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Credit control system of central bank

2020-01-28 06:46

Credit control is an important tool used by Reserve Bank of India, a major weapon of the monetary policy used to control the demand and supply of money (liquidity) in the economy. Central Bank administers control over the credit that the commercial banks grant. Such a method is used by RBI to bring Economic Development with Stability .Credit Control by Central Bank: Credit Control by Central Bank. The modern economy is a credit economy. Credit is the lifeblood of the modern business. Accordingly, control of credit is essential for stability and orderly growth of an economy. There are two types of credit controls used by the central banks in modern time for regulating bank credit control system of central bank

Credit control or monetary policy has many limitations. In other words, there are several difficulties in the way of the central bank to control credit. 1. Absence of developed money markets. In underdeveloped countries, central bank control over bank credit is rendered very difficult by the absence of welldeveloped money markets. 2.

The central bank can control the total volume of bank credit by raising or lowering this cash reserve ratio. The raising of the CRR causes a contraction of bank credit, because when the CRR is high the banks are to keep larger reserves at the central bank and their power to give credit is reduced. Credit Control by a central bank is an activity by which the central bank of the nation controls the availability of credit facilities to its citizens. credit control system of central bank If the Central Bank wants to control credit, it will raise the bank rate. As a result, the market rate and other lending rates in the moneymarket will go up. Borrowing will be discouraged. The raising of bank rate will lead to contraction of credit.

Method of Credit Control by Central Bank. Credit control is the system used by a business to make certain that it gives credit only to customers who are able to pay, and that customers pay on time. Credit control is part of the financial controls that are employed by businesses particularly in manufacturing to ensure that once sales are made they are realized as cash or liquid resources. credit control system of central bank Central bank exercises monetary policy to influence rate of interest, money supply and credit availability. Central bank use different tools to achieve the objective of controlling the availability of credit in economy. There are several quantitative tools through which the central bank monitors liquidity of commercial bank and money supply. Credit control is an important tool of the monetary policy used by Reserve Bank of India (central bank) to control the demand and supply of money and flow of credit in an economy. RBI keeps control over the credit created by commercial banks. Objectives of Credit Control. The primary objective according to RBI is to control inflationary tendencies present in the economy to ensure high

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