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Study on Credit Control in ThinkNEXT, Mohali

A Project Report

Submitted to


For the

Partial Fulfillment of the Degree of

Masters of business Administration

Submitted To: Submitted By:

Ms.Navneet Kaur Arjun Singh




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I ARJUN SINGH declare that I myself worked on the topic CREDIT CONTROL under
ThinkNEXT Technologies Pvt. Ltd. Mohali. Submitted by me under the supervision and
guidance of MR GOPAL PANDEY, project guide, College of GNDU REGIONAL
CAMPUS SATHIALA in partial fulfillment of M.B.A 3rd semester. I further declare that I
am solely responsible for omission and commission of errors if any.


Signature of the Student

Place: Mohali
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Amongst the wide panorama of people who provided me the inspiration, guidance and
encouragement, I take this opportunity to thank those who gave me indebted assistance and
constant encouragement for completing this project.

It gives me a great pleasure to submit this project to GNDU REGIONAL CAMPUS

SATHIALA take this opportunity with great pleasure to present before this project on
CREDIT CONTROL which is result of co-operation, hard work & good wishes of many
people. The most pleasant part of any project is to express the gratitude towards all those who
have contributed to the success of my project.

I am deeply indebted to my supervisor/project guide Mr. GOPAL PANDEY (FINANCE

Executive of ThinkNEXT Technologies Pvt. Ltd. Mohali) having permitted me to carry
out this project work. I wish to express my deep sense of gratitude to his for her guidance and
useful suggestions, which helped me all the time in completing the project work in time.

I would like to thanks Mr. Kaushal (Chartered Accountant) who has been my mentor for
this project. It was only through her excellence assistance & good suggestions that I have
been able to complete this project.

Words are inadequate in offering my thanks to all the members of ThinkNEXT Technologies
Pvt. Ltd., Mohali for their encouragement and cooperation in carrying out the project work.

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Sr.No. TITLE Page













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THINK NEXT Technologies Private Limited (Formerly Brilliant Software Solutions) is an

ISO 9001:2008 certified software development company founded in August 2009 and it is
approved from Ministry of Corporate Affairs which deals in University/College/School ERP
Solutions, Android /iPhone Applications development, Web designing, Web development,
Discount Deals (,, Bulk SMS, Voice SMS,
Bulk Email, Biometric Time Attendance, Access Control, SEO/SMO, Database Solutions,
Payment Gateway Integration, E-Mail Integration, Industrial Training, Corporate Training
and Placements etc. THINKNEXT Technologies provides software solutions using latest
technologies e.g. Smart Card, NFC, Biometrics, GPS, Barcode, RFID, SMS, Auto SMS
(Short code), Android, iPhone, Web, Windows and Mobile based technologies

THINKNEXT has wide expertise in .NET, Crystal Reports, Java, PHP, Android, iPhone,
Databases (Oracle and SQL Server), Web Designing, Networking, Web Server
configurations, various RAID Levels etc.

THINKNEXT Technologies has also setup its offices in USA, Delhi, Shimla and Bathinda
for its software support. THINKNEXT has its own multiple Smart Card printing, encoding
and barcode label printing machines to provide better and effective customer support
solutions. THINKNEXT has also setup its own placement consultancy and is having
numerous placement partner companies to provide best possible placements in IT industry.

THINKNEXT Technologies has developed for the first time in northern region cloud
computing based Cloud Campus 4.0 to facilitate knowledge and placement centric services. It
is a unique concept for effective and collaborative learning.
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1. THINKNEXT deals exclusively in campus automation through Smart Campus ERP

Solutions. Therefore we have better experience in handling large group of institutions
through proper time-tested policies and procedures.
2. First Company of India who has Launched NFC Technology (The Future) for Smart
Campuses through NFC Smart Cards.
3. First Company of India who has launched Android Version of Smart Campus ERP
Solutions for Mobiles and Tablet PCs.
4. First company of India who has developed SMS Opt-In Technology so that
Institutes/Colleges can send Transactional SMS with SMS Sender ID and without SMS
Template approval.
5. First company of Punjab, Haryana, Himachal, J&K (Northern region) who launched
Smart Cards (Contact Type), Smart Cards (Contactless) in Punjab for campus automation.
6. First company of India which has launched its THINKNEXT Smart Card as Discount
Card in more than 120 enterprises.
7. Established own multiple Smart Card Designing, Smart Card Printing, Smart Card
Lamination and Oyster Barcode Printing Units.
8. Multiple SMS Gateway Support.


ThinkNEXT Technologies Pvt. Ltd. is already very flexible and scalable. Still, we always
take care of specific requirements of our clients. Our highly committed R&D team makes our
software feature rich, dynamic and future tuned everyday so that our clients always maintain
the lead over their competitors. The development of the software is being done and the
purpose full customization of the package is carried out in the ThinkNEXT lab.


