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Credit Creation - Aug 2019

The document discusses various methods that central banks use to control credit in the economy, including required reserve ratios, statutory liquidity ratios, and adjusting policy rates. It also defines key terms related to central banking like repo rate, reverse repo rate, cash reserve ratio, and statutory liquidity ratio. The document concludes by covering deposit insurance in India up to Rs. 100,000 per depositor provided by the Deposit Insurance and Credit Guarantee Corporation.

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Yoganandan G
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27 views6 pages

Credit Creation - Aug 2019

The document discusses various methods that central banks use to control credit in the economy, including required reserve ratios, statutory liquidity ratios, and adjusting policy rates. It also defines key terms related to central banking like repo rate, reverse repo rate, cash reserve ratio, and statutory liquidity ratio. The document concludes by covering deposit insurance in India up to Rs. 100,000 per depositor provided by the Deposit Insurance and Credit Guarantee Corporation.

Uploaded by

Yoganandan G
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Credit creation & Credit control Methods

1
Interest 10 %
(per annum)
A - Depositor
CRR 4.5% Rs.
BANK SBI 95.5
Rs 100
SLR 23%
Primary
deposit

Rs. 72.5
Excess reserve

Borrower
What would be the break even interest rate?
Credit control Methods
– Cash reserve Ratio
– Statutory Liquidity Ratio
– Bank rate or discount rate policy
– Repo & Reverse repo rate policy
• Selective credit controls
– Regulation of margin requirement
• margin requirements on loans for purchasing or carrying
securities
– Regulation of consumer credit
• Minimum down payments and maximum periods of repayment.
– Rationing of credit
– Direct action
– Moral suasion
– Publicity
Glossary of Terms
– Bank rate (also Discount rate) is the rate of interest a central bank
charges on the loans and advances that it extends to commercial banks.
(As on 27.09.10, 6.0%) As on 10.10.2012, 9.0%( As on 27.08.2019..

– Repo Rate (repurchase agreement rate) is the rate at which RBI


(central bank) lends short-term money to commercial banks. (As on
27.09.10, 6.0%) As on 10.10.2012, 8.0%( As on 27.08.2019..

– Reverse Repo Rate is the rate at which banks park short-term funds with
RBI (central bank). (As on 27.09.10, 5.0%) As on 10.10.2012, 7.0% ( As
on 27.08.2019..
Glossary of Terms
– Cash Reserve ratio (CRR) is the (ratio) amount of funds (out of deposit)
that the banks have to keep with central bank. (As on 27.09.10, 6.0%) As
on 10.10.2012,4.5% ( As on 27.08.2019..
– Statutory Liquidity Ratio (SLR) is the (ratio) amount a commercial bank
needs to maintain in the form of cash or gold or government approved
securities before providing credit to its customers. (As on 27.09.10, 25%)
As on 10.10.2012, 23% ( As on 27.08.2019..

– Prime Lending Rate (PLR) is the rate of interest at which banks lend to
their credit-worthy or favored customers. It is treated as benchmark rate
for most of retail and term loans.
– Ninja loans & sub-prime crisis
– Now, in the place of PLR we have base rate (7.5 to 8.0%) As on
10.10.2012, 10 to 10.5 ( As on 27.08.2019..
Deposit insurance and credit guarantee corporation (DICGC)

• In the event of a bank failure, DICGC protects bank deposits


that are payable in India.
– What is the maximum deposit amount insured by the DICGC?
– Each depositor in a bank is insured upto a maximum of Rs.1,00,000
(Rupees One Lakh) for both principal and interest amount held by him in
the same capacity and same right as on the date of
liquidation/cancellation of bank's licence or the date on which the scheme
of amalgamation/merger/reconstruction comes into force.
– Ref: http://www.rbi.org.in/scripts/FAQView.aspx?Id=64

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