Question

1. Name the institution that enjoys the monopoly of note issue in India.
2. Briefly explain two qualitative methods of credit control adopted by this institution.

Answer 1

1. The Reserve Bank of India enjoys the monopoly of note-issue in India.
2. Two Qualitative Methods of Credit Control:
   • Margin Requirements: The RBI regulates the loan amount given against collateral security by establishing a “margin” (the difference between the security’s market value and the loan amount granted). To prevent inflation, the RBI raises the margin requirement, lowering the loan amount that a borrower can obtain, discouraging credit expansion.
   • Credit Rationing: The RBI sets a maximum limit or ceiling for the total volume of credit available to specified sectors or commercial banks. By imposing these restrictions, commercial banks are directly restricted from overlending to speculative or non-essential industries, thus helping to control the general flow of credit.