Selective Credit Control

Are meant to regulate the flow of credit for particular or specific

purposes.
- Selective instruments are designed to influence specific sectors of the
economy, which are most vulnerable to fluctuations and require to be
controlled, without affecting the economy as a whole.
- A selective credit control restricts the amount of credit that may be
extended in individual transactions by setting the term to a given
class of loans. The aim is to alter the flow of funds destined for
particular purposes, without influencing the reserve position of the
banks or available quantity of credit, in general.
Methods of selective credit control:
1. Margin Requirements - Margin refers to the difference between
market value of securities and the amount borrowed against these
securities.it is the percentage of a securities value used as a
collateral for a loan to finance its purchase. It is used to divert funds
from speculative lines to productive lines. It is also used to reduce the
volume of credit in commercial banks.
2. Consumers Credit Control-Under this method the central bank of a
country is authorized to lay down terms and conditions for the proper
regulation of consumer credit extended by the commercial banks of a
country. It is used to regulate the purchase of durable goods like,
refrigerator, television, personal computers, and etc.
3. Control of Bank Advances- In this method, the central banks has the
control of the lending policies of the commercial bank. The central
bank can direct the banks on increase of bank advances or reduce
the advances to be loaned by the banks.
4. Moral Suasion- central banks has the influence over all of the banks.
It is done by the central bank to persuade its member banks to
control their lending activities. This method is effective if the central
bank has a high reputation and high influence among its member
banks.

Purpose of Selective Credit Control:

1.
2.
3.
4.

To regulate the flow of credit for specific purpose

To prevent inflation
To regulate the purchase of durable goods
To restrict speculation on essential commodities

The beneficiary of selective credit control:

Central Bank- they can regulate the outflow of credit by banks to prevent
excessive loaning of banks to consumers. It can influence the banks by
persuading them not to lend more money to consumer if the economy is
experiencing inflation or encourage banks to lend more to consumer if the
economy is experiencing deflation.
Banks- it is useful to the banks because they can regulate their advances
to their lenders to limit their expenditures.
Consumers- to limit their expenditure on durable goods. To prevent them
from getting loans from banks if the economy is experiencing inflation or
encourage them to spend by giving them loans.