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Types OF Selective Credit Control
Economics
University of Calcutta
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TYPES OF SELECTIVE CONTROL
Selective credit control refers to the use of policy measures by central banks or other regulatory authorities to influence the availability and cost of credit for specific sectors or purposes. The aim is to promote desired economic outcomes, such as price stability, economic growth, or sectoral development. There are several types of selective credit controls, which differ in terms of their target, scope, and instruments. Some of the most common types are: 1. Quantitative credit controls: These refer to the use of direct limits on the amount of credit that can be extended by banks or other financial institutions. Examples include credit ceilings, credit quotas, and credit freezes. The purpose of these controls is to restrain excessive credit growth and reduce the risk of inflation or financial instability. However, they may also lead to credit rationing, disintermediation, or distortion of market signals. 2. Qualitative credit controls: These refer to the use of indirect measures to regulate the quality, terms, or purpose of credit. Examples include margin requirements, loan-to-value ratios, collateral requirements, and credit rating standards. The purpose of these controls is to steer credit towards productive or priority sectors, discourage speculative or risky lending, or mitigate credit risk. However, they may also raise the cost of credit, reduce the efficiency of intermediation, or create unintended consequences.
- Sectoral credit controls: These refer to the use of targeted measures to influence the credit allocation or pricing in specific economic sectors or activities. Examples include sectoral credit subsidies, tax incentives, or interest rate differentials. The purpose of these controls is to support priority sectors such as agriculture, housing, or exports, or to discourage negative externalities such as pollution or speculation. However, they may also create distortions, moral hazard, or rent-seeking behavior.
- Regional credit controls: These refer to the use of measures to promote credit availability or affordability in specific geographic areas or regions. Examples include regional credit subsidies, loan guarantees, or refinancing facilities. The purpose of these controls is to reduce regional disparities, stimulate regional development, or address structural imbalances. However, they may also favor politically connected regions or projects, or create unintended consequences.
- Structural credit controls: These refer to the use of measures to influence the organization, ownership, or governance of financial institutions or markets. Examples include restrictions on bank mergers, foreign ownership, or market entry. The purpose of these controls is to promote financial stability, competition, or public interest objectives. However, they may also create barriers to innovation, reduce efficiency, or undermine market discipline. In practice, selective credit controls are often used in combination with other monetary and fiscal policy tools, and their effectiveness depends on the context, timing, and implementation. Therefore, the choice of the type and degree of credit control should be based on a careful analysis of the economic conditions and objectives, as well as the potential costs and benefits of each instrument.
Types OF Selective Credit Control
Course: Economics
University: University of Calcutta
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