as per the statute have to maintain reserves based on their demand deposit and fixed deposit with central bank is called as Cash Reserve Ratio. If the CRR is high, the commercial bank’s capacity to create credit will be less and if the CRR is low, the commercial bank’s capacity to create credit will be high. b) Statutory Liquidity Ratio: Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain CRR + SLR (When CRR rate is % + SLR rate is %) Deposit CRR SLR + Distribute as Individual / Corporate Loan Balance - - Banking in the form of cash, gold or approved securities. The quantum is specified as some percentage of the total demand and time liabilities (i.e., the liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one month’s time due to maturity) of a bank.
II. Qualitative or Selective Method of Credit Control: The qualitative or the selective methods are directed towards the diversion of credit into particular uses or channels in the economy. Their objective is mainly to control and regulate the flow of credit into particular industries or businesses. The following are the frequent methods of credit control under selective method: .
Rationing of Credit . Direct Action . Moral Persuasion . Method of Publicity .
Regulation of Consumer’s Credit . Regulating the Marginal Requirements on Security Loans . Rationing of Credit This is the oldest method of credit control. Rationing of credit as an instrument of credit control was first used by the Bank of England by the end of the 18th Century.
It aims to control and regulate the purposes for which credit is granted by commercial banks. It is generally of two types. a) The variable portfolio ceiling: It refers to the system by which the central bank fixes ceiling or maximum amount of loans and advances for every commercial bank. b) The variable capital asset ratio: It refers to the system by which the central bank fixes the