banks

  13. (i) Credit Rationing: Rationing of credit is a method by which the Central Bank seeks to limit the maximum amount of loans and advances and, also in certain cases, fix ceiling for specific categories of loans and advances. (iii) Regulation of Consumer Credit: Regulation of consumer credit is designed to check the flow of credit for consumer durable goods. This can be done by regulating the total volume of credit that may be extended for purchasing specific durable goods and regulating the number of installments through which such loan can be spread. Central Bank uses this method to restrict or liberalise loan conditions accordingly to stabilise the economy.

  14. (vi) Direct Action: Under this method if the Commercial Banks do not follow the policy of the Central Bank, then the Central Bank has the only recourse to direct action. This method can be used to enforce both quantitatively and qualitatively credit controls by the Central Banks. This method is not used in isolation; it is used as a supplement to other methods of credit control. Direct action may take the form either of a refusal on the part of the Central Bank to re-discount for banks whose credit policy is regarded as being inconsistent with the maintenance of sound credit conditions. Even then the Commercial Banks do not fall in line, the Central Bank has the constitutional power to order for their closure. This method can be successful only when the Central Bank is powerful enough and has cordial relations with the Commercial Banks. Mostly such circumstances are rare when the Central Bank is forced to resist to such measures.

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  16. Banking and Financial Institutions With MCQs NABARD By Navdeep Kaur

  17. NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC) Capital structure: The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the composition of share capital between Government of India and RBI, the paid up capital as on 31 May 2017, stood at Rs.6,700 crore with Government of India holding Rs 6,700 crore (100% share). The authorized share capital is Rs.30,000 crore.

  18. NABARD partakes in development of institutions which help the rural economy. NABARD also keeps a check on its client institutes. . Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, state governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation Undertakes monitoring and evaluation of projects refinanced by it. NABARD refinances the financial institutions which finances the rural sector. It regulates the institutions which provide financial help to the rural economy. . It provides training facilities to the . institutions working in the field of rural upliftment It regulates the cooperative banks and the RRB's, and manages talent acquisition through IBPS CWE.

  19. NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend to self-help groups (SHGs). Largely because SHGs are composed mainly of poor women, this has evolved into an important Indian tool for microfinance. By March 2006, 22 lakh SHGs representing 3.3 core members had to be linked to credit through this programme NABARD also has a portfolio of Natural Resource Management Programmes involving diverse fields like Watershed Development, Tribal Development and Farm Innovation through dedicated funds set up for the purpose.

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  21. Banking and Financial Institutions With MCQs RRB By Navdeep Kaur

  22. Regional Rural Banks are local level banking operating in different States of India. They have been created with a view to serve primarily the rural areas of India wit!h basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too. The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. RRBs perform various functions in following heads: Providing banking facilities to rural and semi-urban areas Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc. Providing Para-Banking facilities like locker facilities, debit and credit cards.

  23. Organizational structure The organizational structure for RRB's varies from branch to branch and depends upon the nature and size of business done by the branch. The Head Office of an RRB normally had three to seven departments. The following is the decision making hierarchy of officials in a Regional Rural Bank. Board of Directors Chairman & Managing Director General Manager Chief Manager/Regional Managers Senior Manager Manager Officer / Assist.

  24. Amalgamation Currently, RRB's are going through a process of amalgamation and consolidation. 25 RRBs have been amalgamated in January 2013 into 10 RRBs. This counts 67 RRBs till the first week of June 2013. This counts 56 as of March 2015. On 31 March 2016, there were 56 RRBs (post-merger) covering 525 districts with a network of 14,494 branches All RRBs were originally conceived as low cost institutions having a rural ethos, local feel and pro poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. This may be again amalgamated in near future. At present there are 56 RRBs in India.

  25. The Government of India recently approved the recapitalization of Regional Rural Banks (RRBs) to improve their Capital to Risk Weighted Assets Ratio CRAR) in the following manner: Share of Central Government i.e. Rs.1, 100 crore will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011-12. However, release of Government of India share will be contingent on proportionate release of State Government and Sponsor Bank share. A capacity building fund with a corpus of Rs.100 crore to be set up by Central Government with NABARD for training and capacity building of the RRB staff in the institution of NABARD and other reputed institutions. The functioning of the Fund will be periodically reviewed by the Central Government. An Action Plan will be prepared by NABARD in this regard and sent to Government for approval. Additional amount of Rs. 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly those in the North Eastern. and Eastern Region, the necessary provision will be made in the Budget as and when the need arises. Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure


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  28. Liberalization conversion into company in 1993 By the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI Limited" with effect from October 1999.

