1. RESERVE BANK OF INDIA AND CREDIT CONTROL

2. Introduction Central bank of the country
Established on recommendation of Hilton Young Commission
Body corporate under RBI Act 1934,which came into effect from 1 april 1935
Apex institution of monetary system
Organises ,runs ,supervises,regulates and develops monetary system

3. Origin
Most central banks established in 20th century
Central bank should be an autonomous institution
In 1773 Warren Hastings recommended establishment of general bank in bengal
Amalgamation of 3 presidency banks in 1921
Hilton young commission suggested establishment of central bank,the RBI of india

4. A bill giving effect Introduced in Legislative Assembly in Jan 1927
Fresh bill introduced in Indian Legislative Assembly on September 8, 1933
Bank was inaugurated on april 1, 1935

5. Nationalisation of RBI
Nationalised in 1948
3 major reasons:
Trend towards
nationalisation
To control inflationary tendencies
Instrument for economic development

6. Organisational structure of RBI

7. 1. Central board Direction in hands of central board of directors
1 governor, 4 deputy governors and 15 directors
Board delegates functions to committees
Committee meets once a week generally on Wednesday
Discuss important affairs of the bank

8. 2.Local board Headquarters at Mumbai ,Kolkata, New Delhi and Chennai
4 regional areas i.e western ,eastern , northern and southern
5 members each
Function: to advise central board on such matters as may be generally referred to them
It performs such duties as central board may delegate to them

9. Functions of RBI Functions of RBI Traditional functions
Central banking functions
General banking functions
Prohibitory functions
Developmental functions

10. Central banking functions
Note issuing
Regulation of credit
Bank of banks
Banker of government
Regulation of exchange rate

11. 6. Other functions Export assistance Clearing house facilities
Change of currency
Transfer of currency
Publication of information
Control over nationalised banks
Training in banking

12. B. General banking functions
Accepting deposits
Bills discounting
Advancing loans
Deal in foreign securities
Deal in costly metals

13. C. Prohibitory functions
Cannot participate in trade,commerce or industrial activities
Cannot purchase its own shares or shares of any other bank
Cannot give loan against security of any immovable property
Cannot pay any interest on its deposits
Cannot advance loans without securities

15. Introduction
One of the important functions of RBI is to formulate and administer monetary policy of the country.
It controls:
The supply of money
The availability of money
Cost of money ,i.e rate of interest

16. Objectives of monetary policy
Controlled expansion of money supply
expansion of money supply was needed to meet the increased demand of funds
RBI reorganised the need for expansion of credit
Needed to finance development process
Essential for growth and stability

18. 2. Sectoral allocation of funds
Allocate funds to predetermined sectors
RBI has also determined the rates at which these are made available
Allocation is made according to priorities

19. Monetary policy in 1990s
Basic goal was to neutralise the impact of fiscal deficit
Decrease in incremental CRR and SLR
Tarapore committee: CRR reduced to 3 %
Abolition of ad-hoc treasury bills from April 1997
Replaced by Ways and Means advances(WMA)
Method of managing mis matches in receipts and payments

20. Monetary policy of
Liquidity management through open market operations
Reduction in bank rate, CRR and repo rates
Reduction of cost of funds
Liberalisation of the cost of funds

21. Aggressively reduce NPAs
Setting up of credit information bureau
Universal banking
Technology upgrading
Entry of banks into insurance business

22. Monetary and credit policy of 2001-2002
Changes in prime lending rates
Flexibility of holding CRR
Restriction on urban co-operative banks
deposit schemes for senior citizens
Review of liquidity adjustment facility
Interest rate foe export credit

23. Monetary policy
RBI governor , Dr D Subbarao announced this policy on april
Challenge to control inflation
Policy intended to:
Adjust policy rates to level consistent with the current growth moderation
Guard against risks of demand led inflationary pressures re-emerging
Provide greater liquidity cushion to financial system

24. Monetary policy
Dr D Subbarao announced this policy on may 3, 2013
Its aim was:
To continue address accentuated risks to growth
Guard against risks of inflationary pressures
Manage liquidity to ensure adequate credit flow

25. Monetary policy 2015-2016 Monetary and liquidity measures:
Reduction in repo rate
Cash reserve ratio unchanged at 4%
Overnight repos
Reverse repo rate
Bank rate

26. Recommendations of CHAKRAVARTY COMMITTEE (1985) TO REVIEW THE WORKING OF MONETARY PLICY
Coordination between monetary and fiscal policies
Price stability
Matching between authority and responsibility
Strengthen credit delivery system to priority system
Need for monetary budget and credit budget
Monetary targeting
improve yield on treasury bills

27. Discourage use of treasury bills for long term finance
Improve yield on dated govt securities
Not more than 2 lending rated for monetary sector
Facilitate use of bill finance
Minimise use of cash credit

28. Achievements of RBI Flexible monetary policy
Stable structure of interest rates
Sound banking and credit structure
Cheap remittance facilities
Successful management of public debt
Foreign exchange stability

29. Increase in public confidence
Control over money market
Development of bill market
Rational allocation of credit
Monetary stability
Contribution to economic development

30. Presented By:- Himani Sharma Roll No.:-5120 Class:- B.Com (2nd)
CREDIT CONTROL
Presented By:-
Himani Sharma
Roll No.:-5120
Class:- B.Com
(2nd)

31. Meaning
Main Function of the central bank is to manage and control the monetary system.
Necessary to achieve and maintain
growth rate.
The policy of credit expansion
or contraction.

