Central banking

Central Banking
Central Bank as "a bank of bankers. Its duty is to control the monetary base and through the control of high powered money to control the community's supply of money."

Teaching Points
12.1   Introduction
12.2   Definitions
12.3   Functions of Central Bank
12.4   Measures of Credit Control by Central Bank

Teaching Objectives
Understanding of the Central Bank & its functions and various measures of credit control.

"Nations today can successfully control either depression or inflation by fiscal and monetary measures." – Paul A. Samuelson

12.1   Introduction
At present every country has its own Central Bank. "It is symbol of State's sovereignty and stability of the country." A Central Bank is an institution which is responsible for safe guarding the financial stability of the country. It holds the ultimate reserves of the nation, controls the flow of purchasing power- whether currency or credit and acts as a banker to the State."
The importance of Central Bank has been steadily increasing on account of various reasons. The inter dependence of economic life within and between the countries is increasing. The need for management and control of currency system has significantly increased. In order to control business cycles in developed countries and to promote economic development of developing countries, Central Banks are playing an active role. They also co-ordinate, control and manage various dynamic, complicated and conflicting issues which affect economic stability in the national and international field.
Today, almost all the countries of the world have a Central Bank to control their entire banking system. In different countries, Central Bank are known by different names. For instance, in U.S.A., it is known as Federal Reserve System, in the U.K., it is called the Bank of England. Similarly, India's Central Bank is the Reserve Bank of India (RBI).
The Reserve Bank of India (RBI) was established and started functioning from lst April 1935. The RBI was started as a non-government institution, almost the entire share capital being held by private shareholders. Government of India holding only nominal shares of `2,22,000. The RBI was nationalised in 1949.

12.2   Definitions of Central Bank
1)       Prof. R. P Kent in his book "Money and Banking" has defined Central Bank as "An institution charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of the general public welfare."
2)       According to Prof. W. A. Shaw, "A Central Bank is a bank which controls credit."
3)       Prof. Paul A. Samuelson defines a Central Bank, as a bank of bankers. It's duty is to control the monetary base and through the control of high powered money, to control the community's supply of money.     ,
4)       Prof. Hawtrey defines, "Central Bank is that which is the lender of the last resort."
Central Bank is the apex or the supreme monetary and banking authority and occupies a pivotal position in the monetary and banking structure of the country. It is the undisputed leader of the money market.
Thus the Central Bank aims at promoting the financial and economic stability of the country. As such, it supervises, controls and regulates the activities of the Commercial banks associated with it and manages the monetary system of the economy. It is charged with the duties and responsibilities of carrying out the monetary policies, formulated by the government and with performing the duties of banker's bank and fiscal agent for the government.
The main objective of the Central Bank is not to earn profit, but to work for the benefit and welfare of the society as a whole. It aims at achieving this objective by way of carrying out the following functions.

