What is Central Bank?

What is Central Bank?

An apex body that controls, operates, regulates, and directs a country’s banking and monetary structure is known as a Central Bank. As the functions of a central bank are peculiar, there is only one central bank in a country. Every financially developed country has its own central bank. For example, the central bank of the UK is the Bank of England, and India is the Reserve Bank of India (RBI). The Reserve Bank of India was established on April 1, 1935, under the Reserve Bank of India Act, 1934....

Functions of Central Bank

...

Other Instruments of Credit Control

1. Moral Suasion: In order to get the commercial banks to act according to the policy, the Central Bank (RBI) applies a combination of persuasion and pressure on them, which is known as moral suasion. The central bank exercises moral suasion through letters, discussions, hints, and speeches to banks. The Reserve Bank of India announces its policy position frequently and urges commercial banks to cooperate in the implementation of these credit policies. The central bank can use moral suasion for both quantitative as well as qualitative credit control. In general, the central bank successfully convinces the banks, as it acts as their lender of last resort. However, if the commercial banks do not follow the advice or request of the central bank, no punitive action is taken against them....

Quantitative v/s Qualitative Instruments of Credit Control of RBI

The Reserve Bank of India controls credit through different methods, which are categorised as quantitative and qualitative methods:...