Q.Explain any three qualitative (selective) methods of credit control used by the RBI.

Qualitative tools direct credit toward or away from particular purposes, unlike quantitative tools which change the overall volume of credit in the economy. …

Unlike quantitative tools (which change the total volume of credit uniformly across the economy), qualitative or selective tools regulate the purpose and direction credit flows toward. Any three:

1. Margin requirements — the RBI fixes the minimum margin (the borrower's own contribution) required against the value of goods/securities pledged for a loan. Raising the margin on loans against a particular commodity (e.g. to curb speculative stock-piling) reduces the amount banks can lend against that commodity, without affecting credit for other purposes.

2. Moral suasion — the RBI persuades banks, through letters, discussions and periodic meetings, to follow a particular lending policy (e.g. restrain lending to a particular speculative sector) without issuing a binding legal directive — relying on banks' cooperation rather than compulsion. …

Listing CRR, SLR or the Repo Rate as 'qualitative' tools — these are quantitative tools because they affect t …