ThinkNEXT is pioneer in Smart Campus ERP Solutions for Universities/Colleges/Schools

using latest technologies and features. We provide software solutions using .NET, PHP,
Android, iPhone, Java technologies with three tier-architecture support. We provide back-end
solutions using MS SQL Server, Oracle, and MySQL.
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Quality Policy:

We have wide experience working with eminent Educationists, Managements, Directors,

Principals, Head of Departments, other Staff Members, Parents and students. Therefore we do
not sell only software Modules but an innovative system which has more importance than just
ERP software modules. Today Smart Campus solutions are a need of hour for every
University/Group of Colleges or an Institution to make edge over others and maintain a lead
over their competitors. Our Research and Development team is committed to make your
institute(s) to maintain lead over their competitors.



Sunil Jindal
Manish Mittal
Ghansham Das


Sunil Jindal

Suresh Chandra

Mukesh Kumar
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1. To get knowledge about the Credit Control.
2. To know about the objectives of the RBI behind Credit Control.
3. How RBI Controls the Inflation and Deflation with the help of qualitative and
quantitative measures?
4. What are the methods of Credit Control?
5. To know those methods which comes under the qualitative measures.
6. To know those methods which comes under quantitative measures.
7. To know how RBI makes changes in Monetary Policy to control the money supply in the
8. To know what are the suggestions given by Narasimham Committee to RBI about the
Credit Control.
9. To know the present Bank rate, Cash Reserve Ratio rate, Statutory Liquidity rate, Repo
rate, Reverse Repo rate.
10. To know the importance of the credit control and its drawbacks.
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Reserve Bank of India (RBI) is Indias Central bank. It plays multi-

facet role by executing multiple functions such as overseeing
monetary policy, issuing currency, managing foreign exchange,
working as a bank of government.
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The Reserve Bank of India (RBI) is the Indias central banking institution. The RBI plays an
important part in the Development Strategy of the Government of India. A Central Bank is an
independent apex monetary authority which regulates banks and provides important financial
services like storing of foreign exchange reserves, control of inflation, monetary policy
report. The general superintendence and direction of the RBI is entrusted with the 21-member
Central Board of Directors: the Governor, 4 Deputy Governors, 2 Finance
Ministry representatives, 10 government-nominated directors to represent important elements
of India's economy, and 4 directors to represent local boards headquartered at Mumbai,
Kolkata, Chennai and New Delhi.


The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles
after the First World War. The Reserve Bank of India was conceptualized based on the
guidelines presented by the Central Legislative Assembly passed these guidelines as the RBI
Act 1934. The original choice for the seal of RBI was The East India Company Double
Mohur, with the sketch of the Lion and Palm Tree. However, it was decided to replace the
lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic
functions to regulate the issue of bank notes, keep reserves to secure monetary stability in
India, and generally to operate the currency and credit system in the best interests of the
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After the Partition of India in 1947, the bank served as the central bank for Pakistan until
June 1948 when the State Bank of Pakistan commenced operations. Though set up as a
shareholders bank, the RBI has been fully owned by the Government of India since its
nationalization in 1949.

In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru,
developed a centrally planned economic policy that focused on the agricultural sector. The
administration nationalized commercial banks and established, based on the Banking
Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation
as part of the RBI. Furthermore, the central bank was ordered to support economic plan with

As a result of bank crashes, the RBI was requested to establish and monitor a deposit
insurance system. Meant to restore the trust in the national bank system, it was initialized on
7 December 1961. The Indian government founded funds to promote the economy, and used
the slogan "Developing Banking". The government of India restructured the national bank
market and nationalized a lot of institutes. As a result, the RBI had to play the central part in
controlling and supporting this public banking sector.

In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks.
Upon Gandhi's return to India in 1980, a further 6 banks were nationalized. The regulation of
the economy and especially the financial sector was reinforced by the Government of India in
the 1970s and 1980s. The central bank became the central player and increased its policies a
lot for a lot of tasks like interests, reserve ratio and visible deposits. These measures aimed at
better economic development and had a huge effect on the company policy of the institutes.
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19912000 the new century

The national economy contracted in July 1991 as the Indian rupee was devalued. The
currency lost 18% relative to the US dollar, and the Narsimham Committee advised
restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory
liquidity ratio. New guidelines were published in 1993 to establish a private banking sector.
This turning point was meant to reinforce the market and was often called neo-liberal. The
central bank deregulated bank interests and some sectors of the financial market like the trust
and property markets. This first phase was a success and the central government forced a
diversity liberalization to diversify owner structures in 1998.

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed
nationalized banks in July to interact with the capital market to reinforce their capital base.
The central bank founded a subsidiary companythe Bharatiya Reserve Bank Note Mudran
Private Limitedon 3 February 1995 to produce banknotes.