12.3   Functions of Central Bank
1)       Issue of Currency Notes    
2)       Banker to the Government
3)       Banker's Bank
4)       Controller of Credit
5)       Development and Other Functions
6)       Custodian of Foreign Currency Reserves of the country and Maintenance of Exchange Rate Stability.
We shall now analyse the above functions of the Central Bank in details.
1)      Issue of Currency Notes
Central Bank has the sole power of issuing currency notes which are legal tender.
The Central Bank of the country has thus the monopoly of issuing notes or paper currency to the public. The advantages and reasons for granting the monopoly rights to issue notes to the Central Bank are listed below­
         i)        It brings uniformity in the currency making it easy for people to identify it.
         ii)       The notes acquire more prestige, when they are issued by the single bank, than when they are issued by many banks.
         iii)      It avoids over issue of currency as it becomes easy to control the total quantity of notes issued.
         iv)      Public has more confidence in the currency. v)  It helps to maintain price stability, because the Central Bank can control the credit creation by commercial banks more effectively.
         vi)      It is also convenient for the government to supervise and regulate the issue of paper currency by Central Bank.
Thus, the Central Bank is the most suitable and appropriate agency for the issue of notes and for controlling currency and credit supply according to requirements of the country.
In India, Reserve Bank of India (RBI) has the sole right to issue currency notes of all denominations except one rupee note. The one rupee note and coins of all denominations are issued by the Ministry of Finance of the Government of India, but their distribution is undertaken by RBI.
The system of note issue differs from country to country. Nevertheless, certain principles are followed by the Central Bank, while issuing notes which have undergone changes over a period of time. Earlier it was full backing in terms of gold. Now it is the Minimum Reserve System followed by many Central Banks. In India also, it is the minimum reserve system that is followed. As per this system once minimum reserve is maintained then these is no legal control on issuing additional currency notes.
The RBI maintains a minimum reserve of ` 200 crores, consisting of ` 115 crores in gold and the remaining ` 85 crores in government securities.
2.       Banker to the Government
Just as a commercial bank is people's bank, the Central Bank, is a banker to the government. In the capacity of banker to the government the Central Bank, performs the following functions for the government.
a)      As a banker to the government -
i)        The Central Bank is the custodian of government funds. It keeps all the cash balances of the government, but it does not pay any interest on such funds.
ii)       Receives and makes all payments on behalf of the government such as salaries to the government, servants payment of interest to people on public debt, pension to government servants and so on.
iii)      Transfers government funds from one place to another place, from one account to another account. Thus the Reserve Bank of India has branches in Mumbai, Delhi, Kolkata, Chennai, Kanpur etc. RBI has five zonal offices and 19 regional offices in most state capitals. It can therefore easily transfer funds from one place to another as needed. At other places, the branches of the State Bank of India act as agents of the Reserve Bank of India.
iv)      Advances, short term loans to the government known as `Ways and Means Payment' are given whenever required. This is usually done by discounting the government treasury bills.
v)       It also provides foreign exchange to the government to meet its external debt obligations and to spend money in foreign countries.
vi)      The Central Bank also helps government to raise long term loans, often directly contributing to such loans or by underwriting such loans.
b)      As an advisor to the Government
It gives useful advice to the government on important economic issues, such as foreign exchange policy, monetary policy, commercial policy, planning and budgetary policy, deficit financing, devaluation of currency etc. Since the Central Bank possesses full information about the working of the economy, it is in a position to offer useful advice to the government on economic, financial and monetary matters.
In India, RBI advises the government on all banking and financial matters such as preparation of financial budgets, resource mobilization, measures to control inflation and a wide range of economic issues concerning planning.
c)       As an agent of the government
It manages the public debt of the government. Raising loans by selling securities and bonds, payment of interest and repayment of loans on maturity are all undertaken by the Central Bank. External loans are also negotiated and managed by the Central Bank on behalf of the government.
As a representative of the government, it manages the country's relations with international financial institutions. In India, RBI acts as the agent of the government in respect of India's membership of the IMF (International Monetory Fund) and the World Bank and attends international monetary and financial conferences through experts.
3)      Central Bank as Bankers' Bank -The Central Bank functions as a leader and coordinator of commercial banks in the country. In this capacity, the Central Bank performs the following functions in relation to commercial banks in the country:
a)      The Central Bank acts as a Custodian of Cash Reserves of commercial banks in the country Every commercial bank keeps certain percentage of its cash with the Central Bank of the country. At present keeping a certain percent of cash reserve as a deposit with the Central Bank, is legally made compulsory. This enables the Central Bank. 1) To have control over the total amount of credit creation by commercial banks in the country and thus on the total quantity of money in circulation. 2} By varying, the legal minimum cash reserve which every commercial bank must keep with the Central Bank and which is not available to commercial banks as basis of credit creation, the Central Bank can manipulate the quantity of money, that is in circulation in the economy according to the policy it has formulated.

