Selective/Qualitative measures of monetary policy/ Credit control:

• Qualitative measures are those measures which are selected by RBI based on the impact of credit for development of certain sectors or segments of the economy.
• These measures have unique impact on certain sector and unlike quantitative measures do not impact all sectors present of the economy.

1. Collateral security:

When bank lends money to individual, it demands some asset as mortgage for security of the loan. This is known as collateral security.

• This security can be jewelry, fixed deposits, car, house, land, etc.
• The bank asks for such assets against the loan because if the borrower is not able to pay back the loan amount, bank uses this asset to recover the dues.
• The type of security that the bank demands various from person to person. For example, a poor farmer may get a loan from bank with almost no or less security whereas, a rich businessman may have to keep more as security with the bank to get loan.
• RBI promotes and encourages commercial banks to take such steps so that all the segments of people in India can attain the benefit of bank credit.

2. Margin requirement:

• Margin requirement is the limit that is set by RBI for granting loans against security.
• An individual is offered only certain percentage of the total value of the asset (security) as loan.

3. Ceiling on credit:

• RBI fixes a limit on the loans that the commercial banks can give to the people.
• In other words, commercial banks cannot exceed the maximum limit (ceiling) that the RBI has fixed for specific categories.

4. Discriminatory interest rates:

• Banks charges different rate of interest on different types of loans and advances and also charges differently to different economic class of people.
• For example, the bank may charge less interest rate on the loan given to a farmer for agricultural development and may charge more interest rate on the loan given to a businessman.