Since 2000
The Foreign Exchange Management Act from 1999 came into force in June 2000. It should
improve the item in 20042005 (National Electronic Fund Transfer).The Security Printing &
Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and
produces banknotes and coins.

The national economy's growth rate came down to 5.8% in the last quarter of 20082009 and
the central bank promotes the economic development.

Controller of Credit to regulate Money supply

RBI formulates and implements the Monetary Policy of India to keep the economy on growth
path. Monetary Policy refers to the process employed by RBI to control availability & cost of
currency and thus keeping Inflationary & deflationary trends low and stable. RBI adopts
various measures to regulate the flow of credit in the country. The measures adopted by RBI
can broadly be categorized as Quantitative & Qualitative tools.
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Monetary Policy
Monetary policy is the process by which monetary authority of a country, generally central
bank controls the supply of money in the economy by its control over interest rates in order to
maintain price stability and achieve high economic growth. In India, the central monetary
authority is the Reserve Bank of India (RBI). It is so designed as to maintain the price
stability in the economy.

The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to
provide for a statutory and institutionalised framework for a Monetary Policy Committee, for
maintaining price stability, while keeping in mind the objective of growth. The Monetary
Policy Committee is entrusted with the task of fixing the benchmark policy rate (repo rate)
required to contain inflation within the specified target level. As per the provisions of the RBI
Act, out of the six Members of Monetary Policy Committee, three Members will be from the
RBI and the other three Members of MPC will be appointed by the Central Government.

Monetary operations involve monetary techniques which operate on monetary magnitudes

such as money supply, interest rates and availability of credit aimed to
maintain Price Stability, Stable exchange rate, Healthy Balance of Payment, Financial
stability, Economic growth. RBI, the apex institute of India which monitors and regulates
the monetary policy of the country stabilizes the price by controlling Inflation.

Other objectives of the monetary policy of India, as stated by

RBI, are:-

Price Stability:
Price Stability implies promoting economic development with considerable emphasis on
price stability. The Centre of focus is to facilitate the environment which is favorable to the
architecture that enables the developmental projects to run swiftly while also maintaining
reasonable price stability.

Controlled Expansion of Bank Credit:

One of the important functions of RBI is the controlled expansion of bank credit and money
supply with special attention to seasonal requirement for credit without affecting the output.
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Promotion of Fixed Investment:

The aim here is to increase the productivity of investment by restraining non- essential fixed

Restriction of Inventories and stocks:

Overfilling of stocks and products becoming outdated due to excess of stock often results in
sickness of the unit. To avoid this problem the central monetary authority carries out this
essential function of restricting the inventories. The main objective of this policy is to avoid
over-stocking and idle money in the organization.

To Promote Efficiency:
It is another essential aspect where the central banks pay a lot of attention. It tries to increase
the efficiency in the financial system and tries to incorporate structural changes such as
deregulating interest rates, ease operational constraints in the credit delivery system, to
introduce new money market instruments etc.

Reducing the Rigidity:

RBI tries to bring about the flexibilities in the operations which provide a considerable
autonomy. It encourages more competitive environment and diversification. It maintains its
control over financial system whenever and wherever necessary to maintain the discipline
and prudence in operations of the financial system.
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Credit control is an important tool used by Reserve Bank of India, a major weapon of
the monetary policy used to control the demand and supply of money (liquidity) in the
economy. Central Bank administers control over the credit that the commercial banks grant.
Such a method is used by RBI to bring "Economic Development with Stability". It means that
banks will not only control inflationary trends in the economy but also boost economic
growth which would ultimately lead to increase in real national income with stability. In view
of its functions such as issuing notes and custodian of cash reserves, credit not being
controlled by RBI would lead to Social and Economic instability in the country.

Controlling credit in the economy is amongst the most important functions of the Reserve
Bank of India. The basic and important needs of credit control in the economy are-

To encourage the overall growth of the "priority sector" i.e. those sectors of the economy
which is recognized by the government as "prioritized" depending upon their economic
condition or government interest. These sectors broadly totals to around 15 in number.
To keep a check over the channelization of credit so that credit is not delivered for
undesirable purposes.
To achieve the objective of controlling inflation as well as deflation.
To boost the economy by facilitating the flow of adequate volume of bank credit to
different sectors.
To develop the economy.
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Credit control policy is just an arm of economic policy which comes under the purview
of Reserve Bank of India, hence, its main objective being the attainment of high growth rate
while maintaining the reasonable stability of the internal purchasing power of money. The
broad objectives of credit control policy in India have been-

Ensure an adequate level of liquidity enough to attain high economic growth rate along
with maximum utilisation of resource but without generating high inflationary pressure.
Attain stability in the exchange rate and money market of the country.
Meeting the financial requirement during a slump in the economy and in the normal times
as well.
Control business cycle and meet business needs.


There are two methods that the RBI uses to control the money supply in the economy-

Qualitative method
Quantitative method

During the period of inflation Reserve Bank of India tightens its policies to restrict the money
supply, whereas during deflation it allows the commercial to pump money in the economy.

