What is Selective Credit Control?

Selective credit control means control over bank finance against the security of sensitive commodities. In exercise of powers conferred by Section 21 & 35A of the Banking Regulation Act, 1949, the Reserve Bank of India issues directives to commercial banks from time to time, stipulating specific restrictions on bank advances against specified sensitive commodities. The commodities like food grains (cereals and pulses), oil seeds and oils of indigenously grown, (viz. groundnut, rapeseed/mustard, cottonseed, linseed and castor seed as well as vanaspati and all imported oils and vegetable oils), raw cotton and kapas, sugar/gur/khandsari, Cotton textiles (which include cotton yarn, man-made fibres and yarn and fabrics made out of man-made fibres and partly out of cotton yarn and partly out of man-made fibres) are generally treated as sensitive commodities.

They are sensitive because of their substantial weights in the index of wholesale consumer price. RBI’s objective in issuing SCC is to curb the use of bank credit for speculative holding of essential commodities and the resultant rise in their prices. Banks are required to segregate each commodity covered by SCC and fix the credit limits against each such commodity.

Banks are free to fix prudential margins on advances against commodities covered under SCC. However, in case of advance against Levy Sugar, a minimum margin of 10% will apply and valued at levy price fixed by Government. Banks shall take care that they shall not entertain loans against book debts/receivables or collateral securities that would defeat the purpose of SCC directives.

What are the regulatory restrictions on bank lending?

Surendra Naik