b)      The Central Bank acts as a "Clearing House"
Since all commercial banks keep deposit accounts with the Central Bank, the Central Bank is in a position to act as clearing house for commercial banks.
Take an illustration. There is not one commercial bank in the country but there are several commercial banks. Customers of Bank 'A' may draw cheques in favour of persons who have accounts with commercial Bank `B' and customers with accounts in bank 'B' may draw cheques in favour of persons who have accounts in commercial bank 'N. Let us suppose that in one month as a result of above transactions bank 'A' owes ` 50 lakhs to bank 'B' and bank 'B' owes ` 40 lakhs to bank 'A'. Now bank 'A' draws a cheque in favour of bank 'B' for` 10 lakhs only on the central bank of the country, where all commercial banks have their accounts.
Bank 'A's account is debited by ` 10 lakhs and bank 'B's account is credited by ` 10 lakhs. Thus the clearing house system' which becomes possible because all commercial banks keep their accounts with the central bank of the country, economizes use of cash and facilitates adjustment of dues between commercial banks by the Central Bank, with convenience to all commercial banks.
c)       The Central Bank advices commercial banks Advices them if their activities are harmful to commercial banking and provides accommodation by lending funds in case of difficulties.
d)      Lender of the last resort:
The commercial banks operate on the basis of low cash reserve system. If there is a great demand for cash by the depositors, even a well managed commercial bank can run into difficulty. This is because, with low cash reserves, it will not be able to meet a sudden and large demand for cash. The Central Bank comes to their rescue at such times. It is the ultimate source of financial assistance to commercial banks. Just as people go to commercial banks when they want loans, commercial banks go to the Central Bank of the country in times of their financial difficulties. Thus, `the lender of the last resort' function of the Central
Bank helps to control panic and infuses confidence among the banks as well as the public. Hence, during the financial difficulties or crisis, commercial banks can always depend upon the Central Bank for the required assistance.
4)      Controller of Credit
The chief objective of the Central Bank is to maintain price and economic stability. Price instability, both inflation and deflation has harmful effects. For this purpose, it is necessary that the supply of credit and use of credit should be in appropriate amount and direction. The expansion of credit tends to create inflationary pressure and contraction of credit tends to create deflationary pressure.
The Central Bank, as an executor of the government's monetary policy, controls the volume and direction of credit. To overcome inflation, it has to restrict the supply of credit and to prevent or to get rid of depression or deflation, it has to expand the credit. Reserve Bank of India, as a Central Bank has the power to regulate the total money supply and bank credit in the interest of the economy.
5)      Developmental and Promotional functions: In recent years, the Central Bank has not only been undertaking just `regulatory functions', but also `developmental and promotional functions', especially in developing countries like India. Such developmental and Promotional functions include.
         i)        Taking steps to promote banking habits among the people.
         ii)       Establishing special banking training institutions to train bank personnel to undertake banking functions in urban and rural areas
         iii)      To establish specialized financial institutions with adequate funds. For instance in India, with the initiative of RBI, many financial institutions such as N.A.B.A.R.D. (National Bank for Agricultural and Rural Development), LD.B.I. (Industrial Development Bank of India), the EXIM (Export Import Bank of India), D.LC.G C. (Deposit Insurance and Credit Guarantee Corporation), N.H.B. (National Housing Bank) etc. have been established.
         iv)      Provision of credit facilities to agriculture, industry and other priority sectors through commercial banks and co-operative banks.
         v)       Maintaining price stability in the country vi) Conducting research and surveys on various vital aspects of the economy with a view to provide guidelines for development in different sectors of the nation's economy. Such a research and survey is useful to government authorities to frame various macro economic policies
         vii)     The Central Bank (e.g.R.B.L) gives clearance to various projects involving financial matters. It includes clearing joint ventures abroad and investment proposals in foreign countries.

6)      The Central Bank acts as a Custodian of Foreign Exchange Reserve of the Country and Maintenance of Exchange Rate Stability:
The Central Bank of the country functions as a custodian of gold and the major currencies like U.S. Dollar, Euro, Japanese Yen, the British Pound etc. obtained by the government and in the international trade. This enables the Central Bank to exchange the national currency which means Rupees (`) in case of India into different currencies at fixed rate of exchange, maintain the value of national currency at the determined level with a view to attain equilibrium in the international trading transactions (i.e. import and export of goods and services).
It helps to maintain international liquidity of the country (i.e. meeting any foreign obligation such as payment of interest and principal amount of foreign loans in appropriate currencies). It also manages exchange control operations by supplying foreign currencies to importers, businessmen and students going abroad. In India, RBI has the responsibility of maintaining the exchange value of rupee.
7)      Data Collection and Publicity
In almost every country, the Central Bank collects and publishes information relating to agricultural, industrial and financial sectors of the economy, exports and imports, banking, trends in money and capital markets, price trends etc. On the basis of this information, the government can formulate and implement its economic and monetary policies. RBI also publishes data and information regarding various macro economic variables. Its main publications include Report on Currency and Finance, RBI Bulletin, RBI Journals and various research papers.
In short, Central bank of any country performs various functions and their importance differs depending upon the situation and state of the economy. In developed countries, the regulatory functions get higher priority. In developing countries, the Central Bank plays both regulatory as well, as developmental and promotional functions.