32. “Credit Control refers to the regulation of credit by the Central Bank for achieving the objective of economic growth and development.”

33. Objectives of Credit Control
Exchange Rate Stability
Price Stability
Economic Stability
High level of Employment
Control over Trade Cycles
Stabilization of Money Market

34. Techniques of Credit Control
Central bank – Main body to control credit.
Control credit through its MONETARY POLICY.
Methods are:-
Quantitative or General Methods
Qualitative or Selective Methods
General Methods
Selective Methods
Credit Control

35. A) Quantitative Or General Techniques
Determine the total money supply of the country.
Objective is to control the total volume of bank credit and interest rate.

36. General Techniques Bank Rate Open Market Operations Change in CRR
Change in SLR

37. Bank Rate
Rate of interest charged on loans & advances given by RBI to commercial banks.
“Bank rate is the standard rate at which it is prepared to buy or discounts bills of exchange or other commercial papers eligible for purchase under this Act”.
-- Sec 49 of The RBI, Act1934

38. Bank Rate and Rate of Interest
Rate of interest:- Rate at which commercial banks advance loans to public.
Bank rate:- Rate at which central bank advance loans to other banks.
Direct link between both
Bank Rate Rate of Interest

39. Bank Rate Policy
Policy by which central bank controls the credit creation.
Manipulation of bank rate to influence the credit situation.
Contraction of Credit
Expansion of Credit

40. Open Market Operations
The purchases and sales of government securities by the central bank in the open market.
Directly influence the cash
reserves with the banking
system.

41. Open Market Operation Policy
Policy by which the central bank contracts or expands the credit by sale or purchase of securities in open market.
Contraction of Credit
Expansion of Credit

42. Change In CRR
“ Variation in cash reserve ratio implies changes in the minimum percentage of the deposits to be kept as reserve funds by the banks with the central bank.” R.A. Young
First used by Federal Reserve System in 1933.
Lowering or raising of CRR improves or restricts the power of commercial bank to create credit.

43. Policy of Varying CRR Contraction of Credit Expansion of Credit
Policy by which central bank contracts or expands the credit by increasing or reducing in the CRR.
Contraction of Credit
Expansion of Credit

44. Change In SLR Policy Of Changing SLR Contraction of Credit
Developed during Second World War.
According to Statutory Liquidity Ratio the commercial banks have to keep a certain percentage of their assets in liquid form compulsorily.
Policy Of Changing SLR
Expansion of Credit
Contraction of Credit

45. B) Qualitative Or Selective Techniques
Meant to give the central bank as ability to affect particular segments of the economy on selective basis.
Direct the flow of credit into desired channels for a particular segments of the economy.

46. Regulation of Consumer’s Credit Change in Marginal Requirement of loan
Selective Techniques
Regulation of Consumer’s Credit
Change in Marginal Requirement of loan
Rationing of Credit
Moral Persuasion
Publicity
Direct Action

47. Varying Margin Requirement Method
Initially used in America in 1929.
Credit given for specific purpose is controlled.
Marginal requirement = Value of Security - Amount advanced
Banks keep margin while lending
Do not advance to the full value of security pledged

48. For Example:- Ms Alice pledges goods worth
Rs.1000 with a bank and gets loan of
Rs.800 , then the difference between the
asset pledged and loan ,i.e., Rs.200 is the marginal requirement.
If marginal requirement is increased to 40%, then the loan will be Rs.600 only
If marginal requirement is reduced to 10%, then the loan will be Rs.900.

49. Regulation Of Consumer’s Credit
Invented by the Federal Reserve System of the US.
Regulated by the control of:-
Hire purchase finance
Installment purchase
Sale of durable goods
Can control the credit by varying :-
Cash Down Payments
Maximum Maturities Period

50. Scale down the amount of loans
Rationing Of Credit
Central bank fix a limit for the credit facilities available to commercial bank.
Limited accommodation by way of rediscounting facilities.
Ways of rationing of
credit:-
limits of loans
Fix
Scale down the amount of loans
Fix quota of credit
Decline to give loans

51. Direct Action
Restrictions imposed by the Central bank on commercial banks concerning lending & lending.
Direct dealings with bank which adopt policies against the policies of RBI.
No financial accommodation to the defaulting bank.

52. Moral Persuasion Not a statutory obligation.
Merely a request to commercial banks not to apply fund for speculative activities.
Central bank persuades & seeks the co-operation.
Check & restrict non-essential activities.
Success depends on the prestige enjoyed by the Central Bank.

53. Publicity And Propaganda
Excessively used to implement credit control.
Wide publicity of credit policy through Media Publicity.
Purpose is to bring the banking community under the pressure of public opinion.
In the interest of the economy.
Takes the form of
Periodicals
Journals

54. Advantages Of Selective Credit Controls
Directive and Effective
Flexible
Wide Effect
Balanced Growth
Removal Of Sectorial Imbalances
Precise Control
Strength to Monetary Policy

55. Disadvantages Of Selective Credit Controls
Applicable only to Commercial Banks
Not useful in Unorganized Sector
Purpose of taking loan
Purpose of lending loan
Reduced Effectiveness
Leakage of credit

56. Difficulties In Credit Control
Lack of Banking Traditions
Problem in controlling all types of credit
Uncontrolled Banking sector
Unorganized Banking System
Lack of Co-operation

57. Thank You