Which of the following sources of credit are supervised by the Reserve Bank of India?

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Formal source

Informal source

Both 1 and 2

None of these

answer is A.

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Detailed Solution

In India, the formal sources of credit are supervised by the Reserve Bank of India.
Formal sources of credit require proper documentation and collateral before releasing credit. They are less vulnerable to fraudulent activities and charge a reasonable rate of interest. Credit is cheaper and safer as compared to informal sources. Apart from making a profit, their main goal is the social welfare of people and thus there are fewer chances of exploitation of borrowers. They have fair Terms of Credit and are governed by a higher authority-Reserve Bank of India. Informal sources of credit are readily available in rural areas. Informal credit also does not require collateral. And although the lenders are only interested in making profits and often exploit the borrowers, informal credit is preferred due to the lack of availability of any other source. In informal credit, there are a lot of fraudulent activities as they are not supervised by a higher authority that may have maintained specific terms.

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