Credit Control
Quantitative Measures Qualitative Measures
Cash Reserve 1)Credit Rationing
Ratio(CRR) 2)Consumer Credit
Reserve Ratio
Statutory Liquidity Control
Ratio(SLR 3)Marginal Requirements
Open Market Operations 4)Moral Suasion
5)Direct Action
Bank Rate
Repo Rate

Policies Rate Reverse Repo Rate

Marginal Standing
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Qualitative Measures
By Quality we mean the uses to which bank credit is directed.

For example- the bank may feel that spectators or the big capitalists are getting a
disproportionately large share in the total credit, causing various disturbances and inequality
in the economy, while the small-scale industries, consumer goods industries and agriculture
are starved of credit.

Correcting this type of discrepancy is a matter of qualitative credit control.

Qualitative method controls the manner of channelizing of cash and credit in the economy. It
is a 'selective method' of control as it restricts credit for certain section where as expands for
the other known as the 'priority sector' depending on the situation.

Tools used under this method are:-

Marginal Requirement
Changes in margin requirements are designed to influence the flow of credit against specific
commodities. The commercial banks generally advance loans to their customers against some
security or securities offered by the borrower and acceptable to banks.

More generally, the commercial banks do not lend up to the full amount of the security but
lend an amount less than its value. The margin requirements against specific securities are
determined by the Central Bank. A change in margin requirements will influence the flow of

A rise in the margin requirement results in a contraction in the borrowing value of the
security and similarly, a fall in the margin requirement results in expansion in the borrowing
value of the security.

Marginal requirement of loan = current value of security offered for loan-value of loans
granted. e.g.- a person mortgages his property worth Rs. 100,000 against loan. The bank will
give loan of Rs. 80,000 only. The marginal requirement here is 20%. In case the flow of
credit has to be increased, the marginal requirement will be lowered. Reserve Bank of
India has been using this method since 1956.
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Moral Persuasion
This method is also known as "moral persuasion" as the method that the Reserve Bank of
India, being the apex bank uses here, is that of persuading the commercial banks to follow its
directions/orders on the flow of credit. RBI puts a pressure on the commercial banks to put a
ceiling on credit flow during inflation and be liberal in lending during deflation.

In India, from 1949 onwards, the Reserve Bank has been successful in using the method of
moral suasion to bring the commercial banks to fall in line with its policies regarding credit.
Publicity is another method, whereby the Reserve Bank marks direct appeal to the public and
publishes data which will have sobering effect on other banks and the commercial circles.

Direct Action
Under the banking regulation Act, the central bank has the authority to take strict action
against any of the commercial banks that refuses to obey the directions given by Reserve
Bank of India. There can be a restriction on advancing of loans imposed by Reserve Bank of
India on such banks. e.g. RBI had put up certain restrictions on the working of the
Metropolitan co-operative banks. Also the 'Bank of Karad' had to come to an end in 1992.

RBI uses media for the publicity of its views on the current market condition and its
directions that will be required to be implemented by the commercial banks to control the
unrest. Though this method is not very successful in developing nations due to high illiteracy
existing making it difficult for people to understand such policies and its implications.
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Rationing of Credit
Under this method there is a maximum limit to loans and advances that can be made, which
the commercial banks cannot exceed. RBI fixes ceiling for specific categories. Such rationing
is used for situations when credit flow is to be checked, particularly for speculative activities.
Minimum of capital: total assets" (ratio between capital and total asset) can also be
prescribed by Reserve Bank of India.

Regulation of Consumer Credit

The credit facilities provided by the banks to purchase durable consumer goods like
cars, refrigerators, T.V. furniture, etc. is called as consumer credit. If consumer credit
is expanded, it leads to the increase in production of consumer goods in the country.

Such increased sale of consumer goods will affect savings of people and capital
formation in the economy. Hence, RBI may control the consumer credit extended by
the commercial banks. These days RBI does not use such credit control measure as
increased consumption lead to more economic activity.

Control through Directives

The Reserve Bank of India (Amendment) Act and the Banking Companies Act has
empowered the RBI to issue directives to a particular bank or to the banks in general in
regard to the following:

The purpose for which advances may or may not be made, the maximum amount of advances
that can be granted to any individual, firm or company; the margins to be maintained on
secured loans, and the rate of interest to be charged, etc.

For example,

(a) Banks are not allowed to provide finance for speculative purposes in stock market
operations or to deal in real estate business.
(b) No banks can make advances to a single borrower company beyond 25 per cent of its
paid-up capital and reserves.
(c) Reserve Bank prescribes margin on advances made by banks against the security of
Commodities covered under selective credit control measures like sugar.
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(d) Advances made under DRI scheme should be only at interest rate prescribed by RBI, i.e.,
4 per cent per annum.

