Credit Control means the regulation of the creation and contraction of credit in the economy. It is an important function of the central bank of any country. In India, the Reserve Bank of India (RBI) controls credit in the economy using various quantitative and qualitative measures.

Quantitative measures: These are deployed to regulate the volume of credit created by the banking system.

• Bank rate Policy: It is the rate at which the RBI is ready to grant loans to commercial banks or rediscount the approved bills held by commercial banks. An increase in bank rate leads to an increase in other rates of interest and vice-e-versa. Thereby, changing the bank rate affects the cost and availability of credit.
• Open market operations: It refers to the sale and purchase of securities by the RBI to the commercial banks. Sale/Purchase of securities by commercial banks from the RBI results in the increasing/decreasing of cash reserves with the banks.
• Reserve Requirements: The RBI is empowered to change the reserve requirements of the commercial banks. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are two types of reserve ratio employed by RBI. A higher reserve requirement leaves less credit for banks to lend out.

Qualitative measures: These are deployed to regulate the flow of credit in specific uses

• Marginal requirements: It is the difference between the market value of the security and its maximum loan value. The RBI can increase or decrease the marginal requirement to affect the credit flow.
• Consumer Credit Regulation: The RBI can control the consumer credit by changing the amount that can be borrowed for the purchase of the consumer durables or by changing the maximum period over which the installments can be extended.
• Rationing of credit: In this, the RBI seeks to limit the maximum amount of loans and advances and, also in certain cases, fix ceilings for specific categories of loans and advances.
• Moral Suasion: Here, the RBI tries to morally persuade the banks to cooperate in implementing its policies.
• Direct Action: This step is taken by the RBI against banks that don’t fulfil conditions and requirements. It may involve refusal to rediscount their papers, charging a penal rate of interest over and above the Bank rate etc. It must be noted the effectiveness of credit control measures in an economy depends upon a number of factors and one or more of these measures are adopted by RBI based on the situation.