SELECTIVE CREDIT CONTROL

 

 

Selective credit control is a tool in the hands of Reserve Bank of India to restrict bank finance against sensitive commodities. These sensitive commodities generally include:

 

(i)         Food grains i.e., cereals and pulses.

(ii)        Cotton textiles, which include cotton yarn, man‑made fibres and yarn and fabrics made out of man‑made fibres and partly out of cotton yarn and partly out of man-made fibres.

(iii)       Selected major oil seeds indigenously grown viz. groundnut, rapeseed/mustard, cottonseed, linseed and castor seed, oils thereof, vanaspati and all imported oils and vegetable oils.

(iv)       Sugar, Gur and Khandsari.

(v)        Raw cotton and kapas.

 

All these commodities, as would be observed, are of mass consumption and Government makes all efforts to ensure adequate supply of these commodities in the free market. The policy, therefore, is to discourage advances against these commodities as far as possible and the purpose is achieved through ‘Selective Credit Control’, which has two different aspects as under:

 

(i)         Minimum margin for lending against security of specified commodities is fixed.

(ii)        Ceiling on the level of credit is fixed.

 

These steps restrict the overall lending by the banks against these commodities. Reserve Bank of India also used to stipulate minimum rate of lending against commodities covered under Selective Credit Control. With liberalisation in rates of interest announced by Reserve Bank, this stipulation has since been withdrawn and banks are free to determine rate of interest w.e.f. 18th October, 1994.

 

Selective credit control on all the commodities were withdrawn by RBI with effect from 21st October, 1996 except stipulation of margin on stocks of sugar as under:

 

Margin on buffer stock of sugar                                                                                     -           Nil

Margin on unreleased stock of levy sugar                                                                        -           10%

Margin on unreleased stock of free sale sugar                                                                 -           To be decided by

Banks based on

                                                                                                                                                            their commercial

judgement

 

The existing practice of Banks’ submitting credit proposals above Rs.100 lacs to Reserve Bank of India for its prior approval under Selective Credit Control has been discontinued w.e.f. 23.11.2000. Banks me now free to sanction such credit proposals in terms of their individual loan policies.