How the bank lending and crediting policies

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Lending and crediting policies of Bank

It helps the central bank to perform their primary function.

  • To accept and lending money.
  • Rate of the interest on loan , investments.
  • Purchasing power pority (PPP).
  • loan in creating liquidity in market.

Monetary policy of the RBI and Government : Lending policy, Credit policy. If these two maintain the no inflation and no deflation it lead to economic stability. “equal distribution to having economic stability till 1980, the only focus of RBI to maintain credit ploicy”. Late 1980, RBI started focuses on currency notes generate, employment generates, securities with SEBI, foreign exchange regualtion.

Tools used by RBI to regulates, monetary policy and money market.

  • CRR: cash reserve ratio
    • minimum reserve of cash has to be reserved by the commercial banks to the RBI.
      • Example: 1 Cr amount raised by commercial banks then 2,00,000 have to be reserved in the RBI, and only 98,00,00 will be raised for the credit creation.
  • SLR: statutory liquidity ratio
    • statutory limit decide by the Rbi, so the commercial banks has to reserves some cash for the time of liquidity. It is maintained in the form of assets thet can get converted into cash easily.
      • exaple: shares, securities, gold , gold bonds etc
  • Bank rate
    • they are rate of interest to which RBI provide loans to the commercial banks. RBI is the banker’s bank. In banks rate the loans are long term, and the rate of interest is lesser, it has no security.
  • Repo rate
    • In repo rate the loans are short term and interest is higher than the bank rate , it has with security.
  • Reserve repo rate
    • when RBI will take loans from the commercial bank this is known as reserve repo rate.

When RBI raises credit funds to be raised in commercial bank

  • Credit term
    • Rbi provides loans to the commercial banks and commercial banks provides loans to the customers, these are the term for raising credit to the commercial banks.
  • Credit standards
    • CIBIL
  • Required info
  • Deposits
  • Credit limit
    • there are certain limits in which a person is allowed for the loans services, how the limit is decided of the credit services is all depends of the CIBIL rating.
  • collection policy
    • if a person has a good CIBIL then the collection ploicy will be liberal.

reference: original note written by Riya Tiwari student LLB from United university Prayagraj Uttar Pradesh.

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