Question:
RBI controls the credit in economy by: A. Change in CRR, B. Change in SLR, C. Change in Bank Rate, D. Open market operations, E. Credit Rationing.
RBI controls the credit in economy by: A. Change in CRR, B. Change in SLR, C. Change in Bank Rate, D. Open market operations, E. Credit Rationing.
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RBI controls credit through CRR, SLR, Bank Rate, Open Market Operations, repo rate and qualitative tools like credit rationing.
Updated On: May 22, 2026
- A, B, C Only
- A, B, E Only
- A, B, C, D, E
- A, D, E Only
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The Correct Option is C
Solution and Explanation
Concept: The Reserve Bank of India controls credit through quantitative and qualitative instruments of monetary policy.
Step 1: Understand CRR.
CRR means Cash Reserve Ratio. When RBI changes CRR, the amount of cash banks must keep with RBI changes. \[ \text{Higher CRR} \Rightarrow \text{Lower credit creation} \] So A is correct.
Step 2: Understand SLR.
SLR means Statutory Liquidity Ratio. It requires banks to maintain a certain portion of deposits in liquid assets. \[ \text{Higher SLR} \Rightarrow \text{Less funds for lending} \] So B is correct.
Step 3: Understand Bank Rate.
Bank Rate affects the cost of borrowing from RBI. A higher bank rate reduces credit expansion. \[ \text{Higher Bank Rate} \Rightarrow \text{Costly credit} \] So C is correct.
Step 4: Understand Open Market Operations.
Open market operations involve buying and selling government securities. Selling securities reduces money supply and credit availability. So D is correct.
Step 5: Understand Credit Rationing.
Credit rationing is a qualitative method through which RBI controls the amount and direction of credit. So E is also correct. Therefore, RBI controls credit using all the given methods.
Step 1: Understand CRR.
CRR means Cash Reserve Ratio. When RBI changes CRR, the amount of cash banks must keep with RBI changes. \[ \text{Higher CRR} \Rightarrow \text{Lower credit creation} \] So A is correct.
Step 2: Understand SLR.
SLR means Statutory Liquidity Ratio. It requires banks to maintain a certain portion of deposits in liquid assets. \[ \text{Higher SLR} \Rightarrow \text{Less funds for lending} \] So B is correct.
Step 3: Understand Bank Rate.
Bank Rate affects the cost of borrowing from RBI. A higher bank rate reduces credit expansion. \[ \text{Higher Bank Rate} \Rightarrow \text{Costly credit} \] So C is correct.
Step 4: Understand Open Market Operations.
Open market operations involve buying and selling government securities. Selling securities reduces money supply and credit availability. So D is correct.
Step 5: Understand Credit Rationing.
Credit rationing is a qualitative method through which RBI controls the amount and direction of credit. So E is also correct. Therefore, RBI controls credit using all the given methods.
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