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Banking Book

Banking Book

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Publicado por9290010274
Banking Book
Banking Book

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Published by: 9290010274 on Nov 08, 2011
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08/03/2013

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The various methods employed by the central bank to control credit creation power of the
commercial banks can be classified in two groups viz., quantitative controls, and qualitative

Central Banking

33

controls. Quantitative controls are designed to regulate the volume of credit created by the
banking system. These measures work through influencing the demand and supply of credit.
Quantitative measures, on the other hand, are designed to regulate the flow of credit in
specific uses.

Methods of Credit Control

Quantitative

or

General

Qualitative

or

Selective

Bank

rate

policy

Open

market

operations

Variation

of reserve

ratio

Issue of

directives

Restriction of

purpose

Margin

require-

ments

Credit

rationing

Rate of

interest

Moral

persua-

sion

1. Quantitative Methods: Quantitative methods aim at controlling the total volume
of credit in the country. They relate to the volume and cost of bank credit in general,
without regard to the particular field of enterprise or economic activity in which the
credit is used.
The important quantitative or general methods of credit control are as follows:

A. Bank Rate or Discount Rate Policy

Bank Rate Policy or the Discount Rate Policy has been the earliest instrument of quantitative
credit control. It was the Bank of England which experimented with the bank rate policy
for the first time as a technique of monetary management. Now every central bank has been
endowed with this instrument of credit control.

Meaning

Bank rate refers to the official minimum lending rate of interest of the central bank. It is
the rate at which the central bank advances loans to the commercial banks by rediscounting
the approved first class bills of exchange of the banks. Hence, bank rate is also called as the
discount rate.

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