More goods and regulating the number of

More generally, the commercial banks do not lend upto the full amount of the security but lend an amount less than its value.

The margin requirements against specific securities are determined by the Reserve Bank. A change in margin requirements will influence the flow of credit. A rise in the margin requirements results in a contraction in the borrowing value of the security and similarly, a fall in the margin requirements results in expansion in the borrowing value of the security. 2. Credit Rationing: Rationing of credit is a method by which the Reserve Bank seeks to limit the maximum amount of loans and advances, and also in certain cases fix ceiling for specific categories of loans and advances. 3. Regulation of Consumer Credit: Regulation of consumer credit is designed to check the flow of credit for consumer durable goods.

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This can be done by regulating the total volume of credit that may be extended for purchasing a specific durable goods and regulating the number of instalments through which such loan can be spread. Reserve Bank uses this method to restrict or liberalise loan conditions accordingly to stabilise the economy. 4.

Moral Suasion: Moral suasion and credit monitoring arrangement are other methods of credit control. The policy of moral suasion will succeed only if the Reserve Bank is strong enough to influence the commercial banks. In India, from 1949 onwards the Reserve Bank has been successful in using the method of moral suasion to bring the commercial banks to fall in line with its policies regarding credit. Publicity is another method whereby the Reserve Bank makes direct appeal to the public and publishes data which will have sobering effect on other banks and the commercial circles.


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