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Credit Control: Bank Rate, OMO, CRR, SLR (ICSE Class 10)

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EconomicsICSE Class 10 · Monetary Policy of the Central Bank

Monetary Policy: Quantitative and Qualitative Credit Control Measures (ICSE Class 10)

Updated 17 October 2026 · Fact-checked

Monetary policy is the central bank's policy to control the supply, cost and availability of money and credit. Quantitative measures (bank rate, open market operations, CRR and SLR) change the total volume of credit; qualitative measures (margin requirements, credit rationing and moral suasion) change its direction and use. To fight inflation the central bank tightens credit; to fight recession it expands credit.

Quantitative tools change how much credit exists in the whole economy; qualitative tools steer where that credit goes.

Illustration drawn for QuestionBuddy.

Understand Quantitative and Qualitative Credit Control

Meaning. Monetary policy aims at price stability, growth, adequate credit for productive sectors and a stable exchange rate.

A. Quantitative (general) measures.
1. Bank rate: the rate at which the central bank lends to commercial banks. Raise it to make loans costlier and reduce credit; lower it to expand credit.
2. Open market operations (OMO): sale and purchase of government securities. Selling securities takes money out of banks (credit contracts); buying puts money in (credit expands).
3. Cash Reserve Ratio (CRR): percentage of deposits banks keep as cash with the central bank. Higher CRR means less to lend.
4. Statutory Liquidity Ratio (SLR): percentage of deposits banks keep with themselves as cash, gold or approved securities. Higher SLR means less to lend.

B. Qualitative (selective) measures.
1. Margin requirements: the difference between a loan and the value of the security. A higher margin for a commodity means less credit against it.
2. Credit rationing: fixing limits or quotas on credit to certain sectors, or directing a minimum share to priority sectors.
3. Moral suasion: persuasion and requests to banks, without legal force.

Comparison. Quantitative measures affect the whole economy and the volume of credit; qualitative measures affect particular uses.

Numerical idea. A bank with deposits of ₹2,000 crore, CRR 5% and SLR 20% has lendable funds of 2,000 − 100 − 400 = ₹1,500 crore. If CRR rises to 8%, reserves become ₹160 crore and lendable funds fall to ₹1,440 crore.

Quantitative and Qualitative Credit Control: key facts

Quantitative measures
  • Bank rate
  • Open market operations
  • CRR
  • SLR
Qualitative measures
  • Margin requirements
  • Credit rationing
  • Moral suasion
Tight policy (curb inflation)
  • Raise bank rate, CRR, SLR
  • Sell securities
  • Raise margins
Easy policy (revive growth)
  • Lower bank rate, CRR, SLR
  • Buy securities
  • Lower margins
Lendable funds
Deposits − CRR amount − SLR amount

How to answer Quantitative and Qualitative Credit Control questions

State the tool, the action and the effect on credit. For sums, deduct CRR and SLR from deposits.

  1. 1Name the tool and define it in one line.
  2. 2State the action for inflation and for recession.
  3. 3State the effect: loans costlier or cheaper, credit contracts or expands.
  4. 4For CRR/SLR sums: amount = deposits × percentage ÷ 100.
  5. 5Lendable funds = deposits − CRR amount − SLR amount.

Quantitative and Qualitative Credit Control in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Cooling a price rise

Suppose a bank has deposits of ₹2,000 crore. The central bank raises CRR from 5% to 8% to cool rising prices; SLR remains 20%.

How does the bank's lending power change?

Try it first, then show the solutionSolution
  1. Before: CRR 100, SLR 400; lendable = 2,000 − 100 − 400 = 1,500.
  2. After: CRR 160, SLR 400; lendable = 2,000 − 160 − 400 = 1,440.
  3. Lending power falls by ₹60 crore.

Answer: Lendable funds fall from ₹1,500 crore to ₹1,440 crore, reducing credit and demand.

Memory hook: Higher CRR, tighter credit.

Tricks to remember Quantitative and Qualitative Credit Control

Short memory aids. Say each one aloud once, then use it on a question the same day.

  • BOCS

    Bank rate, OMO, CRR, SLR: the quantitative four.

    Use it when: Listing.

  • MCM

    Margin, Credit rationing, Moral suasion: the qualitative three.

    Use it when: Listing.

  • Sell = squeeze

    Selling securities squeezes credit; buying releases it.

    Use it when: OMO.

Quantitative and Qualitative Credit Control: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Bank rate · 1 mark · MCQBoard level

When the central bank raises the bank rate, commercial bank lending rates generally:
(a) fall
(b) rise
(c) stay unchanged
(d) become zero

Try it first, then show the solutionSolution
  1. Costlier borrowing from the central bank leads banks to raise their own rates.

Answer: (b)

Example 2: Define CRR · 2 marks · Short answerBoard level

What is CRR? How does a rise in CRR affect credit? (2 marks)

Try it first, then show the solutionSolution
  1. CRR is the percentage of deposits kept as cash with the central bank.
  2. A rise leaves banks with less to lend, so credit contracts.

Answer: As above.

