INTRODUCTION

Credit control is a very important function of RBI as the Central Bank of India. For
smooth functioning of the economy RBI control credit through quantitative and
qualitative methods. Thus, the RBI exercise control over the credit granted by the
commercial bank.

The reserve Bank is the most appropriate body to control the creation of credit in
view if its functions as the bank of note issue and the custodian of cash reserves of
the member banks. Unwarranted fluctuations in the volume of credit by causing
wide fluctuations in the value of money cause great social & economic unrest in
the country. Thus, RBI controls credit in such a manner, so as to bring ‘Economic
Development with stability’. It means, bank will accelerate economic growth on
one side and on other side it will control inflationary trends in the economy. It
leads to increase in real national income of the country and desirable stability
in the economy.

Credit control is one of the most important functions of the Reserve Bank of India.
The Reserve Bank controls the credit in the country with the twin objectives of
checking inflation and facilitating economic development. Credit control weapons
used by the Reserve Bank may be either quantitative or qualitative.
The Reserve Bank has been employing both types of weapons to control the credit
by virtue of powers given to it by the Reserve Bank of India Act, 1934 and the
Banking Regulation Act, 1949. The Reserve Bank of India Act confers on the
Reserve Bank powers to control credit quantitatively. These include bank rates or
discount rates, open market operations and variable reserve requirements. The
Banking Regulation Act confers on the Reserve Bank vast powers to control and
regulate the entire banking system of the country. The Reserve Bank controls credit
qualitatively by virtue of these powers. The Reserve Bank has the power to issue
directions regarding the rate of interest that they should pay on fixed and savings
deposits, the rate of interest they may charge on types of advances, the types of
securities they can accept as collaterals, the branch expansion program of the banks
and many other matters. Now we shall discuss in detail the various methods of
credit control used by the Reserve Bank.13
The main difference between the general and selective credit control methods is
that the former influence the cost and overall volume of credit granted by banks.
They affect credit granted to the whole economy whereas the selective controls
affect the flow of credit to only specified sector of the economy, wherein
speculative tendency, and rising trend of prices, due to excessive bank credit,
noticed.14
(I) Quantitative Methods
Quantitative methods aim at controlling the total volume of credit in the country.
They relate to the volume and cost of bank credit in general, without regard to the
particular field of enterprise or economic activity in which the credit is used or
utilised .The important quantitative or the general methods of credit control are as
follows :

Bank Rate or Discount Rate Policy

Bank rate Policy or the Discount Rate Policy has been the earliest instrument of
quantitative
credit control. It was the bank of England which experimented with the bank rate
policy for the first time as a technique of monetary management. Now almost
every central bank has been endowed with this instrument of credit control.16
(i) Meaning
The bank rate is the ‘minimum rate of interest’ at which the central bank is ready to
grant
loans to commercial banks or to rediscount the bills of exchange. Hence the ‘bank
rate’ is also called as the ‘discount rate’17 Section 49 of the Reserve Bank of India
Act has defined the bank
rate as the standard rate at which the Reserve Bank is prepared to buy or rediscount
bills of exchange or other commercial papers eligible for purchase under the Act.18
Thus bank rate is the
rate at which the Reserve Bank purchases or rediscounts the specified bills and
commercial papers. But it is significant to note that for a long time there was no
bill market in India. So the rate of interest charged by the Reserve Bank on the
advances made by it to the commercial banks was treated as the bank rate.19
The Reserve Bank regulates credit of commercial banks and the general credit
situation of the country by manipulating the bank rate. The change in the bank rate
generally has the effect on the cost of credit available to the commercial banks
from the Reserve Bank.20 If the bank rate is
increased, the cost of the lending rates to the borrowers increases, due to which the
level of the borrowings of the banks is reduced. In effect the increased bank rates
results in contraction of bank credit. Therefore, where the Central Bank of the
country increases the bank rates, all other rates of interests also increase. The
policy of raising the bank rate is called the policy of dear money and the objective
of such a policy is to make money scarce and costly, so as to restrict its use and
flow to the deserving purposes only.

AIMS AND OBJECTIVES

The main objective of this study is:

• To understand and know about the history of the cashless transaction.

• To know about the outcomes of a cashless economy.

• To know the various methods and instruments used in a cashless transaction.

• To know about the positive and negative input of cashless transaction in the
economy.

• To know how demonetization affects the cashless transaction.

• To obtain stability in the internal price level.

• To stabilize money market of a country.

• To eliminate business cycles-inflation and depression-by controlling supply

of credit.

• To meet the financial requirements of an economy not only during normal

times but also during emergency or war.

• To help the economic growth of a country within specified period of time.