The RBI has used this weapon for many times to bring down the prices of agricultural
commodities. The directives are issued by the RBI as supplement to the traditional weapons
of control like the bank rate policy, open market operations, etc.

Credit Authorization Scheme

Under this Scheme, the commercial banks have to obtain the RBI's prior approval for
sanctioning any fresh credit of Rs. 1 crore or more to any single party in the private sector
and for sanctioning any fresh credit of Rs.5 crore or more to any single concern in the public
sector. The scheme has however, been discontinued from November 1988. Presently no
authorization is required from RBI for commercial banks sanctioning credit limit for normal

1. Selective credit control is applicable, when everything is considered to commercial banks
and to bank credit only.

Non-banking financial institutions generally remain out of the purview of the central bank,
and, to that extent, the desired objectives of selective credit control is also weakened by
alternative sources of credit, outside the organised money sector, such as moneylenders,
black (or unaccounted) money with the people, etc.

2. It is very difficult for banks to ensure advances made to the borrowers are not spent on
unintended purposes. Thus, qualitative credit control cannot materialise, in its real sense.

3. Bank money also has its velocity. Thus, an amount once lent for a genuine purpose may
next be spent on undesirable purposes.

4. Commercial banks, motivated by profit, may play mischief by manipulating accounts and
sanctioning loans for forbidden uses. These malpractices defeat the very objective of
selective credit control.
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Quantitative Measures
By quantitative credit control we mean the control of the total quantity of credit.

For Example- let us consider that the Central Bank, on the basis of its calculations, considers
that Rs. 50,000 is the maximum safe limit for the expansion of credit. But the actual credit at
that given point of time is Rs. 55,000(say). Thus it then becomes necessary for the central
bank to bring it down to 50,000 by tightening its policies. Similarly if the actual credit is less,
say 45,000, then the apex bank regulates its policies in favor of pumping credit into the

Different tools used under this method are:-

Bank Rate
The bank rate, also known as the discount rate, is the rate payable by commercial banks on
the loans from or rediscounts of the Central Bank. A change in bank rate affects other market
rates of interest. An increase in bank rate leads to an increase in other rates of interest and
conversely, a decrease in bank rate results in a fall in other rates of interest.

Section 49 of the Reserve Bank of India Act 1934, defines Bank Rate as "the standard rate at
which it (RBI) is prepared to buy or re-discount bills of exchange or other commercial
paper eligible for purchase under this Act"

When the commercial bank for instance, has lent or invested all its available funds and has
little or no cash over and above the prescribed minimum, it may ask the central bank for
funds. It may either re-discount some of its bills with the central bank or it may borrow from
the central bank against the collateral of its own promissory notes.
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Working of the bank rate

Changes in bank rate are introduced with a view to controlling the price levels and business
activity, by changing the demand for loans. Its working is based upon the principle that
changes in the bank rate results in changed interest rate in the market.

Suppose a country is facing inflationary pressure. The central bank, in such situations, will
increase the bank rate thereby resulting to a hiked lending rate. This increase will discourage
borrowing. It will also lead to a fall in the business activity due to following reasons.

Employment of some factors of production will have to be reduced by the business

The manufacturers and stock exchange dealers will have to liquidate their stocks, which
they held through bank loans, to pay off their loans.
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The effect of Rise in bank rate by the central bank is shown in the chart.

Hence, we can conclude that hike in

Bank Rate leads to fall in price level and a fall in the Bank Rate leads to an increase in price
level i.e. they share an inverse relationship.
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Open Market Operations

Open market operations refer to the sale and purchase of securities by the Central bank to the
commercial banks. A sale of securities by the Central Bank, i.e., the purchase of securities by
the commercial banks, results in a fall in the total cash reserves of the latter.

A fall in the total cash reserves is leads to a cut in the credit creation power of the commercial
banks. With reduced cash reserves at their command the commercial banks can only create
lower volume of credit. Thus, a sale of securities by the Central Bank serves as an anti-
inflationary measure of control.

Likewise, a purchase of securities by the Central Bank results in more cash flowing to the
commercials banks. With increased cash in their hands, the commercial banks can create
more credit, and make more finance available. Thus, purchase of securities may work as an
anti-deflationary measure of control.

The Reserve Bank of India has frequently resorted to the sale of government securities to
which the commercial banks have been generously contributing. Thus, open market
operations in India have served, on the one hand as an instrument to make available more
budgetary resources and on the other as an instrument to siphon off the excess liquidity in the

Cash Reserve Ratio (CRR)

Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep
with RBI in the form of reserves or balances. Higher the CRR with the RBI lower will be
the liquidity in the system and vice versa. RBI is empowered to vary CRR between 15
percent and 3 percent. But as per the suggestion by the Narsimham committee Report the
CRR was reduced from 15% in the 1990 to 5 percent in 2002. As of 19 May 2017, the CRR
is 4.00 percent.
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Statutory Liquidity Ratio(SLR)

Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that
the commercial banks in India require to maintain in the form of gold, government
approved securities before providing credit to the customers. Statutory Liquidity Ratio is
determined by Reserve Bank of India maintained by banks in order to control the expansion
of bank credit.

