Question

Which of the following are not instruments of quantitative credit control?
(A) Rationing of credit
(B) Change in margin requirements of loans
(C) Bank rate
(D) Open market operations
Choose the correct answer from the options given below:

• A. (B) only.
• B. (C) and (D) only.
• C. (A) and (B) only.
• D. (A), (B) and (D) only.

Hint:

- Quantitative = Numbers and Volume (Bank Rate, Repo, Reverse Repo, CRR, SLR, OMO).
- Qualitative = Target and Sector (Margin Requirements, Moral Suasion, Credit Rationing, Direct Action).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The Reserve Bank of India (RBI) utilizes two main categories of monetary policy instruments to control the volume and direction of credit in the economy:
1. Quantitative (General) Controls: These affect the overall volume and cost of money in the banking system without focusing on specific sectors.
2. Qualitative (Selective) Controls: These regulate the allocation of credit to specific sectors or activities to prevent speculation or encourage development.

Step 2: Detailed Explanation:
Let us evaluate each of the options:
- (A) Rationing of credit:
This involves setting ceilings or limits on credit available for specific sectors. This is a qualitative (selective) instrument.
- (B) Change in margin requirements of loans:
Margin refers to the difference between the market value of collateral and the loan amount sanctioned against it. Changing this requirement restricts speculative lending in specific sectors. This is a qualitative (selective) instrument.
- (C) Bank rate:
The rate at which the central bank lends long-term funds to commercial banks. Altering this rate changes the cost of borrowing across the entire economy. This is a quantitative instrument.
- (D) Open market operations (OMO):
The purchase and sale of government securities by the central bank to regulate systemic liquidity. This is a quantitative instrument.
Thus, (A) Rationing of credit and (B) Change in margin requirements of loans are qualitative instruments and do not fall under quantitative credit controls.

Step 3: Final Answer:
The correct option is (C), representing (A) and (B) only.