 NEED AND IMPORTANCE

Our country faced a huge money crisis as the old notes were demonetized. During
the time of demonetization the new notes were available at the lowest rate, so
many people tried to exchange the product through the mobile banking system.
People are changing their trends and the government is imposing cashless
transaction into the country. So the need to understand about the cashless economy
is highly necessary.
Going cashless in India is a big transformation as people in rural areas aren’t aware
of the cashless way of transaction. So to study and analyze the various way of the
cashless economy is needed and significant for me.
CASHLESS ECONOMY
A cashless society describes the economic state whereby financial transactions are
not concluded with money in the form of physical banknotes or coins, but rather
through the transfer of digital information through the transaction parties. Cashless
societies have existed, based on barter and other methods of exchange and cashless
transaction have also become possible using digital currencies such as bitcoin.
However this article discusses and focuses on the term “cashless society” in the
sense of a move toward, and implications of, a society where cash is replaced by its
digital equivalent- in other words, legal tender [money] exists, is recorded and
exchanges only in digital form. The world is experiencing a rapid and increasing
use of digital methods of recording, managing and exchanging money in
commerce, investment and daily life I many parts of the world and transaction
which would historically have been undertaken with cash are often undertaken
electronically. Some countries now set limits on transaction and transaction values
for which non-electronic payments may be legally used.
HISTORY
The trends toward the use of non-cash transaction and settlement began in daily
life during the 1990s, when electronic banking become popular.
By 2010s digital payment methods were widespread in many countries, with
examples including intermediaries such as PayPal, digital wallet systems operated
by companies like Apple, Contactless and NFC payments by electronic cards and
smartphones.

By 2010’s cash had become actively disfavoured in some kinds of transaction

which would historically have been very ordinary to pay with physical tender, and
larger cash amounts were in some situation treated with suspicion, due to
versatility and ease of use in money laundering and facing terrorism and actively
prohibited by some supplier and retailers to point of coining the expansion of war
on cash.
By 2016 in the United Kingdom it was repeated that in 1 in 7 people no longer
carry or use cash. The 2016 United States user consumer survey study claim that
75% of respondents preferred a credit or debit card as their payment method while
only 11% of respondent preferred cash.
By 2017 digital payment method such as venom and square contribute to the
cashless transaction. Venom allows an individual to make direct payment to
another individual without having cash accessible. Square is an innovation that
allows primarily small business to receive payments from their clients.
CONCERNS
It has the potential to be helpful for central government and economies, in the
context of global negative inflation and quantitative easing, and central control of
the money supply. A cashless society is convenient and fast; however, it also
increases ignorance of individual spending and vulnerability to fraud. Consumer
ignorance of spending increase as they are less aware when swiping their card to
complete a transaction that if they budgeted their money and paid in cash. Their
vulnerability to fraud increases because the corporation keeps a record of credit
and debit cards transaction nut they don’t keep a record of a cash transaction.
ADVANTAGES

The advantages of a cashless society are:-

• Efficient and convenient

Going digital, it helps to reduce the hassle of drawing cash or making sure
that cash-in-hand is sufficient to make a payment in places where only cash
payment is allowed. With a digitalized payment system, it speeds up the
process of financial transaction and boosts the efficiency of the transaction.
• Increased transparency

As monetary transactions are being made electronically, it increases
transparency as the financial transaction is recorded. The cashless system
will assist a wide range of institutions.
• Government bodies

Rather than conducting costly and periodic surveys and sampling of real-
world transactions, real data collected on citizen’s spending can assist in
devising and implementing policies that are deduced from actual data. With
recorded financial transactions, the Government can better track the
movement of the money through financial records which enables them to
track the black money and illegal transactions taking place in the country.
• Easier tracking

As digital payments are made, transactions are kept in records. Cashless
payments facilitate the tracking of spending expenditure and record the
 movement of money. Having recorded transactions, it can help citizens to
refine their budget more efficiently.
• Businesses

Cashless payments would eliminate the fear of businesses receiving
counterfeit money and flush out illegal cash. The risks of storing cash will
also be reduced as payments are made digitally.