Example 3: CRR sum · 3 marks · Short answerHarder board level

A bank has deposits of ₹4,000 crore. CRR is 6% and SLR is 15%. Find lendable funds. If CRR is raised to 9%, find the new lendable funds. (3 marks)

Try it first, then show the solutionSolution
  1. CRR amount = 4,000 × 6 ÷ 100 = 240; SLR amount = 4,000 × 15 ÷ 100 = 600.
  2. Lendable = 4,000 − 240 − 600 = ₹3,160 crore.
  3. New CRR = 360; lendable = 4,000 − 360 − 600 = ₹3,040 crore. Check: fall = 120 = 3% of 4,000.

Answer: ₹3,160 crore; ₹3,040 crore.

Example 4: OMO in recession · 4 marks · Long answerHarder board level

Explain how open market operations can be used to fight inflation and to fight recession. (4 marks)

Try it first, then show the solutionSolution
  1. Inflation: the central bank sells government securities.
  2. Buyers pay with bank money; banks have less cash and lend less; credit contracts.
  3. Recession: the central bank buys securities.
  4. It pays sellers; banks get cash and lend more; credit expands.

Answer: Sell securities to curb credit; buy to expand credit.

Example 5: Choose the measure · 3 marks · Short answerHOTS / competency

The central bank finds that loans against stocks of food grains are being used for hoarding, while general credit is normal. Which measure suits best and why? What would be a poor choice? (3 marks)

Try it first, then show the solutionSolution
  1. A selective measure, such as raising the margin on loans against food grains, targets only that use.
  2. Moral suasion may also be used to ask banks to avoid such loans.
  3. Raising CRR would be a poor choice: it cuts all credit, including to productive sectors.

Answer: Margin requirement (qualitative); CRR would hurt all sectors.

Where students lose marks in Quantitative and Qualitative Credit Control

The slips examiners see most often, and what to write instead.

  • Mistake: Reversing the direction

    Inflation versus recession.

    Wrong working

    Raise CRR to expand credit.

    Right working

    Raise CRR to contract credit.

    Do this: Memorise: tight for inflation.

    Usually costs: 1-2 marks.

  • Mistake: Ignoring SLR in sums

    Only CRR deducted.

    Wrong working

    Lendable = deposits − CRR.

    Right working

    Lendable = deposits − CRR − SLR when SLR is given.

    Do this: Read all data.

    Usually costs: 1 mark.

  • Mistake: Naming without effect

    No explanation.

    Wrong working

    Bank rate and CRR are used.

    Right working

    State what each does to credit.

    Do this: Add one line of effect.

    Usually costs: 1-2 marks.

Exam tips

  • Syllabus asks for a brief understanding: tool, action, effect.
  • Use a table of tools for inflation versus recession.
  • Show the percentage calculation in CRR/SLR sums.

Practice questions on Quantitative and Qualitative Credit Control

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

  1. Q1 · 1 mark · MCQBoard level

    Credit rationing and moral suasion belong to the group of:
    (a) quantitative measures
    (b) qualitative measures
    (c) fiscal measures
    (d) trade measures

    Hint

    Direction of credit.

    Answer

    (b)

  2. Q2 · 2 marks · Short answerBoard level

    Differentiate between CRR and SLR on any two bases. (2 marks)

    Hint

    Where kept, form.

    Answer

    CRR is kept with the central bank in cash and earns no interest; SLR is kept by the bank itself in cash, gold or approved securities.

  3. Q3 · 3 marks · Short answerHarder board level

    A bank has deposits of ₹5,000 crore. CRR 4% and SLR 18%. Find the amounts to be kept as CRR and SLR and the lendable funds. (3 marks)

    Hint

    Percentages of deposits.

    Answer

    CRR = 5,000 × 4 ÷ 100 = ₹200 crore; SLR = 5,000 × 18 ÷ 100 = ₹900 crore; lendable = 5,000 − 200 − 900 = ₹3,900 crore.

  4. Q4 · 4 marks · Long answerHarder board level

    Explain margin requirements and credit rationing. (4 marks)

    Hint

    Selective control.

    Answer

    Margin: the part of a security's value that the borrower must bear; raising it cuts credit against that commodity. Credit rationing: limits or quotas on credit to sectors, or a minimum for priority sectors, steering credit to productive uses.

  5. Q5 · 4 marks · Long answerHOTS / competency

    Suppose prices are rising fast because of excess bank credit. List four actions the central bank can take and the effect of each. (4 marks)

    Hint

    Tighten credit.

    Answer

    Raise the bank rate (loans costlier); sell securities in the open market (banks lose cash); raise CRR (less to lend); raise SLR (more locked in liquid assets). Credit contracts and demand falls.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

  1. 1.Quantitative measures?Show answer

    Bank rate, OMO, CRR, SLR.

  2. 2.Qualitative measures?Show answer

    Margin requirements, credit rationing, moral suasion.

  3. 3.Sell securities does what?Show answer

    Reduces credit.

  4. 4.CRR kept with?Show answer

    Central bank.

  5. 5.SLR kept in?Show answer

    Cash, gold, approved securities.

Quantitative and Qualitative Credit Control: frequently asked questions

What is monetary policy?

The central bank's policy to control the supply and cost of money and credit.

What are the quantitative measures?

Bank rate, open market operations, CRR and SLR.

What are the qualitative measures?

Margin requirements, credit rationing and moral suasion.