12.4   Measure of Credit Control by Central Bank
The Central Bank of a country has the responsibility of controlling the volume and direction of credit in the economy in order to achieve the objective of growth with stability.
The Central bank adopts two types of measures for controlling credit activities of the banks in the economy. These are (A) Quantitative Measures of Credit Control and (B) Qualitative or Selective Measures of Credit Control. Let us study these measures.
Let us study them in detail.
A)      Quantitative Measures of Credit Control
These measures are macro economic in effect and are used to control the volume or quantity of credit so as to control the inflationary or deflationary pressures caused by expansion or contraction of credit. These measures also aim at controlling the cost of credit. These include -
         1)      Bank Rate
         2)      Open Market Operations
         3)      Varying Reserve Ratio or Cash Reserve Ratio (C.R.R.)
1)      Bank Rate
Bank rate is the minimum rate of interest charged by the Central Bank to commercial banks while giving loans to them against eligible securities or by rediscounting bills of exchange. It is also called rediscount rate. The Bank Rate affects both the cost and availability of credit. The Bank Rate is important because it is the pace setter to other market rates of interest. The money market rates adjust automatically to the changes in Bank Rate. The Central bank can raise or reduce the Bank Rate to increase or decrease the money supply in the economy.
When the Bank Rate is increased, the cost of borrowing from Central bank goes up, which in turn forces the commercial banks to charge higher lending rate to cover up their increased cost. Businessmen and industrialists (i.e. entrepreneurs) feel discouraged to borrow more money, when the lending rate of interest charged by commercial banks is high. This would lead to contraction in bank credit and a decrease in money supply in the economy. The reduction in money supply will reduce aggregate demand or money expenditure. As a result prices will fall and inflation will be checked. Central Bank follows this `Dear Money Policy' during the period of inflation to control general rise in prices of all goods and services.
The reverse will happen when the Bank Rate is reduced in order to overcome the problem of recession or depression in the economy. This is called Cheap Money Policy of the Central Bank.
The R.B.I. started with a cheap money policy with a Bank Rate of 3% in 1951. This rate has undergone a lot of changes time and again as per the requirements of the economy.
2)      Open Market Operations
Open Market Operations refer to deliberate buying and selling of government securities and treasury bills by the Central Bank in the open market. By doing so the Central Bank can increase or decrease cash reserves of the banks. O.M.O. is an important instrument of stabilizing the general price level. It affects the money supply directly and rate of interest indirectly.
When the Central Bank sells securities to the public, commercial banks and other financial institutions in the open market, payments are usually made by cheques. Money flows from them to Central Bank. This reduces the demand deposits held by the public and the cash reserve of banks, which in turn reduces their ability to create credit. Thus the sale of securities by the Central Bank leads to a decrease in quantity of money supply in the economy and a rise in market rate of interest. This in turn reduces the demand for money, due to a higher cost and thus helps to check inflationary tendencies in the economy.
When the Central Bank purchases securities, money flows from it to commercial banks or public. This increases cash reserves with the banks and helps to expand credit and money supply. As a result, interest rate declines and demand for money increases. In this way Central Bank, by selling government securities during the period of prosperity and purchasing government securities during the period of recession or depression, controls the credit activities of the commercial banks.
3.       Variable Cash Reserve Ratio
Lord J.M. Keynes has popularized this as a method of credit control by the Central Banks.
a)      Cash Reserve Ratio (C.R.R.)
By the Banking Act, commercial banks have to maintain a certain amount of cash with Central Bank (for e.g. RBI) as reserves against their demand and time deposits. (Under the RBI Act of 1935 every commercial bank has to keep certain minimum cash reserves with the RBI. It can vary C.R.R. between 3% and 15% of total time and demand deposits.)
This amount cannot be used by banks for lending activities. Therefore, the amount available for lending gets reduced to the extent of Cash Reserve Ratio. This reserve ratio is changed to regulate credit. It directly affects the lending capacity of banks and the rate of interest charged by banks.
An increase in Cash Reserve Ratio leads to a contraction of credit, increase in lending interest rates and a reduction in money supply in the economy. This can reduce inflationary pressures.
A decrease in Cash Reserve Ratio leads to an expansion of credit, a decrease in lending interest rates and an increase in money supply in the economy.
When Central Bank wants to reduce money supply, the C.R.R. will be raised, and it will be reduced to expand the quantity of money. It is a very effective instrument as it affects the base of credit creation.
b)      Statutory Liquidity Ratio (SLR):
In addition to CRR, the commercial banks have to maintain a certain percentage (25%) of their total demand and time deposits with the RBI in the form of liquid assets i.e. in the form of cash gold and in approved securities. This is known as Statutory Liquidity Requirement. This amount is kept in reserve to invest in government securities, as every commercial bank has to make these investments. Hence, it is not available to banks for lending purposes.
If Central Bank wants to decrease money supply in the economy, it will increase SLR, which will reduce commercial bank's ability to create credit. A higher SLR will increase the lending rates of banks. If the Central Bank wants to increase money supply in the economy, it will reduce SLR which will increase bank's ability to create credit. A lower SLR reduces the lending rate of banks.
c)       Concept Repo Rate and Bank Rate
People often get confused between these two terms. Though they appear similar, there is a basic difference between them.
(a)     Repo Rate or Purchase Rate i.e. Liquidity Adjustment Facility (LAF)
"Repo Rate or Repurchase Rate is that rate at which commercial banks borrow money from the Central Bank for short period by selling their securities to the Central Bank with an agreement to repurchase them at a future date at pre­determined price:"
"Bank Rate is the rate at which banks borrow money from the Central Bank, without any sale of securities". It is generally for a longer period of time. These two rates are determined by central bank of country on the basis of demand for and supply of money in an economy.
(b)     Concept of Reverse Repo Rate
Reverse Repo Rate is the rate of interest at which the Central Bank borrows funds from other commercial banks for a short duration. The commercial banks deposit their short term excess funds with the Central Bank and earn interest on it.
Reverse Repo Rate is used by the Central Bank to absorb liquidity from the economy. When it feels that there is too much money floating in the market, it increases the reverse repo rate, meaning that the Central Bank will pay a higher rate of interest to the banks for depositing money with it.
An increase in the Reverse Repo Rate causes the banks to transfer more funds to the Central Bank, because banks earn attractive interest rates and also their money is in safe hands. This results in the money withdrawn out of the banking system, thus banks are left with lesser funds.
Thus, by lowering repo rate, Central Bank injects liquidity in the banking system and by increasing reverse repo rate, it absorbs the liquidity from the banking system.
B)      Qualitative or Selective Credit Control Measures :
These measures are adopted by the Central Bank to control the use of credit: They do not affect the entire economy. They help to divert the flow of funds to their desirable and productive uses. These methods are known as Selective Credit Control Methods.
1)      Regulation of Margin Requirements
2)      Regulation of Consumer Credit
3)      Issue of Directives
4)      Rationing of Credit
5)      Direct Action
6)      Moral Suasion
7)      Publicity
Let us study these measures in detail.
(1)     Regulation of Margin Requirements : Margin requirements determine the loan value of a collateral security offered by a borrower. The loan value of a security is the difference between the market value and the margin requirement. For example, if the market value of 10 grams of gold is ` 30,000/- and the margin requirement is 25%, then the loan value of 10 grams of gold, as a collateral security will be ` 22,500/- (` 30,000/- -- ` 7,500/-). Equity shares, debentures of the Joint Stock Companies, precious metals and real assets are accepted by banks as collateral security for granting loans.
Increase or decrease in margin requirements changes the loan value of security. Demand for loans can be discouraged by increasing the margin and vice versa:
Central Bank has the power to determine the margin requirements. It is a very effective instrument used to control speculative activities, both in commodity market, as well as money and capital market.
(2)     Regulation of Consumer Credit:
This technique of selective (qualitative) credit control is used to regulate the terms and conditions under Which consumer instalment credit and hire purchase finance is provided by the banks. In developed and in developing countries, substantial part of the. credit is used for consumer durable goods like cars, motorcycles, television sets, refrigerators, computers, microwave ovens, domestic furniture etc. when they are purchased on hire purchase or instalment credit system. Excess as well as insufficient demand for these items disturb the production. To avoid this problem, consumer credit is required to be regulated.
This method (technique) is implemented by determining the minimum down payment and maximum period of payment i.e. maximum equated monthly instalments (EMI). In order to check consumer credit, the Central Bank may increase the minimum down payment and reduce the maximum period of payment by reducing the number of equated monthly instalments (EMI). This will discourage the prospective buyers. On the other hand, a lower down payment and more number of instalments will encourage them.
(3)     Issuing Directives:
         Recently,, the, Central Banks have, started issuing directives to commercial banks. In this method, the Central Bank issues directives in the form of oral or written statements or declarations in the newspapers, appeals and warnings in order to follow a particular course of action. It may ask commercial banks to be liberal in granting loans, so that the credit policy followed by them is in harmony, with the overall. monetary policy, followed by the commercial banks.

