Introduction:

The central bank aims at providing financial and economic stability in the country. It supervises controls and regulates the activities of all the commercial banks and other financial institutions of the country. Thus central bank is the monetary institution whose main function is to control regulates and stabilizes the monetary system of the country in the national interests. The credit control measure of R.B.I are called as the instruments of monetary policy of R.B.I

Instruments of monetary policy of RBI:

Various methods adopted by the RBI to regulate and control money circulation or supply of money in the country are known as the instruments of monetary policy or methods of credit control. The methods adopted by RBI are grouped under two heads.

Credit Control:

• Quantitative methods
• Qualitative methods

Qualitative methods:-

These methods are a selective method which affects money supply indirectly and discriminately they encourage flow of money and supply to desirable channels and check flow of funds to undesirable channels. for example credit may be supplied to agriculture at lower rate of interest to facilitate it growth rate of interest for other sector may contain as before this is only possible under selective credit control methods they are.

• Marginal requirements: loans are granted by commercial banks against the security the amount lent by the bank is a fraction of the market value of the security. They may give loan of rupees 8000 against the security worth of rupees 10,000 and keep a margin of rupees 2000 that is 20% the difference between the market value of security and amount lent against the security is called margin. The central bank will raise the margin to contract the volume of credit and reduce the margin to expand it.
• Regulation of consumer credit: Money given to consumer to buy certain durable goods like cars, television, washing machine, furniture Etc is called consumer credit. Under which loans are taken for purchasing of durable goods increasing demand for these goods leads to inflation. To control this problem consumer credit is to be regulated. RBI increases margin requirement reduces in the placement period of loans.
• Control through directives: the central bank may enforce the written or oral directives in desire directions to the commercial banks. The RBI may ask commercial bank to be Rigid or liberal in granting loans.
• Credit rationing: the RBI issues prior information or direction that loans to commercial banks will be light in advance in loans to the public they will allocate loans to limited sector. In other words the central bank fixes a ceiling or maximum amount of loans and advance for each commercial bank.
• Direct actions: it refers to the forced measure taken by the central bank against commercial banks. It may refuse to read rediscount bills or advanced loans against security it may even charge the panel rate of interest for money borrow beyond the prescribed limit.
• Moral session: this method of credit control involves the technique of advice and request made by the central bank to the commercial bank to corporate with the implementation of its credit policies. Central Bank may request commercial bank not to give loans for unproductive purpose which does not add to economic growth but increases inflation.
• Publicity: the central bank by giving regular publicity to money market trends, educates the commercial bank to regulate credit. It includes publishing of the monthly reviews of credit and business conditions and the annual report on the operation of business and the banking sector.

also read: explain the objectives of monetary policy of R.B. I.