  29. Activities of the IFCI 1. Soft Loan Assistance: This scheme provides soft loan assistance to existing industries in small and medium sector for developing technology through in-house research and development. 2. Entrepreneur Development: IFCI provides financial support to EDPs (Entrepreneur Development Programmes) conducted by several agencies all-over India. In co-operation with Entrepreneurship Development Institute of India. 3. Industrial Development in Backward Areas: IFCI also take measures to promote industrial development in backward areas through a scheme of concessional finance.

  30. Working of the IFCI: The working of the IFCI came in for a large measure of criticism. In the first place, the rate of interest which the corporation charged was extremely high. Secondly, there was a great delay in sanctioning loans and in making the amount of the loans available. Thirdly, the corporation's insistence on the personal guarantee of managing directors in addition to the mortgage of property was considered wrong In the last two decades the corporation had entered into new lines of activity, viz, underwriting debentures and shares and guaranteeing of deferred payment in respect of imports from abroad of plant an equipment by industrial concerns and subscribing to stocks and shares of industrial concerns directly Besides, the performance of IFCl together with the work of other public sector financial institutions has been extremely credit worthy in the last two decades.

  31. IDBI Bank is an Indian government-owned financial service company, formerly known as Industrial Development Bank of India, headquartered in Mumbai, India. It was established in 1964 by an Act of Parliament to provide credit and other financial facilities for the development of the fledgling Indian industry. IDBl Bank is on a par with nationalized banks and the SBI Group as far as government ownership is concerned. It is one among the 27 commercial banks owned by the Government of India. IDBl bank is considered as government of India owned bank. It is currently 10th largest development bank in the world in terms of reach. It has an authorised capital of 3000 cr.

  32. Merger of IDBI Bank Ltd. with IDBI Ltd. Towards achieving the faster inorganic growth of the Bank, IDBI Bank Ltd., a wholly owned subsidiary of IDBl Ltd. was amalgamated with IDBI Ltd. in terms of the provisions of Section 44A of the Banking Regulation Act, 1949 providing for voluntary amalgamation of two banking companies. The merger became effective from April 02, 2005 Change of name of IDBI Ltd. to IDBI Bank Ltd.: In order that the name of the Bank truly reflects the functions it is carrying on, the name of the Bank was changed to IDBl Bank Limited and the new name became effective from May 07, 2008 upon issue of the Fresh Certificate of Incorporation by Registrar of Companies, Maharashtra. The Bank has been accordingly functioning in its present name of IDBI Bank Limited Narsimham Committee: In order to make the IDBI's coordinating role more effective, the Narsimham Committee (1991) has suggested that the IDBl should give up its direct financing function and perform only promotional apex and refinancing role in respect of other institutions like SFCs and SIDBI. The direct lending function should be entrusted to a separate finance company especially set up for this purpose.

  33. Role of IDBI As an apex development bank, the IDBI's major role is to co-ordinate the activities of other development banks and term-financing institutions in the capital market of the country. Providing technical and administrative assistance for promotion, management and expansion of industry thus performing promotional and development functions Direct Assistance: The IDBI grants loans and advances to industrial concerns. The bank guarantees loans raised by industrial concerns in the open market from the State Co-operative Banks, the Scheduled Banks, the Industrial Finance Corporation of India (IFCI) and other notified, financial institutions. Indirect Assistance: Providing refinancing facilities to the IFCI, SFCs and other financial institutions approved by the government. IDBI subscribes to the shares and bonds of the financial institutions and thereby provide supplementary resources Coordinating the activities of financial institutions for the promotion and development of industries IDBI is the leader, coordinator and innovator in the field of industrial financing in our country. Its major activity is confined to financing, developmental, co-ordination and promotional functions. Planning, promoting and developing industries with a view to fill the gaps in the industrial structure by conceiving, preparing and floating new projects.