(4)     Credit Rationing:
In this method, the Central Bank may impose a ceiling on the loans and advances to regulate and control the purpose for which credit is offered by commercial banks. This is done so that industries do not indulge in speculation and shortages, and black marketing can be avoided. Under this method, the credit is rationed by limiting the amount available to each applicant. Credit Rationing is done during times of monetary shortage and declining gold reserves.
(5)     Direct Action:
A Central Bank may adopt the technique of direct action against the defaulting commercial banks or which fails to follow the directions given by it. This method can be used to enforce both quantitative and selective (qualitative) credit controls and is generally used not in isolation, but as a supplement to other methods. The following modes of direct action may be taken by the Central Bank­
         (i)      The Central Bank may refuse rediscounting facilities to those commercial banks, which may be granting too much credit for speculative and unproductive purposes in excess of their capital and reserves.
         (ii)      The Central Bank may restraint them from granting advances against the collateral securities of certain commodities.
         (iii)     It may charge a penal rate of interest on those banks which want to borrow from it, beyond prescribed limit.
         (iv)        The Central Bank may threaten a commercial bank to be taken over by it, if it fails to follow the Bank's policies and instructions.
(6)     Moral Suasion:
Moral suasion implies persuading the commercial banks by the Central Bank to co­operate with it in following a proper credit policy more rigorously. This method of credit control is used by Central Bank in many countries. It is a psychological instrument of monetary policy. The Executive Head (Governor) of the Central Bank calls a meeting of the heads of commercial banks and during the meeting, he explains the need of adopting a particular monetary policy under prevailing economic conditions and appeals them to co-operate with the Bank.
In recent years, this method has become more effective as the commercial banks are apprehensive of stronger measures, that may follow in case they fail to adhere to the Central Bank's appeal.
(7)     Publicity:
The Central Bank may employ publicity as an instrument of credit control not only for influencing the credit policies of commercial banks, but also to educate and influence public opinion in the country. In the words of Prof. De Kock, "Publicity includes publishing regularly the weekly statements of their assets and liabilities, monthly reviews of credit and business conditions and comprehensive annual reports on their operations and activities, money market and banking conditions generally, public finance, trade, industry, agriculture etc." The published literature makes it easy for the commercial banks and the public at large to anticipate future changes in the monetary and credit policies of Central Bank. Through these publications, the Central Bank provides a guideline to commercial banks regarding their credit creation activities.
Quantitative and Qualitative methods of credit control are not rivals, but on the contrary, they supplement each other.

