Question

Explain the difference between formal and informal sources of credit. OR Explain the role of banks in credit-related activities in India.

Accepted Answer

OR (b) Explain the role of banks in credit-related activities in India. Banks use the major portion of the deposits to extend loans. There is huge demand for loans for various economic activities. Bank received interest from the borrowers. Interest received from borrowers is the asset of the bank. Banks give credit for various activities such as home loan, medical loan, personal loan etc. Reserve Bank of India (RBI) monitors credit activities of banks. ( Note: Please see Map for answers to Q no. 10 and 18. Note: IF THE EXAMINEE HAS IDENTIFIED THE TWO LOCATIONS ON THE MAP CORRECTLY BUT LABELLED THEM INTERCHANGEABLY (MADRAS /CHENNAI) AND DANDI OR VICE-VERSA), MARKS MUST BE AWARDED.

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(a) Explain the difference between formal and informal 38. sources of credit. Formal source of credit Informal source of credit
(i) Loans from the banks (i) Loans from zamindars and cooperatives. and relatives.
(ii) Low rate of interest.
(ii) High rate of interest.
(iii) Supervised by Reserve
(iii) No organisation Bank of India (RBI). supervises the credit activities.
(iv) Fixed rate of interest.
(iv) No fixation of interest rate.
(v) Extensive
(v) Documents may or may documentation. not be demanded.
(vi) Collateral is necessary.
(vi) Collateral may or may not be necessary.
(vii) Borrowers cannot be
(vii) High chances of exploited. exploitation.
(viii) Any (viii) other relevantpoint.to be explained.

Explain the difference between formal and informal sources of credit.

Marking-scheme solution

More from Money and Credit

(a)OR(b)Explain the difference between formal and informal sources of credit.Explain the role of banks in credit-related activities in India.

Marking-scheme solution

More from Money and Credit

Explain the difference between formal and informal sources of credit.