There was a reduction of SLR from 38.5% to 25% because of the suggestion by Narsimham
Committee. The current SLR is 20.50%.This will be reduced to 20% with effect from 24th
June 2017 in line with the changes in RBI Credit Policy.

The SLR is determined by a percentage of total demand and time liabilities. Time
Liabilities refer to the liabilities which the commercial banks are liable to pay to the
customers after a certain period mutually agreed upon, and demand liabilities are such
deposits of the customers which are payable on demand. An example of time liability is a six
month fixed deposit which is not payable on demand but only after six months. An example
of demand liability is a deposit maintained in saving account or current account that is
payable on demand through a withdrawal form such as a cheque.

The SLR is commonly used to control inflation and fuel growth, by increasing or decreasing
it respectively. This counter acts by decreasing or increasing the money supply in the system
respectively. Indian banks holdings of Government securities are now close to the statutory
minimum that banks are required to hold to comply with existing regulation. When measured
in rupees, such holdings decreased for the first time in a little less than 40 years (since the
nationalisation of banks in 1969) in 200506.currently it is 21.05 percent.

The liabilities that the banks are liable to pay within one month's time, due to completion of
maturity period, are also considered as time liabilities. The maximum limit of SLR is 40%
and minimum limit of SLR is 0 In India, Reserve Bank of India always determines the
percentage of SLR.
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The SLR is fixed for a number of reasons:-

Controlling the expansion of bank credit. By changing the level of SLR, the Reserve
Bank of India can increase or decrease bank credit expansion.
Ensuring the solvency of commercial banks.
By reducing the level of SLR, the RBI can increase liquidity with the commercial banks,
resulting in increased investment. This is done to fuel growth and demand.
Compelling the commercial banks to invest in government securities like government

If any Indian bank fails to maintain the required level of Statutory Liquidity Ratio, then it
becomes liable to pay penalty to Reserve Bank of India. The defaulter bank pays penal
interest at the rate of 3% per annum above the Bank Rate, on the shortfall amount for that
particular day.

The RBI can increase the SLR to control inflation, suck liquidity in the market, to tighten the
measure to safeguard the customers' money. Decrease in SLR rate is done to encourage
growth. In a growing economy banks would like to invest in stock market, not in government
securities or gold as the latter would yield less returns. One more reason is long term
government securities (or any bond) are sensitive to interest rate changes. But in an emerging
economy interest rate change is a common activity.

SLR rate = (liquid assets / (demand + time liabilities)) 100%

This percentage is fixed by the Reserve Bank of India. The maximum and minimum limits
for the SLR were 40% and 25% respectively in India.[3] Following the amendment of the
Banking regulation Act (1949) in January 2017, the floor rate of 20.75% for SLR was
removed. Presently, the SLR is 20%
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Repo Rate
When we need money, we take loans from banks. And banks charge certain interest rate on
these loans. This is called as cost of credit (the rate at which we borrow the money).
Similarly, when banks need money they approach RBI. The rate at which banks borrow
money from the RBI by selling their surplus government securities to RBI is known as "Repo
Rate." Repo rate is short form of Repurchase Rate. Generally, these loans are for short
durations up to 2 weeks.
It simply means Repo Rate is the rate at which RBI lends money to commercial banks against
the pledge of government securities whenever the banks are in need of funds to meet their
day-to-day obligations.
Banks enter into an agreement with the RBI to repurchase the same pledged government
securities at a future date at a pre-determined price. RBI manages this repo rate which is the
cost of credit for the bank.

As of 17 May 2017, Repo Rate is 6.00%

RBI increases repo rate:

In order to control excess money supply and inflation in the economy, central bank
increases repo rate and lends to commercial banks at a higher rate. Now, because of
increased repo rate, funds come to commercial banks at a higher cost, so in order to
cover those increased costs of acquiring funds, commercial banks increase their lending
rates for loans and advances. Since, lending rates are increased, people abstain from
borrowing and postpone their purchases thereby decreasing demand for products and
services, consequently it leads to decrease in money supply in economy and decrease in
inflation rate.

RBI decreases repo rate:

In order to cure depression and lack of effective demand, central bank decreases repo rates
and lends to commercial banks at a reduced rate. Because of reduced rates, commercial banks
can acquire funds at a lower cost and in order to acquire new consumers and markets they
pass their benefit of lower cost to consumers by decreasing their prime lending rates on loans
and advances. Since, lending rates are reduced by banks, credit is cheap and this induces
people to venture in new business activities and purchase of capital goods leading to
increased demand for capital goods and increased employment rates.
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Reverse Repo Rate

Reverse repo rate is the rate of interest offered by RBI, when banks deposit their surplus
funds with the RBI for short periods. When banks have surplus funds but have no lending
(or) investment options, they deposit such funds with RBI. Banks earn interest on such funds.