  34. Functions performed by IDBI That the IDBI has shown its particular interest in the development of small-scale industries is demonstrated by the setting up of the Small Industries Development Fund (SIDF) in May 1986, the National Equity Fund Scheme (NEFS) in 1988, and the Voluntary Executive Corporation Cell (VECC) for providing support in the nature of equity to tiny and small-scale industries engaged in manufacturing, cost not exceeding Rs. 5 lakhs. The scheme is administrated by the IDBl through nationalised banks The IDBI has also introduced the single window assistance scheme for grant of term-loans and working capital assistance to new, tiny and small-scale enterprises. As per data available, IDBI has extended about one-third of total industrial assistance to small-sector alone. The scope of business of the IDBI has also been extended to cover consulting, merchant banking and trusteeship activities

  35. The Export-lmport Bank of India, commonly known as the EXIM bank, was set up on January 1, 1982 to take over the operations of the international finance wing of the IDBl and to provide financial assistance to exporters and importers to promote India's foreign trade. It also provides refinance facilities to the commercial banks and financial institutions against their export-import financing activities. 1. Financing of export and import of goods and services both of India and of outside India 2. Providing finance for joint ventures in foreign countries 3. Undertaking merchant banking functions of companies engaged in foreign trade 4. Providing technical and administrative assistance to the parties engaged in export and import business.

  36. Capital: The authorised capital of the EXIM Bank is Rs. 200 crore and paid up capital is Rs. 100 crore, wholly subscribed by the Central Government. The bank can raise additional resources through (i) Loans/grants from Central Government and Reserve Bank of India; (ii) Lines of credit from institutions abroad; (ii) Funds raised from Euro Currency markets; (iv) Bonds issued in India.

  37. Important functions performed by of SIDBl include: 1. To initiate steps for technological up-gradation and modernisation of existing units. 2. To expand the channels for marketing the products of SSI sector in domestic and international markets. 3. To promote employment oriented industries especially in semi-urban areas to create more employment opportunities and thereby checking migration of people to urban areas. The SIDBI's financial assistance to small-scale industries is channelised through the existing credit delivery system comprising State Financial Corporation, State Industrial Development Corporations, Commercial Banks, and Regional Rural Banks.

  38. The SIDBI introduced two new schemes during 1992-93; equipment finance scheme for providing direct finance to existing well-run small-scale units taking up technology up-gradation, modernisation, and refinance for resettlement of voluntarily retired workers of the National Textile Corporation (NTC). Over the years assistance sanctioned to backward areas amounts to Rs. 657 crore accounting for 18% of the total sanctions. Disbursements to backward areas, amounts to Rs. 486 crore accounting for 17.8% of the total assistance disbursed The other new scheme launched was venture capital fund exclusively for small -scale units, with an initial corpus of Rs. 10 crore. It enrolled itself as an institutional member of the OTC Exchange of India (OTCEI). SIDBI also provides financial support to National Small Industrial Corporation (NSIC) for providing leasing,rest goes to supplementary services hire-purchase, and marketing support to the for various purposes. industrial units in the small-sector. The share of the SSls in refinance is 82.3%, distantly followed by small road transport operators (SRTOs). New projects account for 67.9% of the total assistance sanctioned, distantly followed by expansion Idiversification (11.6%), modernisation (6.2%), and the

  39. The Industrial Investment Bank of India was a 100% government of India-owned financial investment institution. It was established in 1971 by resolution of the Parliament of India uls 617 of the Companies Act. The bank was headquartered at Kolkata and had presence in New Delhi, Mumbai, Chennai, Bengaluru, Ahmedabad and Guwahati The Industrial Reconstruction Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984 With a view to converting the institution into a full-fledged development financial institution, IRBI was incorporated under the Companies Act 1956, as Industrial Investment Bank of India Ltd. (IIBI) in March 1997. IlBI offered a wide range of products and services, including term loan assistance for project finance, short duration non-project asset-backed financing, working capital/other short-term loans to companies, equity subscription, asset credit, equipment finance and investments in capital market and money market instruments.

  40. In 2005, a merger of lIBI, IDBI and IFCI was considered, but IIBl refused and it was decided in 2006-2007 to close the bank As of 2011, the bank operated from its sole remaining office in Kolkata. Deloitte and Touche was appointed to dispose of lIBI's Non-Performing assets. The bank's closure was announced in the Budget 2012. The clientele of the bank included Videocon, Dr Morepen, Perfect Threads, Clutch Auto Limited, JSW Ispat and LML Motors.