The Reserve Bank’s monetary and credit policy pursues economic growth with price stability. Price stability refers to inflation control.
Credit policy aims at increasing industrial and agricultural growth rate through credit delivery system. The flow of credit generally depends upon cost of credit and availability of adequate funds.
The factors affecting credit delivery, therefore, pertains to interest rate, margin money requirement, resources position, purpose of utilization of credit, general economic conditions, etc. The Reserve Bank regulates credit delivery and related matters through announcement of credit policy twice a year, viz., in April and October.
The policy announced in April is known as slack season credit Policy and the other announced in October is known as Busy season credit policy. The term Busy and slack seasons refer to farming and agricultural activities being carried on in India.
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It is generally in October, Indian farmers need funds to start with their agricultural activities soon after monsoon in many parts of India. April signifies the beginning of summer and heat in all parts of India when no agricultural operations are possible for want of rainfall.
However, the slack and busy season’s credit policy lost its importance since the share of agriculture in the national product keeps on falling and the share of industry and services sector keep on increasing. Hence, Reserve Bank decided to announce important policy measures generally in April Policy and changes, if any, are announced in October Policy.
The Policy directly affects the Banking and financial system and indirectly, trade and industry. As flow of credit to various activities comes from banking system, the policy has a direct impact on the banks.
As the increase or decrease in credit flow, interest rates, margin money, etc., affect all those who need and use funds, the policy has important bearing on industrial and trading activities. Agricultural activities are generally not affected much since credit to agriculture is always ensured adequately through priority sector prescriptions.
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Control and Regulation of Banking in India by R BI
In India, the banking operations are controlled by the Banking Regulation Act 1949, the Reserve Bank of India Act 1934, the Bankers Book Evidence Act 1981, the Foreign Exchange Regulation Act 1973, etc., The Banking Regulation Act conferred enormous powers to RBI for controlling the banking companies.
The Banking Regulation Act has undergone many changes. Let us see the important provisions of Banking Regulation Act through which the RBI controls the functions of the Commercial Banks.