Q."Moral suasion" as a method of credit control means that the central bank:
(A) Forces banks by law to reduce their lending
(B) Persuades and advises banks to follow its credit policy voluntarily
(C) Cancels the licence of any bank that disobeys it
(D) Sells securities to reduce cash with banks

The word to focus on is persuasion — moral suasion works through influence and co-operation, not force or law.

Section e describes moral suasion as a method of persuasion rather than compulsion. Through letters, meetings, discussions, and appeals, the central bank advises and requests commercial banks to follow its credit policy in the national interest — for example, urging banks to restrain lending during inflation. Because it relies on influence, its effectiveness depends entirely on the banks' voluntary co-operation. …

Do not confuse moral suasion with direct action. Moral suasion is voluntary persuasion; direct action is the RBI actually penalising a non-c …