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
 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..
 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

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