Q.1(A) Fill in the blanks with appropriate alternatives given in the brackets:
         1.       Central Bank has the ................ of note issue.
         2.       The Central bank acts as a ................ of cash reserves of commercial banks in the country.
         3.       Bank Rate is also called as ................ rate. (rediscount/market/general/exchange)
         4.       ................ is the apex body of the monetary and banking system of the nation's economy.
                  (Commercial Bank/Central Bank/ Government/Co-operative Bank)
         5.       Reserve Bank of India was established in …………………

(B)     Match the following groups:
         Group "A"                                Group "B"
         1.    Central Bank                       a.     Quantitative measure of credit
         2.    Clearing house                    b.    Apex banking system institution
         3.    Credit Control                    c.     Deliberate buying and selling of
         4.    Direct Action                              government securities
         5.    Open market                       d.    Selective method of credit control
                                                        e.     Central Bank Operations     
                                                         f.     Government
                                                         g.    S.L.R.(Statutory Liquity Ratio)
(C)     State whether the following statements are true or false.
         1)       Credit rating is quantitative credit control measure of Central Bank.
         2)       Regulation of Consumer Credit is a quantitative credit control measure of Central Bank.
         3)       Bank Rate is the selective credit control measure used by the Central bank of the country.
         4)       Central Bank also performs commercial banking business.
         5)       The main objective of a Central Bank to earn profit.

