[BES171] Monetary Policy: Qualitative Tools, Priority Sector Lending, Credit Authorization Scheme, Selective Credit Control, Limitations & Mains Answer Writing

1. Monetary Policy#6: PSL, SCC & CAS- Priority Sector Lending Norms
2. Monetary Policy#7: LTV, Margin Requirement, Moral Suasion & Direction Action
3. Monetary Policy#8: Limitations and Non-Transmission, Base Rate vs MCLR
4. Monetary Policy#9: UPSC- Mains Answer Writing Practice for GS Paper-3

Prologue: from now on, all Powerpoint available at https://mrunal.org/powerpoint

Monetary Policy#6: PSL, SCC & CAS- Priority Sector Lending Norms

• In the previous sessions, we learned about the quantitative tools of monetary policy, which decide the ‘volume’ of credit in an economy. Now we shall look into the qualitative tools of monetary policy, which decide the ‘distribution’ of credit in an economy.
• What is selective credit control? Credit authorization scheme (CAS): its purpose and limitations
• Priority sector lending (PSL) in India: Origin, purpose, present framework, categories; penalty in RIDF and SEDF, limitations.
• What are priority sector lending certificates?
• Despite incrementalism in the allocation of agriculture credit in each budget, why is there a problem of farmer suicides? How are RBI and Government of India addressing this issue?
• Budget 2017 provisions for agriculture loans and its distribution to targeted beneficiaries via Core banking solution (CBS) in the cooperative banks.

Youtube Link: https://youtu.be/u8QKLC2cReI

Monetary Policy#7: LTV, Margin Requirement, Moral Suasion & Direction Action

• In this part, we’ll windup the remaining qualitative tools of monetary policy viz. Loan to value and margin requirements, consumer credit control on durables.
• Moral suasion as a tool of monetary policy: meaning, examples and limitations
• Direct action as a tool of monetary policy: powers conferred to RBI under the RBI Act, banking regulation act, prevention of money laundering act (PMLA), foreign exchange Management act 1999 (FEMA) and payment and settlement system act 2007
• Next part, we shall see the limitations of monetary policy.

Youtube Link: https://youtu.be/HLyyLG1NuGc

Monetary Policy#8: Limitations and Non-Transmission, Base Rate vs MCLR

• Despite a rate cut of 175 basis points by RBI during January 2015 to December 2016, the banks have passed on barely 71 basis points cut in their average lending rates. So what are the factors responsibiel for this incompl
• What are the factors inhibiting the growth of bank deposits in India? Impact of Inflation and real interest rate, small savings schemes, financial repression, outward remittance, election funding and financial inclusion on banks’ deposits
• Lending rate methods in India: benchmark prime lending rate. (BPLR), base rate and the latest marginal cost of fund based lending rate (MCLR).
• Despite demonetization, and the subsequent growth in bank deposits, why has MCLR lending rate not declined sufficiently?
• Criticism of Dr.Raghuram Rajan’s hawkish monetary policy by Subramanian Swamy and Nirmala Sitharaman. Has it really hurt India’s growth story by depriving cheap loans to MSME sectors?

Youtube Link: https://youtu.be/CtbrBaVwTzM

Monetary Policy#9: UPSC- Mains Answer Writing Practice for GS Paper-3

• In this last session on monetary policy, write answer to following question in 200 words within eight minutes- “Monetary policy is both a catalyst (उद्दीपक) and an impediment (अवरोधक) to India’s growth story.” Examine critically.
• In this session, we’ll see the common error in writing this answer, as well the the framework for the model answer, including its introduction, body and conclusion.

Youtube Link: https://youtu.be/y_Q_Jeos2xc
With this, I finish the monetary policy lecture series. Next we shall see the problem of NPA and how a bad bank known as “PARA” can help in fixing it?