Methods of Credit Control | Bank Rate Policy | Quantitative method | BCom | BBA | #himanshunandwani

Methods of Credit Control : (A) General methods of credit control or the Quantitative methods of credit control. Bank rate policy Open market operations Changes in Reserve ratios (B) Selective methods of credit control or the Qualitative methods of credit control. (A) General methods of credit control or the Quantitative methods of credit control. Bank Rate Policy : The bank rate is a traditional weapon of credit control used by the central bank. It is the rate at which the central bank is willing to discount first class bills of exchange or advance loans against approved securities to commercial banks or member banks. In some countries, it is also known as discount rate. It should be noted here that bank rate is different from the market rate. Bank rate is the rate of discount of the central bank, while market rate is the rate of discount which prevails in the money market. The bank rate affects both the cost and the availability of credit. Modus Operandi of Bank Rate : The principle underlying the bank rate policy is that changes in the bank rate are generally followed by corresponding changes in the money market rates, making credit costlier or cheaper and thereby affecting its demand and supply Conditions for the Success of a Bank Rate Policy : There should be a close relationship between the bank rate and the rates of interest prevailing in the money market. The structure of the economy must be elastic so that any change in the bank rate must lead to changes in the structure of wages, prices and costs. The country should have a well-developed and well-organised money market. Limitations of Bank Rate Policy: If the commercial banks have surplus cash with them, they may not raise their lending rates even though central bank may have raised the bank rate. Bank rate policy affects the cost of credit for productive and speculative purposes in a like manner; the objective, however, is to make credit costly for and this may prove to be counter-productive. #learnwithhimanshunandwani #vnsgu #vnsguexam #bcomhonours #bcomsem3 #economics #northgujaratuniversity #gujaratuniversity #education #cainter