Question

Read the given extract carefully and answer the following questions.

Mr. X wanted to buy an expensive motorcycle for his son but he did not have sufficient money to buy it. He approached a public sector commercial bank for the loan. The bank asked Mr. X to deposit 20% cash of the loan amount and rest 80% of the loan amount was given by the bank.

1. Briefly explain a Commercial Bank.
2. What is the regulation of consumer credit in selective credit control?
3. Name the bank which controls all the commercial banks and financial institutions in the country.

Answer 1

1. Commercial bank is defined as an organisation that accepts demand deposits and uses the deposited money to lend to the general public.
2. The regulation of consumer credit involves laying down rules regarding payments and maintaining maximum number of instalment credits for the purchase of specified durable consumer goods.
   Thus, consumer credit employs two aspects:
   
   • Minimum down payment, and
   • Maximum period of payment.
3. Central Bank (Reserve Bank of India in case of India) controls all the commercial banks and financial institutions in our country.