What are the Instruments of Credit Control?

By BYJU'S Exam Prep

Updated on: November 14th, 2023

The instruments of Credit Control are Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Bank Rate, Selective Credit Control (SCC), and Open Market Operations (OMOs). Credit control methods of RBI (Reserve Bank of India) act like weapons to control the liquidity in the economy or we can say to control the current demand and supply.

Instruments of Credit Control used by RBI

The Central Bank employs credit control instruments to regulate the credit extended to customers by commercial banks. These instruments are classified into two types: qualitative and quantitative instruments:

  • Qualitative Instruments of Credit Control: These are used by the RBI to control the flow of credit in a specific direction. They have an impact on the types of credit granted by commercial banks rather than the total volume. Margin requirements, credit rationing, consumer credit regulation, moral suasion, and other qualitative instruments of RBI credit control methods are examples.
  • Quantitative Instruments of Credit Control: These methods or instruments are used to regulate the total volume of credit in the economy. Some important quantitative instruments are open market operations, Cash Reserve Ratio (CRR), Bank rate, Statutory Liquidity Ratio (SLR), Repo rate, Reverse repo rate, etc.

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