NCERT Class 10 Economics Chapter 3: Money and Credit (CRR, SLR & Repo Rate) YouTube Lecture Handouts
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NCERT Class 10 Economics Chapter 3: Money and Credit (CRR, SLR & Repo Rate)
Chapter 3: Money & Credit
Money Versus Barter
- Barter System – Double coincidence of wants
- Money – eliminates double coincidence of wants; Medium of EXCHANGE
Forms of Money
- Currency: Paper notes and coins – authorized by Govt. (India – RBI)
- Deposit with Banks – to earn interest for extra money; demand deposit (withdrawn on demand) – Cheque rather than Cash
Depositor vs. Borrower
- Bank hold 15% of total deposit as cash
- B⟋w surplus & those who need
- Extend loans
- Higher interest rate on loan
- Diff. = INCOME for bank
Credit (Loan) Situation
- Lender supplies the borrower in return for promise of future payment
- For industry, housing, crop production
- Can push borrower in further credit (crop failure)
Terms of Credit
- Interest + Principal = Repayment
- Collateral: asset that the borrower owns and uses this as a guarantee to a lender until the loan is repaid
- Interest rate + collateral + documentation + mode of repayment = Terms of Credit
Formal Sector Credit
- Formal sector loan – bank & cooperative – 90% rich household
- Informal sector loan - moneylenders, traders, employers, relatives and friends – not supervised & charge any amount (usually higher) – 85% poor households
- Formal – Supervised by RBI – Looks into
- Cash maintained by banks
- Loan not only to profit making businesses but others
- High borrowing cost implies most money goes in loan repayment
- Need for cheap & affordable credit
- 50% rural credit needs by formal sector
Self-Help Groups
- Organize rural poor in groups and collect money
- Members take loan from group
- Group charges interest
- If group is regular in saving – can take bank loans
- Loan given in name of group – self-employment opportunities
- Overcome problem of collaterals
- Grameen bank (Bangladesh) – 1970s – 6 million borrowers in 40,000 villages
Marginal Standing Facility – in Acute Shortage (Emergency Situation) – MSF Rate > Repo Rate
Lends Money
Repo Rate – Short term
Bank rate – Long term
Cash Reserve Ratio (CRR) – Bank Hold Deposit as Cash with RBI
If CRR more – bank can use less for spending
✍ Manishika