Give reasons or explain. 5. A Central Bank may take 'Direct Action' against the defaulting commercial banks.

Give reasons or explain.

5. A Central Bank may take 'Direct Action' against the defaulting commercial banks.

Answer: 

5. Direct action refers to the actions taken by the Central Bank against commercial banks which fail to adhere to the directions of the Central bank. In other words, it refers to the actions taken by the Central Bank against defaulting commercial banks. Direct action is used as a selective credit control measure by the Central Bank. This may be achieved by either threatening the defaulting banks or by refusing them the rediscounting and loan facilities or by imposing penalties on these banks.

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