SELECTIVE / QUALITATIVE CREDIT CONTROL METHODS by RBI

SELECTIVE / QUALITATIVE CREDIT CONTROL METHODS
          Under Selective Credit Control, credit is provided to selected borrowers for selected purpose, depending upon the use to which the control try to regulate the quality of credit - the direction towards the credit flows. The Selective Controls are

• Ceiling On Credit: The Ceiling on level of credit restricts the lending capacity of a bank to grant advances against certain controlled securities.
• Margin Requirements :- A loan is sanctioned against Collateral Security. Margin means that proportion of the value of security against which loan is not given. Margin against a particular security is reduced or increased in order to encourager to discourage the flow of credit to a particular sector. It varies from 20% to 80%. For agricultural commodities it is as high as 75%. Higher the margin lesser will be the loan sanctioned.
• Discriminatory Interest Rate (DIR) Through DIR, RBI makes credit flow to certain priority or weaker sectors by charging concessional rates of interest. RBI issues supplementary instructions regarding granting of additional credit against sensitive commodities, issue of guarantees, making advances etc. .
• Directives:- The RBI issues directives to banks regarding advances. Directives are regarding the purpose for which loans may or may not be given.
• Direct Action :- It is too severe and is therefore rarely followed. It may involve refusal by RBI to rediscount bills or cancellation of license, if the bank has failed to comply with the directives of RBI.
• Moral Suasion :- Under Moral Suasion, RBI issues periodical letters to bank to exercise control over credit in general or advances against particular commodities. Periodic discussions are held with authorities of commercial banks in this respect.

for referenct to Monitary Policy Click here

MONETARY POLICY OF RBI

MONETARY POLICY OF RBI
                  The Monetary Policy of RBI is not merely one of credit restriction, but it has also the duty to see that legitimate credit requirements are met and at the same time credit is not used for unproductive and speculative purposes RBI has various weapons of monetary control and by using them, it hopes to achieve its monetary policy.

                   General I Quantitative Credit Control Methods :- In India, the legal framework of RBI’s control over the credit structure has been provided Under Reserve Bank of India Act, 1934 and the Banking RegulationAct, 1949. Quantitative credit controls are used to maintain proper quantity of credit o money supply in market. Some of the important general credit control methods are:-

• Bank Rate Policy :- Bank rate is the rate at which the Central bank lends money to the commercial banks for their liquidity requirements. Bank rate is also called discount rate. In other words bank rate is the rate at which the central bank rediscounts eligible papers (like approved securities, bills of exchange, commercial papers etc) held by commercial banks. Bank rate is important because its is the pace setter to other marketrates of interest. Bank rates have been changed several times by RBI to control inflation and recession.  
• Open market operations :- It refers to buying and selling of government securities in open market in order to expand or contract the amount of money in the banking system.This technique is superior to bank rate policy. Purchases inject money into the banking system while sale of securities do the opposite. During last two decades the RBI has been undertaking switch operations. These involve the purchase of one loan against the sale of another or, vice-versa. This policy aims at preventing unrestricted increase in liquidity. 
• Cash Reserve Ratio (CRR) The Gash Reserve Ratio (CRR) is an effective instrument of credit control. Under the RBl Act of, l934 every commercial bank has to keep certain minimum cash reserves with RBI. The RBI is empowered to vary the CRR between 3% and 15%. A high CRR reduces the cash for lending and a low CRR increases the cash for lending. 
• Statutory Liquidity Ratio (SLR) Under SLR, the government has imposed an obligation on the banks to ,maintain a certain ratio to its total deposits with RBI in the form of liquid assets like cash, gold and other securities. The RBI has power to fix SLR in the range of 25% and 40% between 1990 and 1992 SLR was as high as 38.5%. Narasimham Committee did not favour maintenance of high SLR. The SLR was lowered down to 25% from 10thOctober 1997.It was further reduced to 24% on November 2008. At present it is 21.5% from Feb 2015. 
• Repo And Reverse Repo Rates In determining interest rate trends, the repo and reverse repo rates are becoming important. Repo means Sale and Repurchase Agreement. Repo is a swap deal involving the immediate Sale of Securities and simultaneous purchase of those securities at a future date, at a predetermined price. Repo rate helps commercial banks to acquire funds from RBI by selling securities and also agreeing to repurchase at a later date. Reverse repo rate is the rate that banks get from RBI for parking their short term excess funds with RBI. Repo and reverse repo operations are used by RBI in its Liquidity Adjustment Facility. RBI contracts credit by increasing the repo and reverse repo rates and by decreasing them it expands credit.

NICL AO Written Exam Results

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Reserve Bank Of India

Reserve Bank Of India

Establishment
               The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
               The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
                Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Central Board
                  The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

• Appointed/nominated for a period of four years
• Constitution:
• Official Directors
• Full-time : Governor and not more than four Deputy Governors
• Non-Official Directors
• Nominated by Government: ten Directors from various fields and two government Officials
• Others: four Directors - one each from four local boards

Local Boards 

• One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi Membership: consist of five members each appointed by the Central Government for a term of four years

Functions : 

                   To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.

Main Functions

Monetary Authority:

• Formulates, implements and monitors the monetary policy.
• Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system:

• Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
• Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

• Manages the Foreign Exchange Management Act, 1999.
• Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

• Performs a wide range of promotional functions to support national objectives.

Related Functions

• Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
• Banker to banks: maintains banking accounts of all scheduled banks.

Offices

• Has 19 regional offices, most of them in state capitals and 9 Sub-offices.

Training Establishments

Has five training establishments

• Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank
• Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT)

Non Performing Asset

Non Performing Asset
               Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset in accordance with the directions or guidelines relating to asset classification issued by RBI
               An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.
               A non performing asset (NPA) is a loan or an advance where;

• Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,

• The account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC), if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.

• The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,

• The instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops, The instalment of principal or interest thereon remains overdue for one Crop season for long duration crops, 

• The amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.

• In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.