DISADVANTAGES

Disadvantages of the cashless economy are as follows:-

• The issue of privacy

In a digitized economy, payment made will be traceable. With traceable
transactions, institutions would have potential access to this information.
With these digital traces left behind, digital transactions become vulnerable.
Such transactions allow businesses a way to build a consumer’s personal
profiles based on their spending patterns. The issue of data mining also come
into place as countries head towards a cashless society.
• Exclusion of certain population

Implementing a cashless system exclude the involvement of certain
population such as the poor or near poor and the older generation. Heading
towards a cashless society, citizens that do not hold the power or knowledge
of engaging in digital transactions are left behind. To be able to transact
using e-payment, it requires one to hold a bank account, which can hold their
money. Many of these impoverished people are underbanked.
• Breaching/hacking of the system

When payment transactions are stored in servers, it increases the risks of
unauthorized breaches and hackers. Financial cyber attacks and digital
crimes also from a greater risk when going cashless. These open transaction
also create the dangers and security issues where unauthorized access to
users account occurs and funds are transferred to another count or
unauthorized purchase are made by unknown users.
 PRESENTATION OF DATA AND INFORMATION

VARIOUS NON-CASH PAYMENT METHODS

The various non-cash payment includes

Debit card
A debit card is a plastic payment card that can be used instead of cash when
making a purchase. It is similar to a credit card but unlike a credit card, the money
comes directly from users bank a/c while performing the transaction.
In many countries, the use of credit cards has become so widespread that their
volume has overtaken or entirely replace cheque and in some instance, cash
transaction. A number of initiation have allowed debit cards issued in one country
to be used in other courtiers abs allowed their use for internet and phone purchase.
Credit cards
A credit card is a payment card issued to users to enable, the cardholder to pay a
merchant for goods and services based on the cardholder promise to the card issuer
to pay them for the amount so paid plus other agreed charges. Nowadays the
volume of credit cards has increased.
PayTM
Paytm is an Indian electronic payment and e-commerce brand out of Delhi NCR,
India launched it is the consumer brand of parent one and communication. The
name is an acronym for pay through mobile. The company employs over 1,300
employees as of Jan 2017 and has 3 million of fine merchants across India. It also
operates the Paytm payment gateway and the Paytm wallet.
Mobile Banking
Mobile banking is a service by a bank or other financial transaction remotely using
a mobile device such as a phone or tablet. It uses software provided by the
financial institution for the purpose. Mobile banking is usually available on a
24hour basis. Some institution as it has some restriction which accounts may be
accessed through mobile banking as well as a limit on the amount that can be
transacted.
Charge Card
A charge card is a plastic card that provides on an alternative to cash when making
purchases in which the issue and the cars hold enter into an agreement that the debt
incurred as the charge account will be paid in full and by the due date.
Prepaid or Stored Value Cash
Prepaid or stored value cash provides payment through a monetary value held on
the actual card or a deposit in an account.
Direct Debit or Direct Withdrawal
Direct debit or direct withdrawal is an instruction that a bank account holder gives
to his or her bank to collect an amount directly from another account.
Bank Transfer
A bank transfer is a method of transferring money from one person or institution to
another. A wire transfer can be made from one bank account to another bank
account through a transfer of cash at a cash office.
A bank wire transfer is often the most expedient method for transferring funds
between bank accounts. The transfer message is sent via a server system utilizing
IBAN and BIC codes.
A Giro Transfer
A giro transfer is a bank transfer payment when by the order is given by the payee
to his or her bank, which transfers the fund into the payee’s bank account; the
receiving bank, then notifies the payee.
Online Banking E-Payment
It is similar to a giro transfer but is designed especially for use with online
commerce.
A Check/Cheque
It is a negotiable instrument instructing a financial institution to pay a specific
amount of a specified currency from a specified amount to the person in whose
name the cheque is issued.

Methods and instruments of credit control :

There are many methods of credit control. These methods can be broadly divided
into two
categories :I. Quantitative or General Methods.II. Qualitative or selective methods.
The quantitative methods of credit control aim at influencing the quantity or total
volume of credit in an economy during a particular period of time.

3) Cash Reserve Ratio (CRR) :

The RBI controls credit through change in Cash Reserve Ratio of commercial
banks. According to section 42(1) of RBI Act every schedule bank has to maintain
a certain percentage reserve of its time and demand deposits. This ratio can be
varied from 3% to 15% as directed by the Reserve

