“The Reserve Bank of India (RBI) has decided to increase the loan amount to 90% of the security value, from the prior rate of 70%.” In the light of…

The monetary measure being exercised in the text above by the Reserve Bank of India (RBI) is Margin Requirement.Margin requirement refers to the difference between the amount of the loan and the value of the security offered by the borrower against the loan. An increase in the loan amount to $\displaystyle 90$% of the security value, from the prior rate of $\displaystyle 70$% reflects a reduction in margin requirement which in turn encourages the public to borrow more. Consequently, money supply will increase leading to increase in the Aggregate Demand in the economy.