Explain in brief moral suasion as a tool of credit control.

Moral Suasion — Moral suasion is a qualitative method of credit control used by the central bank. Under this method, the central bank requests and persuades commercial banks not to grant credit for speculative and non-essential activities. It may also persuade them to expand or contract credit in line with the prevailing monetary policy.

Key features:

1. It is an informal and non-statutory method — there is no compulsion or punishment.
2. It works on the basis of the moral influence and authority of the central bank, which commercial banks generally honour.
3. The central bank may also issue directives to commercial banks to refrain from certain types of lending.