Q.2 (A) Define or Explain the following concepts:
         1.       Prof. Samuelson's definition of Central Bank
         2.       Open Market Operation
         3.       Bank Rate
         4.       Moral suasion       
         5.       Cash Reserve Ratio
         6.       Clearing House System
         7.       Central Bank as Bank of Issue
(B)     Give reasons or explain:
         1.       Clearing house system economises the use of cash.
         2.       Central Bank acts as a lender of the last resort.
         3.       The CRR affects the lending capacity of the banks.
         4.       As a banker to the government, the Central Bank transfers government funds.
         5.       A Central Bank may take `Direct Action' against the defaulting commercial banks.

Q.3 (A) Distinguish between:
         1.       Central Bank and Commercial Bank
         2.       Quantitative Credit Control Measures and Qualitative Credit Control Measures
         3.       Bank Rate and Open - Market- Operations
         4.       Cash Reserve Ratio and Statutory Liquidity Ratio.
(B)     Write short notes on:
         1.       Definition of a Central Bank
         2.       Issuing Directives
         3.       Central Bank's measure of regulation of consumer credit
         4.       Regulation of Margin Requirements
         5.       Cash Reserve Ratio (CRR)
         6.       Bank Rate
         7.       Open Market Operations (OMO)

Q4 (A) Answer the following questions:
         1.       "Central Bank of the country has the monopoly of note issue..." Explain.
         2.       How does a Central Bank (for example RBI) transfer funds from one place to another? Illustrate.
         3.       Explain the Data Collection and Publicity function of the Central Bank.
         4.       What are the various measures of quantitative credit control?
         5.       What are the various measures of qualitative credit control?

Q5(A)State with reasons, whether you agree or disagree with the following statements.
         1.       Central Bank is the Bank of Issue.
         2.       A co-operative bank acts as a tender of the last resort.
         3.       Credit control is the function of Central Bank of the country.
         4.       Central Bank is a profit making institution.
         5.       Central Bank having monopoly of note issue is most appropriate institute of the government.
Q.6    Answer in detail.
         1.       What are the qualitative measures of credit control?
         2.       Explain the functions of the Central Bank.
         3.       Explain Regulation of consumer credit as a qualitative measure of the Central Bank of India.
Project :
Collect, comprise and analyse the recent data obtained from newspapers related to repo rates of Credit Control announced by the Reserve Bank of India.

Write the features of the following.








State Whether The Following Statement Are True Or False (Give Reason)















2019 Board Paper Solution

HSC ENGLISH SET A 2019 21st February, 2019

HSC ENGLISH SET B 2019 21st February, 2019

HSC ENGLISH SET C 2019 21st February, 2019

HSC ENGLISH SET D 2019 21st February, 2019

SECRETARIAL PRACTICE (S.P) 2019 25th February, 2019

HSC XII PHYSICS 2019 25th February, 2019


OCM PAPER SOLUTION 2019 27th, February, 2019




HSC XII ACCOUNTS 2019 6th March, 2019

HSC XII BIOLOGY 2019 6TH March, 2019


SSC Maths I March 2019 Solution 10th Standard11th, March, 2019

SSC MATHS II MARCH 2019 SOLUTION 10TH STD.13th March, 2019

SSC SCIENCE I MARCH 2019 SOLUTION 10TH STD. 15th March, 2019.

SSC SCIENCE II MARCH 2019 SOLUTION 10TH STD. 18th March, 2019.



XII CBSE - BOARD - MARCH - 2019 ENGLISH - QP + SOLUTIONS, 2nd March, 2019

HSC Maharashtra Board Papers 2020

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SSC Maharashtra Board Papers 2020

(Std 10th English Medium)

English MARCH 2020

HindI MARCH 2020

Hindi (Composite) MARCH 2020

Marathi MARCH 2020

Mathematics (Paper 1) MARCH 2020

Mathematics (Paper 2) MARCH 2020

Sanskrit MARCH 2020

Sanskrit (Composite) MARCH 2020

Science (Paper 1) MARCH 2020

Science (Paper 2)

Geography Model Set 1 2020-2021

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