Post on 27-Oct-2014
Working Capital Finance-Working Capital Finance-Recommendations of Various Recommendations of Various
Committees.Committees.
DAHEJA COMMITTEEDAHEJA COMMITTEE
1. Method of Appraisal of Credit Applications:
2.Inventory Control:
3. Segregation of Credit:
4. Double finance:
5. Period of Trade Credit:
6. Commitment Charges:
7. Need for Bill Finance:
TANDON COMMITTEETANDON COMMITTEE
1. Operating Plan:
2. Production-based Financing:
3. Partial Finance
Norms for Inventory and ReceivablesNorms for Inventory and Receivables::
Industry Requirements in terns of months
Raw Materials
Stock in Process
Finished Goods
Receivables and Bills Purchased
1 Cotton and Synthetic Textiles
2 to 3 ½ or ¾ 2 ¼ - -
2 Man-made Fibres 1 ½ ½ 1 ¾ - -
3 Jute Textiles 2 ½ ¼ 1 to 1 ½ 1 ½ -
4 Rubber Products 2 ¼ - 1 ¼ -
5 Fertilizers ¾ to 3 Neg. 1 to 1 ½ - 1 ¼
6 Pharmaceuticals 2 ¾ ½ - 2 1 ¼
7 Dyes and Dyestuffs 2 ¼ 1 - ¾ 2 ¼
8 Basic Industrial Chemicals 2 ¾ ¼ - 1 1 ¾
9 Vegetable Hydro-generated Oils
1 Neg. ¾ ¾ -
Industry Requirements in terns of months
Raw Materials
Stock in Process
Finished Goods
Receivables and Bills Purchased
10 Paper
(a) Bamboo and Wood 2 to 6 - - - -
(b) Chemicals 2 ¼ - - - -
11 Cement ¾ to 2 ¼ ¼ - - 1
12 Engineering: Automobiles & Ancillaries
2 ¼ ¾ - 2 ½ -
13 Engineering Consumer Durables
2 ¾ - - 2 ½
14 Engineering ancillaries and Component Supplies
2 ¾ - - 2 ½
15 Engineering Machinery Manufacturers and other Capital Equipment Supplies
2 ¾ 1 ¼ - - 3 ½
2. New Approach to Lending:3. Style of Credit.4. Differential Lending Rates.5. Bill Finance.6. Information System.7. Follow up and Supervision.8. Norms for Capital Structure.9. Norms for Trade.10. Need to Gear the Organisational
Set-up of the Bank.11. Need for Inter-Bank Co-operation.
Other RecommendationsOther Recommendations. .
1.Management Efficiency:
2.Inter-firm Comparison.
3.Stock Valuation and Verification.
4.Classification of Borrowers.
13. Coverage of the Approach
CHORE COMMITTEECHORE COMMITTEE
1. Credit System.2. Peak Level and Non-Peak Level Limits.3. Utilisation of Limits.4. Ad-hoc / Temporary Limits.5. Information System.6. Annual Review.7. Enhancement of Owner’s Contribution.8. Relaxation from Norms.9. Drawee Bill System.
Other Recommendations. Other Recommendations.
1. The delay on the part of the banks in
sanctioning credit limits should be
reduced in cases where the
borrowers co-operate in giving the
necessary information about their
past performance as well as future
projections in time.
2. The bank should review the system of
financing book debt through cash credit
and insist on the conversion of such
cash credit limits into bill limits.
3. As one of the reasons for the slow
growth of the bill system was the stamp
duty on usance bills and a difficulty in
obtaining the required denominations of
stamps, these questions are to be taken
up with the State Governments.
Precaution to be takenPrecaution to be taken : :1. Integrity of the borrower2. Purpose of the loan3. Nature of the commodity4. Knowledge of different markets/ Proper
care in valuation 5. Proper storage6. Rented godown7. Title of the owner8. Insurance9. Handling of keys,inspection & supervision10. RBI directives
4. Credit control measures to be effective will have to be immediately communicated to the operational level and followed up.
5. The banks should continuously monitor the credit portfolio of the “key” branches.
6. The communication channels and systems and procedures within the banking system should be toned up so as to ensure that minimum time is taken for collection of instruments.