AS of 19 May 2017, Reverse Repo rate is 5.75%

Marginal Standing Facility

Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of
India in an emergency situation when inter-bank liquidity dries up completely.

Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can
borrow funds overnight from RBI against government securities.

MSF is a very short term borrowing scheme for scheduled commercial banks. Banks may
borrow funds through MSF during severe cash shortage or acute shortage of liquidity.

Banks often face liquidity shortfalls due to mismatch in their deposit and loan portfolios.
These are usually very short term and banks can borrow from RBI for one day period by
offering dated government securities.

MSF had been introduced by RBI to reduce volatility in the overnight lending rates in the
inter-bank market and to enable smooth monetary transmission in the financial system.
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Under MSF, banks can borrow funds overnight up to 1% (100 basis points) of their net
demand and time liabilities (NDTL) i.e. 1% of the aggregate deposits and other liabilities
of the banks. NDTL liabilities represent a bank's deposits and borrowings from others.

In a move to stem the continuing fall of rupee, the RBI raised the MSF rate to 300 basis
points (i.e. 3%) above the repo rate in July 2013. Thus, both rate of borrowing and percent
of borrowing allowed under MSF can be varied by RBI.

Introduction of MSF
The RBI had introduced the marginal standing facility (MSF) in its Monetary Policy
MSF came into effect on from May 9, 2011.
Banks used the facility for the first time in June 2011 and borrowed Rs.1 billion via the

Does a hike in MSF rate affect us?

Hiking MSF rate makes borrowing expensive for a bank which means loans become
expensive for individual and corporate borrowers and this in turn translates to lesser
availability of the rupee. RBI uses MSF and other measures to control money supply in
the financial system.
MSF rate hike is being done to control excess availability of the rupee and to control its
depreciation with respect to the dollar.

Borrowing under MSF

Banks can borrow through MSF on all working days except Saturdays, between 3:30pm
and 4:30pm in Mumbai where RBI has its headquarters.
The minimum amount which can be accessed through MSF is Rs. 1 crore and in
multiples of Rs. 1 crore.
The application for the facility can be submitted electronically also by the eligible
scheduled commercial banks.
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Policy Dear Money Cheap Money

Tool To fight inflation To fight deflation
Reserve Increase them. Decrease them.
Open Market RBI sell securities RBI buy securities

Bank rate Increase it Decrease it

Repo rate Increase it Decrease it
Reverse Repo rate Its value is linked with Repo, hence cannot be
increased/decreased independently.
Marginal Standing Its value is linked with Repo, hence cannot be
increased/decreased independently. Besides MSF= temporary
firefighting, cash mismanagement.

Indicator Current Rate

Inflation 5.76%
Bank rate 6.5%
CRR 4%
SLR 20%
Repo rate 6.00%
Reverse repo rate 5.75%
Marginal Standing facility rate 6.25%
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Research in common parlance refers to a research for knowledge. It is also defined as a

scientific and systematic search for pertinent information collection on a specific topic. In
fact it is an art of scientific investigation. Research is not only concerned to the decision of
the fact but also building up to date knowledge and to discover the new facts involved
through the process of dynamic change in the society.

Research Plan

The research study is exploratory in nature. The established objectives were kept in mind
during the study, however no hypothesis was formed as the study was more in the form of
descriptive design attempting to analyse the attitude of respondents towards the project.

Research Design
A research design is the arrangement of conditions for collection and analysis of data in
manner that aims to combine relevance to the research purpose with economy in procedure.
In fact the research design is the conceptual structure within which research is conducted; it
constitutes the blueprint for the collection, measurement and analysis of the data. As such the
design includes an outline of what the researcher will do from writing the hypothesis and its
operational implications to the final analysis of the data.
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Descriptive Research: Descriptive research includes surveys and fact-finding enquiries of

different types. The major purpose of descriptive research is description of the state of affairs
as it exists at present. The main characteristic of this method is that the researcher has no
control over the variables: he can only report what has happened or what is happening.
Conclusion Oriented Research: While doing conclusion oriented research a researcher is
free to pick up a problem, redesign the enquiry as he proceeds and is prepared to
conceptualize as he wishes.


Research methodology is the process used to collect the data and others types of information
for use in making business decisions. Examples of these types of methodology include
interviews, surveys and research of publications. All of these types include the use of present
and historical information.

