QUALITATIVE TOOLS

1. LTV(Loan to Value Ratio) : Suppose I have Land Worth Rs 1 Crore and I want to get Loan from Bank by Mortgaging that Land. Then I will Not get Rs 1 Crore Loan . If LTV=60% then I can Get Maximum Loan of Rs 60 Lakh.

2. Moral Suasion : Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation. Rajan will try to influence those bankers through direct meetings, conference, giving media statements, giving speeches etc

3. Credit Ceiling: In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, priority sector lending.

4. Credit Authorization Scheme: Under this instrument of credit regulation RBI as per the guideline authorizes the banks to advance loans to desired sectors 

5. Direct action : Means RBI gives punishment to notorious banks for not abiding by its guidelines. Punishment can involve: penal interest, refuses to lend them money and in worst case even cancels their banking license.

CHEQUE TRUNCATION SYSTEM

1. What is Cheque Truncation or truncation of cheques?

Truncation literally means stopping or cutting short. Thus, truncation of cheque means stopping the flow of the physical cheque by the presenting bank (bank where the cheque is presented/dropped off!)

en-route to the drawee bank’s (bank on which the cheque is drawn on) branch.

Instead of the physical cheque, an electronic image of the cheque is transmitted to the drawee branch, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.

Cheque truncation, thus, removes the need to move the actual physical cheque from branch to branch.