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Question
Briefly explain the following credit control methods adopted by the Central Bank.
Moral persuasion
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Solution
- Under this method, the central bank adopts the policy of persuasion and moral influence on the commercial banks in order to get them to fall in line with its policy.
- The central bank frequently announces its policy and urges the commercial banks to adopt it.
- This is exercised through letters, discussions and directives to the banks.
- The member banks generally do not ignore the advice of the central bank.
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RELATED QUESTIONS
The rate of which commercial banks borrow from the Central Bank is the:
The difference between the value of security and the amount of loan sanctioned against these securities is known as:
Match the following and select the correct option:
| Column A | Column B | ||
| (i) | A rate of interest at which the central bank (RBI) lends money to member commercial banks to meet they long term needs. | A. | Cash Reserve Ratio |
| (ii) | A rate of interest at which RBI lends money to commercial banks to meet their short term needs. | B. | Statutory liquidity ratio |
| (iii) | A minimum percentage of total deposits kept by banks with the Central Bank. | C. | Repo rate |
| (iv) | A minimum percentage of total deposits to be kept by banks inform of liquid assets with themselves. | D. | Bank rate |
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- Quantitative methods regulate direction of credit.
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