The Reserve Bank of India took steps to prevent a crisis similar to the United States sub prime housing loan crisis. Which of the following measures was actually recommended by the Reserve Bank of India?

Introduction / Context:
The sub prime housing loan crisis in the United States highlighted the dangers of reckless lending, complex securitisation, and inadequate risk assessment. To reduce the chances of a similar crisis in India, the Reserve Bank of India adopted various prudential measures. This question lists three statements and asks which one reflects an actual Reserve Bank step, testing your understanding of realistic and responsible policy actions.

Given Data / Assumptions:
The three statements referred to in the question are:

- A. Banks were advised to set up credit counselling centres.

- B. Banks were told to stop giving housing loans to big borrowers seeking loans of Rs 50 lakh and above.

- C. Banks were instructed not to give loans to builders and property dealers or developers.

It is assumed that only genuine policy guidance consistent with practical banking regulation should be treated as a correct Reserve Bank initiative.

Concept / Approach:
The Reserve Bank of India focuses on balanced regulation, which protects consumers and the system without completely shutting down legitimate lending. Advising banks to create credit counselling centres fits this philosophy, as it helps borrowers understand loan obligations and financial planning. Completely stopping housing loans to large borrowers or banning lending to builders would be extreme steps that could harm the property market and overall growth. Therefore, only statement A aligns with actual Reserve Bank efforts, while statements B and C exaggerate or misrepresent likely policy actions.

Step-by-Step Solution:
Step 1: Evaluate statement A. Setting up credit counselling centres is a reasonable and widely discussed reform measure, and it has been promoted by the Reserve Bank to improve financial literacy and responsible borrowing. Step 2: Evaluate statement B. A blanket order to stop housing loans to all big borrowers above a fixed amount is unrealistic and would severely disrupt the housing finance segment. The Reserve Bank prefers prudential norms, risk weights, and loan to value limits, not wholesale bans. Step 3: Evaluate statement C. Completely prohibiting loans to builders and property developers would not be a balanced measure because such projects need funding. The Reserve Bank instead imposes exposure limits and risk management rules. Step 4: Conclude that only statement A reflects a plausible and known Reserve Bank initiative. Step 5: Select the option that says only statement A is correct.

Verification / Alternative check:
If one reviews Reserve Bank policy documents and speeches from the period after the global financial crisis, references can be found to credit counselling centres and financial literacy initiatives. These are presented as tools to prevent over borrowing and to make customers aware of loan terms. No corresponding directives exist that demand a total stop to housing loans for large borrowers or a ban on lending to builders. Banks were asked instead to tighten credit appraisal standards and manage sectoral exposures prudently. This difference supports the conclusion that only statement A is a genuine measure.

Why Other Options Are Wrong:
The option stating that only statement B is correct is wrong because the Reserve Bank did not direct banks to stop all housing loans above a particular amount. The option that only statement C is correct is incorrect for a similar reason: there has been no complete ban on lending to builders, only regulatory supervision and limits. The option claiming that all three statements are correct is also wrong because it includes the unrealistic and unimplemented statements B and C. Therefore, these options conflict with how central banks usually operate and do not match actual Reserve Bank initiatives.

Common Pitfalls:
Some candidates assume that the Reserve Bank may use very harsh measures during a crisis and therefore think that banning large housing loans or builder finance is possible. Others do not distinguish between tightening norms and prohibiting an activity. The key is to remember that regulators aim for stability without stopping legitimate business. Credit counselling, better risk weights, and stronger appraisal are typical measures, while blanket bans are rare and unlikely.

Final Answer:
Among the given measures, only statement A is correct, so the correct option is the one that selects statement A alone.