Discuss in detail the qualitative means of central bank fall control?

North :

Qualitative or Selective Credit Controls

The central bank lacks numerical tools to effectively control the credit formation of a commercial bank. There are some flaws in it. For example, with the help of numerical tools, the total amount of money in the economy can be increased or decreased, but the money in the economy cannot be diverted from the wrong sector to the right sector. Also, numerical tools apply equally to all areas. But in reality, different policies need to be implemented for a particular component, for a particular area. Numerical tools fail for that. So along with that, the central bank does quality tools.

Interpretation:

"" The tools used by the central bank to divert money from the non-essential sector to the required sector. These tools are called qualitative or selective or differential falls control tools. "

"When the purpose of the central bank in a country is to divert money from one sector to another instead of increasing or decreasing the amount of money in the economy.

The central bank differentiates between the two at the same time with the help of qualitative tools, as well as for certain selected sectors of the economy. Hence this tool is also called Central Bank Differential Tools or Selected Tools. Because at the same time it is possible to make a real increase in one business and a real hesitation in another business.

In short, the central bank uses quantitative as well as qualitative tools to control the creditworthiness of commercial banks. Those qualitative tools can be described as follows.

(1) Debt and mortgage ratio

Commercial banks lend money to lenders. Loans are provided on a collateral basis only. Therefore, the central bank has the right to decide on the type of collateral, the amount of loan to be provided, and the items to be accepted as collateral. The central bank then sends the list of such collateral to the merchant bank. For example, Rs. 2000 for 10 grams of gold, Rs. Accordingly, commercial banks supply loans to borrowers. The central bank adjusts its policy on loans and mortgages accordingly.

With the help of these tools, the central bank wants to increase the supply of credit in the area. Debt increases by reducing collateral in that area, while increasing the amount for areas where the supply of credit is to be reduced. In short, this tool has the following effects.

Affects the demand and supply of credit.
The Central Bank can easily provide loans to the productive sector.
This tool is easy to use.
With the help of this tool, it is possible to differentiate between the central banks in allocating loans. Therefore, the supply of money in one area can be easily diverted to another area.

2) Moral Sociology

The ethical explanation is a very effective and important tool for controlling the downfall of a central bank. But the success of this tool depends on the cooperation of the merchant bank. The central bank is the leading bank in the country. Therefore, it informs the commercial banks about its policies, the policies of the government, and the situation in the economy, and challenges them to cooperate for their success. In a way, it requests cooperation and support for this policy. This is called moral explanation.

In short, the central bank, as a parent, teaches its children. There is no fear, no repression in this explanation, but it is a heartfelt request. The commercial bank is assisted by the central bank in times of crisis. So commercial banks respond to this challenge, helping to make the policy a success.

Control of consumer debt

Sustain the economy in recent times Banks offer loans to buy consumer goods. The central bank has the right to decide on the amount of interest to be lent on which consumer goods and for how long. Therefore, according to the information provided by the central bank to commercial banks, commercial banks disburse consumer loans.

When the government wants to increase the production of a particular commodity in the economy. Then there are loans featuring huge balloon payments. As a result, the production of that commodity increases, and the productivity of the people increases. Conversely, concessions on such loans are withdrawn when the demand for a commodity in the economy is to be reduced. For example, in order to increase the area of irrigation and solar energy in India, various concessions are given on their consumption and production. In order to reduce the consumption of intoxicants and non-alcoholic substances, many oppressive conditions are imposed. Thus the central bank controls credit formation by controlling consumer credit.

(4) Loans for specific purposes only

The central bank decides on the reasons for lending to commercial banks and the reasons for which they should not lend. This is because merchant banks and merchants lend large sums of money for their own benefit. As a result, stockpiling in the economy creates many problems. Therefore, the central bank challenges the commercial bank to provide loans for a specific purpose.

5) Debt Rationing (Ration Distribution):

Debt rationing is about setting quotas. In order to ensure an equal share of credit to all sectors, the quota is fixed for what percentage of credit can be provided to each sector. This means that the maximum and minimum limits for loan disbursement are determined by different sectors. Accordingly, the central bank develops the desired sector of the economy by changing these maximum and minimum limits as required.

Thus a commercial bank takes such action against a bank that does not follow the rules of the central bank. The central bank gives an explanation to that bank before taking this action. The purpose is not to spoil the financial relationship between the two. Therefore, the central bank uses this tool of practical action only in exceptional circumstances.

Limitations: -

It is difficult to differentiate between production loans and non-production loans.
The use of credit is important in quality control. But there is no guarantee that the loan will be used for the stated purpose.
The help of this tool only applies to the banking business. Non-bank is Not applicable to business.
These tools do not have much effect on big banks.
This tool limits the freedom of the borrower and the borrower.
If there is a friendly relationship between the central bank and the merchant bank, then it is possible to achieve this.
If qualitative tools are effective in a communist dictatorial economy Not in a democracy.
Commercial banks make a profit by adopting the various middle way There is a possibility of earning.