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Banking

Central Bank Credit Card

Central bank refers to one of the oldest and the largest commercial bank in India. The ownership of the central bank is private and in the hands of the Government of India. Since Mumbai, Maharastra is the financial capital of India, the central bank has its base in the city. Moreover, in addition, Central bank has its joint venture with Bank of India, Bank of Baroda and Zambian Bank.

What is Credit?

Credit refers to the ability of a customer to receive the products or acquire the services before making the payment. The credit facility is a boon to the economy and all the elements within it – individuals, organizations, etc. However, it is due to this credit facility, that gave rise to the introduction of credit cards.

The person who provides the goods and services before the buyer pays for it is known as the creditor. On the other hand, the person who owes money for acquiring goods or service in advance is the debtor.

In case of a credit card, the bank pays money to the seller on behalf of the purchaser. In this case, the bank becomes the creditor and the card user becomes the debtor. The bank provides a time period within which the individual should pay back the amount that they owe to the bank.

Although, the credit card seems like a huge risk similar to that of a loan, using a credit card has its benefit. The timely and diligent repayment of credit bills shows that the individual is creditworthy. Furthermore, their credit score will also increase and this makes it easier for banks to sanction loans for you.

What is Credit Control?

Credit control is a very critical function that every bank should be able to do. Moreover, credit control includes providing credit to only those individuals or companies who are worthy. By worthy, we mean those who are creditworthy and have the ability to pay back.

To know more about credit offered by commercial banks, click here.

It is extremely important to control credit because otherwise, the banks will pay for those individuals who do not have the ability to repay back. And in such a condition, the bank does not attain functional and operational balance.

Credit Control by Central Bank

It is important for all banks to control their credit. Central Bank credit control is one of the most significant functions of the Central Bank. By controlling the credit offered, the central bank would be able to analyze the rate of inflation and forecast its impact. If a particular bank’s credit is not under control, it could lead to vast economic distress which has an adverse impact on the monetary functioning.

central bank

However, the central bank scrutinizes all its credit offerings in a systematic manner. Only upon close analysis do they permit credit offering to any particular customer. Furthermore, discussed below are some of the most crucial and essential Central Bank credit control or central bank credit card offering methods:

  1. The bank rate and discount rate policy determines the credit card issuing rights by the Central Bank
  2. Operations that are in functionality at the open market
  3. The variable reserve ratio
  4. Selective credit controls

Questions on Central Bank

How is the central bank credit card related to the central bank credit control?

The central bank credit card is a result of effective central bank credit control. Only after the successful controlling of credit, the bank issues the credit card. Let’s say that a person is very diligent to paying back his debts (loans, borrowings, etc), then the central bank classifies him as to creditworthy. Therefore, everyone who is controlled by the central bank credit, they are eligible to hold the central bank credit card.

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