Some Important Banking Notes GDP: It is the money value of all the final goods and services produced within the geographical boundaries of the country during a given period of time. GNP: It refers to the money value of total output or production of find goods and service produced by the nationals of a country during a given period of time. Producers Price Index: It is the cost incurred by the producer in producing single unit in terms of GDP. It does not include any indirect taxes. Credit Control: By credit control we mean to regulate the volume of credit created by banks in India. It is the principal function of Reserve Bank of India. The basic objective of credit control mechanism is to realize both price stability and exchange stability in the economy. RBI uses two types of methods to control credit: (i) Quantitative Methods, and (ii) Qualitative Methods. Quantitative Measures are used to control the volume of credit or indirectly to control inflationary and deflationary pressures caused by expansion and contraction of credit. These are also known as general credit measures. These consist of Bank Rate, Cash Reserve Ratio, Statutory Liquidity Ratio and Open Market Operations. Qualitative Measures are used to control the quantum as well as purpose for which credits are given by banks. RBI uses measures like Publicity, Rationing of Credit, Regulation of consumer credit, Moral suasion and Variation in margin requirement for qualitative credit control. Bank Rate: Bank rate is the rate at which the RBI is prepared to buy or re-discount eligible bills of exchange or other commercial papers. In simple words, bank rate is the rate at which RBI extends advises (Credit) to commercial banks. A change in the bank rate will result in a change in the prime lending rate of banks and thus act as an independent instrument of monetary control. Cash Reserve Ratio (CRR): Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI. In other words, it is the percentage of deposit (both demand and time deposit) which a bank has to keep with the RBI. RBI was empowered to vary the CRR between 3% to 15%. But now there is no minimum limit of CRR in India but the maximum limit is still retained at 15%. The purpose of reducing CRR is to leave large cash reserve with banks so as to enable them to expand bank credit. Similarly increasing of CRR means squeezing the cash reserve of the banks and limits their credit providing capacity. Statutory liquidity Ratio (SLR): Statutory liquidity ratio is the liquid assets commercial banks maintain with the RBI in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities. The maximum limit of SLR is 40% and minimum limit of SLR is 23% In India. RBI can change SLR from time to time. Both CRR and SLR reduce or increase the capacity to expand credit to business and industry. Thus both of these are anti-inflationary. Open Market Operations (OMO): The buying and selling of eligible securities in the money market by RBI for the purpose of curtailing or expanding the volume of credit. By selling securities the RBI can absorb funds, and buying the securities can release funds also into the market. The purpose of OMO is to influence the volume of cash reserves with the commercial banks and thus influence the volume of loans and advances they can make to the industrial and commercial sector. Selective Credit Controls: Under the Banking Regulation Act 1949, section 21 empowers RBI to issue directives to the banking companies regarding their advance in order to check speculation and rising prices. The controls are selective as they are used to control and check the rising tendency of price and hording of certain individual commodities of common use. However, while imposing selective control, RBI takes care that bank credit for production and transportation of commodities and exports is not affected. These are mainly focu
Posted on: Fri, 01 Aug 2014 13:28:48 +0000
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