CREDIT POLICY
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the primary objective of credit policy as administered by the Reserve Bank of India?
The primary objective of credit policy is to regulate the flow of credit in the economy to ensure price stability, support economic growth, and maintain financial stability.
What is the floor rate of the interest rate corridor maintained by RBI's LAF?
The Standing Deposit Facility (SDF) rate forms the floor.
How does the RBI use the Cash Reserve Ratio (CRR) as a credit policy tool?
CRR is the mandatory percentage of a bank's net demand and time liabilities (NDTL) that must be maintained as cash with RBI; raising CRR absorbs liquidity and reduces credit expansion, while lowering it releases funds for lending.
What is the ceiling rate of RBI's interest rate corridor?
The Marginal Standing Facility (MSF) rate forms the ceiling.
What is the Statutory Liquidity Ratio (SLR) and how does it influence credit availability?
SLR is the minimum percentage of NDTL that banks must hold in approved liquid assets such as government securities; a higher SLR pre-empts funds away from commercial credit, thus curtailing credit supply.
Which committee recommended the introduction of the Monetary Policy Committee in India?
The Urjit Patel Committee recommended the MPC framework.
What distinguishes qualitative credit control measures from quantitative credit control measures?
Quantitative measures regulate the overall volume of credit through instruments like CRR, SLR, and repo rate, while qualitative measures selectively direct credit to specific sectors or borrowers using tools like margin requirements, credit rationing, and moral suasion.
What is the inflation target mandated for the RBI's flexible inflation targeting framework?
4% CPI inflation with a ±2% tolerance band.
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