RBI AND its working basics

1. RESERVE BANK OF INDIA
BY
DR.NEERJA SHARMA

3. INTRODUCTION

33. THIS METHOD RESTRICTS THE FLOW OF CREDIT IN UNDESIRABLE SECTOR &
DIVERTS IT INTO THE MOST DESIRABLE SECTOR.
FOR EXAMPLE: THE CENTRAL BANK HAS RAISE THE MAXIMUM CEILING ON
AGRICULTURE SECTOR TO PROMOTE THE FLOW OF CREDIT IN RURAL SECTOR,
THIS IS DONE TO ENCOURAGE THE ACTIVITY IN AGRICULTURE SECTOR .

34. IN CASE OF INFLATION, THE MARGIN REQUIREMENT IS INCREASED SO THAT
DEMAND FOR LOANS ARE DECREASED AND IN CASE OF DEFLATION, MARGIN
REQUIREMENTS ARE DECREASED SO THAT DEMAND FOR LOANS ARE
INCREASED.
FOR EXAMPLE- A PERSON MORTGAGES HIS HOUSE WORTH ONE CRORE RUPEES WITH
THE BANK FOR A LOAN OF 80 LAKH RUPEES .

35. MORAL SUASION IS A REQUEST BY THE RBI TO THE COMMERCIAL
BANKS TO TAKE SPECIFIC MEASURES AS PER THE ECONOMY'S TRENDS.
FOR INSTANCE, RBI MAY DIRECT BANKS NOT TO GIVE OUT CERTAIN
LOANS. IT INCLUDES PSYCHOLOGICAL MEANS AND INFORMAL
MEANS OF SELECTIVE CREDIT CONTROL.

36. THANK YOU