QS Study

Limitations of Credit Control in Central Bank

The Central bank is the main government-controlled bank in a country, which controls the financial affairs of the country by fixing main interest rates, issuing currency, supervising the commercial banks and controlling the foreign exchange rate. And credit control is a strategy employed by manufacturers and retailers to promote good credit among the creditworthy and deny it to delinquent borrowers.

Sometimes central bank fails to control the flow of credit at an optimum level. Those reasons are described below;

  • To be successful in credit control program, full control over the money market is essential. But sometimes it is not possible.
  • There are different terms of the loan period credit control method can only affect a short-term loan.
  • The unorganized money market is not suitable for use of credit control method.
  • There is not much co-operation between commercial banks with the central bank.
  • An unstable economy is not suitable to use credit control method.
  • If steps for credit control arc not taken at primary level, it will not be effective later.
  • If the lengthy plan is taken for credit control it will not work as satisfactorily.

For the above-mentioned reasons, the central bank cannot be successful in credit control. Those limitations should be overcome soon.