Bank. Reserve Bank itself changed this ratio according to the credit requirement of
the economy. It has been changed several times in the history of Reserve Bank of
India. The cash reserve ratio affects on the lend able funds of commercial banks. If
this ratio increases the credit creation capacity of commercial banks decreases. On
the other hand if this ratio decreases the credit creation capacity of commercial
banks increases.On 17 April 2008, the Reserve Bank of India hiked the cash
reserve ratio of scheduled commercial banks, regional rural banks, scheduled state
co-operative banks and scheduled primary (urban) co-operative banks by 50 basis
points to 8 per cent in two stages effective 26 April 2008 and 10 May2008. The
monetary authority stated that as a result of the above increase inCRR on liabilities
of the banking system, an amount of about Rs.18,500crore of resources of banks
would be absorbed. In this context, it may be noted that surplus liquidity in the
banking system amounted to Rs.2,43,566crore as on 4 April 2008. The Reserve
Bank's move comes at a time when there are only 12 days left for its monetary
policy. The monetary policy isdue to be announced on 29 April 2008.The hike in
the cash reserve ratio of banks is a measure aimed at reducing liquidity in
the banking system there by reducing the money supply which in turn is expected
to help curb inflation.The CRR hike will put margins of banks under a bit of a
pressure since they wont be earning anything on the money that they park with the
RBI as cash reserve. The CRR hike will put margins of banks under a bit of a
pressure since they wont be earning anything on the money that they park with
theRBI as cash reserve.On 29 April 2008, the Reserve Bank of India released its
annual monetary policy statement for the year 2008-09. It increased the cash
reserve ratio for scheduled commercial banks by 25 basis points to 8.25 per cent
with effect from 24 May 2008. It was only less than a fortnight ago that the bank
had raised the cash reserve ratio. On 17 April, the monetary authority had
announced that the CRR would be raised by 25 basis points with effect from 26
April 2008 and by another 25 basis points with effect from 10 May2008. The two
increases announced on 17 April were expected to suck outRs.18,500 crore from
the banking system.Recently, RBI has hiked the cash reserve ratio (CRR) by 25
basis points to 9 per cent beginning 30 August 2008. The 25 basis points hike in
the cash reserve ratio will suck out about Rs.8,000-8,500 crore of liquidity from
the banking system.

4) Statutory Liquidity Ratio (SLR) :

According to the section 24 of the Banking Regulation Act. Every scheduleBank
have to maintain a minimum of 25% as cash of its total deposits. TheReserve Bank
of India is empowered to change this ratio. As on 21, 1997, it was fixed to 25% of
the total deposits of Banks. It also influences the credit creation capacity of the
banks. The effect of bi\both cash reserve ratio and statutory liquidity ratio on credit
expansion is similar. Penalties are levied byRBI for not maintaining these ratios
from scheduled banks.
 ANALYSIS OF DATA

ROLE OF RBI
• Pay TM, debit card, credit card, wallet are some noncash payment methods
introduced by the RBI.
• The RBI ordered the shops to make arrangements for receiving the amount
through the noncash payment method
• Introduced mobile banking to everyone including farmers
• Promotion of e-commerce by liberating the FDL norms for this sector.
• RBI has issued certain guidelines that allow the user to increase their digital
currency limit to rs1,00,000 based on KYC verification.
• The government has launched a UPI, a digital currency which makes electric
transaction much simple and faster.
• Licensing of payment banks. The government in promoting e-wallet. It
allows instantly to send money, pay bills, recharge mobile both offline and
online.
• The RBI is offering more incentive for the digital transaction and after
demonetization, there has been a marginal increase in the percentage of the
digital transaction.
COUNTRIES GOING CASHLESS
Belgium, France, Canada are some of the countries which follow the aspect os
cashless economy more than the other countries. In the above-listed countries,
about 90 of the people use the digital transaction method for their daily purpose.
UK, Sweden, Australia, Netherlands, US also have a high rate of the digital
transaction taking place but most people prefer cash for their day to day purpose.
Our country, India as a developing country has adopted the measure of the cashless
economy but due to its diversity, it is logging.
 CONCLUSION

FINDING
Analyzing this project, I could understand the uses of the cashless economy in
various countries, and about the digital aspect of a cashless economy.
• I could understand why and how the noncash method is adopted.
• A cashless economy is an innovation method for keeping countries wealth
safe.
• Black money and corruption will be badly affected by introducing a cashless
economy.
• The government can collect their taxes correctly.
• There will be less no. Of frauds compared to cash transaction in the digital
transaction.

OPTION / SUGGESTION

Banking Systems have been with us for as long as people have been using the
money. Banks and Financial Institutions provide security for individuals,
businesses, and governments. In general, what banks do is pretty easy to figure out.
For the average person, Banks accept deposits, lend loans and provides a safe place
for money and valuables and act as a payment agent between merchants and banks.
History has power banks to be vulnerable to many risks, however, including credit,
liquidity, market, operating interest rate, and legal risk, many global crises have
been resulting of such vulnerabilities and this has led to the strict regulations of
state and national banks.
However, Central Bank is the backbone of all Banking sector without which there
would be absolutely no banking sector involved. This, Central Bank is an essential
part of an economy and helps to grow resources of an economy.

REFERENCES

• INVESTOPEDIA
• www.forbes.com
• Wikipedia – a digital currency
• Wikipedia – the cashless economy
• Cashless – Society.ORG
• The economist
• The Hindu