Modes of Data Collection

The study is based on primary and secondary data which includes:-

Primary Data Primary data is collected from the employees of the ThinkNEXT

Technologies PVT.LTD. Mohali

Secondary Data Secondary data was gathered from books and journals and Financial
Statements of the ThinkNEXT Technologies PVT.LTD. Mohali.
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Findings and Recommendations

Changes in Operating Procedure of Monetary Policy in India Consistent with the objectives
and policy framework, the operating procedure of monetary policy in India has also
witnessed significant changes. The choice of targets, instruments and operating procedure
was circumscribed to a large extent by the nature of the financial markets and the institutional
arrangements .During the monetary targeting period (1985-1998), while expected growth
provided the nominal anchor, reserve money was used as the operating target and cash
reserve ratio (CRR) was used as the principal operating instrument. Besides CRR, in the pre-
reform period prior to 1991, given the command and control nature of the economy, the
Reserve Bank had to resort to direct instruments like interest rate regulations and selective
credit control. These instruments were used intermittently to neutralize the expansionary
impact of large fiscal deficits which were partly monetized. The administered interest rate
regime kept the yield rate of the government securities artificially low. The demand for them
was created through periodic hikes in the Statutory Liquidity Ratio (SLR) for banks. The year
1992-93 was a landmark in the sense that the market borrowing programme of the
government was put through the auction process. This was supported by a phased
deregulation of lending rates in the credit market. The Reserve Bank also brought down the
SLR and CRR drastically. All these developments resulted in a decline in pre-emption of
resources from the banking. Therefore, it reiterated the need to transform the call money
market into a pure inter-bank market and recommended the Reserve Banks operations to be
market based. Following these recommendations, the Reserve Bank introduced the Liquidity
Adjustment Facility (LAF) in June 2000 to manage market liquidity on a daily basis and also
to transmit interest rate signals to the market. Under the LAF, the Reserve Banks policy
reverse repo and repo rates set the corridor for overnight market interest rates. Thus, Open
Market Operations (OMSs) including LAF emerged as the dominant instrument of monetary
policy, though CRR continued to be used as an additional instrument of policy. The call
money market was transformed into a pure inter-bank market by August 2005 in a phased
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Suggestions Given by Narasimham Committee

1. Cash Reserve Ratio (CRR)

Scheduled bank in India are required statutorily to hold cash reserve, called cash reserve ratio
(CRR), with the RBI. Increase/decrease in CRR is used by the RBI. Increase/decrease in
CRR is used by the RBI as an instrument of monetary control, particularly to mop up excess
increases in the supply of money. This power was given to RBI in 1956. The committee
recommended that RBI should rely on open market operations increasingly and reduce its
dependence on CRR. This would reduce the amount of cash balance of the banks with the
RBI enabling them to increase their revenues through more investments. CRR was gradually
lowered from its peak at 15 percent during July 1989 to April 1993 to 7.50 percent in April

2. Statutory Liquidity Ratio (SLR)

Apart from the CRR banks in India are also subject to statutory liquidity requirement. Under
this requirement, commercial banks are required under law to invest prescribed minimum
proportions of their total assets/liabilities in government securities and other approved
securities. The underlying philosophy of this provision is to allocate total bank credit between
the government and the rest of the economy. The committee asked the government to reduce
the SLR from the then existing 38.5 percent to 25 percent over the period of five years. A
reduction in the SLR levels would have more funds with the banks which would allocate
them to promote agriculture, industry and trade. SLR was reduced from its peak 38.5 percent
during September 1990 to December 1992 to 25 percent in October, 1997.

3. Structure of Interest Rates

The committee recommended that the level and structure of interest rates in the country
should be broadly determined by market forces. All controls and regulations on interest rates
on lending should be removed. The country has moved towards liberalized credit allocation
mechanism and reduced direct control over interest rates by the monetary authorities.
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Interest rate slabs have been gradually reduced from 20 to 3. Similarly interest rates have
been deregulated on the high slabs of bank rates. The purpose of deregulation is to promote
healthy competition among the banks and encourage their operational efficiency scheduled
banks have now the freedom to set interest rates on their deposits subject to minimum floor
rate (4.5 percent) and maximum ceiling rate (11 percent)

4. Organization of Banking Structure

The committee proposed a substantial reduction in the number of public sector banks through
mergers and acquisitions. The broad pattern should consist of-

3 or 4 large banks which could become international in character.

8 to 10 national bank with a network of branches throughout the country.
Local banks whose operations would be generally confined to a specific region.
Rural banks whose operations will be confirmed to the rural areas.

Significantly the committee recommended that RBI should permit the setting up of new
banks in the private sector banks. It wanted to a positive declaration from the government that
there would be no more nationalization of banks. It further recommends that there should be
not be any difference in treatment between the public sector banks and private sector banks.

5. Duality of Control
It recommended removal of duality of control over the banking system by the banking
department of Finance Ministry on the one hand, and by the RBI on the other hand. The
committee desired the RBI to assume full responsibility of overseeing the functioning of the
banking system.
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The source of data regarding ThinkNEXT Technologies PVT.LTD. Mohali Profile Details is
collected from the annual reports of ThinkNEXT and some part of the profile is also taken
from the following websites:-