against approved securities. . Controller of Credit and Liquidity Controlling the credit money in circulation and the interest rate in the country is a major function of RBI. For this purpose, the RBI uses quantitative and qualitative methods of credit control.
Ensuring the availability of sufficient cash and credit (liquidity) for business transactions and investment purposes in the economy is the responsibility of RBI. (a) Quantitative Methods of Credit Control The methods which influence the total volume of credit in Indian economy are called quantitative or general methods. An commerce - - . .
PM increase in the first three measures will reduce the volume of money in circulation in India and vice versa. i. Bank Rate Policy: Bank rate refers to the rate at which the RBI rediscounts the bills given by the Scheduled banks. ii.
Marginal Requirement: It refers to the percentage of the value of securities submitted before issue of loans. iii. Direct Action: The RBI takes corrective actions on any bank or banks that does not follow its guidelines. It is called direct action.
iv. Moral Suasion: The RBI puts pressure on the banks towards liberal or restricted lending during certain periods. . Lender of the Last Resort In times of emergency any bank in India can approach RBI for financial assistance.
RBI provides them credit. When other sources of getting credit are exhausted, all banks can obtain loan from RBI and hence it is called lender of last resort. . Clearing House Services RBI acts as clearing house and maintains a clearing system for all commercial banks in India.
The aggregate amount of cheques presented by a bank on other banks represents the claim by that bank on other banks. Similar claims are made by all the banks on every other bank in the clearing. A net settlement is arrived at the clearing house and accordingly the debit or credit entry is made in their current accounts. The cash reserves kept by the banks with RBI is utilised for this purpose.
Clearing system saves time and eliminates paperwork and other difficult (otherwise tasks) tasks