Name the credit control method which refers to difference between the amount of loan and market value of the security offered by the borrower against the loan
Name the credit control method which refers to difference between the amount of loan and market value of the security offered by the borrower against the loan.
(a) Selective Credit Controls
(b) Moral Suasion
(c) Margin Requirements
(d) Legal Reserve Requirements
Anurag Pathak Changed status to publish December 25, 2023
Ans – (c)
Explanation:-
Margin Requirements:- Margin is the difference between the amount of the loan and the market value of the security offered by the borrower against the loan.
If the margin fixed by the Central Bank is 40%, then commercial banks are allowed to give a loan only up to 60% of the value of security.
By changing the margin requirements, the Reserve Bank can alter the amount of loans made against securities by the banks.
- An increase in margin reduces the borrowing capacity and money supply.
- A fall in margin encourages people to borrow more.
- RBI may prescribe different margins for different types of borrowers against the security of the same commodity.
- Margin is necessary because if a bank gives a loan equal to the full value of security, then the bank will suffer a loss in case of a fall in the price of security.
Anurag Pathak Changed status to publish December 25, 2023
