Direct Action

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Direct Action

only as a measure to meet exceptional emergendes because it is open to serious abuse Direct Action and Moral Suuvinn: The other methods of credit control may be noted only briefly. There is what is called ‘direct action.’ This implies coercive measures like refusal on the part of the central bank to rediscount for banks whose credit policy is not in accordance with the wishes of the central bank or whose borrowings from the central banks arc excessive in relation ot their capital and reserve. The central bank may, on the other hand, request and persuade member-banks to refrain from increasing their loans for speculation or non-essential activity. The method of publicity is also used. The eans issuing of weekly statistics, periodical review of the money market conditions, public finances, trade and industry, the issue of weekly statement of assets and liabilities in the fonn of balance sheets, etc.

The Reserve Bank of India made use of selective credit controls for the first time in 1956. It issued directives to banks to refrain from excessive lending against foodgrains, sugar, groundnuts and shares. As already mentioned, in 19vO, margin requirements for advances against equity shares were raised to 50 per cent. The selective credit controls have been operated by the Reserve Dank with suitable modifications from time to time in the light of demand and supply position of the commodities. The credit restraint measures were intensified in May, 1960, but it later relaxed these measures with a view to casing pressure of seasonal stringency. Similnrly, 1962, the improvement in the supply and price situation led to the relaxation of some of the controls. In this way, the Reserve Bank of India has been adjusting the control machinery to changing situations.

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Direct Action