7. To encourage the bill system of
financing and also to facilitate call money
operations, an autonomous financial
institution on the lines of Discount Houses
may be set up.
8. Although the banks usually do not
allow their borrowers to deal with other
banks, some borrowers still maintain the
current accounts and arrange the bill
facilities with other banks.
MARATHE COMMITTEE
1. CAS is not to be looked upon as a mere
regulatory measure confined to the large
borrowers.
2. It would be desirable to evolve a system in
which there is an incentive for the borrowers to
comply with all the requirements of the Scheme
and for the banks to improve the quality of credit
appraisal.
3. The banks should be allowed discretion to deploy
credit in CAS cases without the prior authorisation of
the RBI, if the following requirements are fulfilled.
a) Reasonableness of estimates / projections in regard to
sales, chargeable current assets, current liabilities and
net working capital.
b) Classification of current assets and current liabilities
is conformity with the guidelines issued by The
Reserve Bank of India.
c) Maintenance of minimum current ratio of 1.33:1.
d) Prompt submission of quarterly statements by the
borrowers.
e) An undertaking by the borrower to submit his annual
accounts promptly and regular annual review being
carried out by the bank even where enhancement in
credit facility is not involved.
4. In respect of export-oriented manufacturing units,
which export not less than 75% of the turnover of
the goods manufactured by them.
5. Some of the present exemptions from prior
authorisation should be revised by the Reserve
Bank of India as they appeared to be contrary to the
concept of permissible bank finance computed on
the basis of minimum contribution by the
borrowers towards net working capital.
6. For the big borrowers having working capital limits
in excess of Rs.5 crore, the bank should allow and
hoc limits for periods up to 3 months to the extent
of 25% of their additional limit sought for without
any ceiling.
7. The Committee of Direction should immediately take
up the task of reviewing the existing inventory and
receivables norms and to prescribe the norms for more
industries.
8. The Committee of Direction may examine certain
suggestions of the Institute of Chartered Accountants of
India about modifications in CAS forms and recommend
changes in them.
9. The steps should be taken by the RBI to ensure prompt
submission of data by the banks in Forms A & B, so as to
make it an effective instrument of monitoring their
advance portfolios.
10. The data collected from Forms A & B contains a
great deal of important and relevant information.
11. A mechanism should be evolved by the RBI by
which the aggrieved borrowers should have an
opportunity to get redressal in appropriated cases.
12. RBI should prepare a booklet on CAS and revise
and update it periodically.
13. The present CAS may be redesignated as “Credit
Monitoring Scheme”-CMS so as to reflect the
important changes in broad approach and emphasis.
NAYAK COMMITTEE (1991)
1.The bank should give priority to
village and tiny industries which
have successfully performed
and now need working capital
for making further progress.
2. The working capital loans to existing and new
SSI units should be 20% of the projected
Annual Sales Turnover upto Rs. One crore.
3. If any borrower needs more finance on the
basis of inventory holdings or the operating
cycle, bank should lend the higher amount.
4. Where more than 1000 and upto 2000 registered SSI
units exist, the bank should open its specialised
branches and the Branch Manager should have adequate
discretionary powers.
5. The bank should adopt and implement single window
scheme for redressal of SSI complaints.
6. State Finance Corporation should act as a principal
financing agency in 40 out of 85 districts and the
remaining 45 districts and in the rest or the country, the
commercial banks should act as the principla financing
agency.
S. L. KAPUR COMMITTEE.
The Committee made the following recommendations:
1. SIDBI should be accorded the status of NODAL/
co-ordinating agency for financing of small
industry on the lines of NABARD for agricultural
finance.
2. SIDBI should launch venture funds initially for
software and later on for other industries.
3. The limit for composite loans should be
enhanced to Rs. 5 lacs so that the entire
requirement is met by single documentation.
4. The bank managers should have the powers to
grant ad how facilities to the extent of 20% of the
limit.
5. Simplified application forms as suggested by
Committee should be used.
6. SSIs should get credit normally at Prime
Lending Rate.
7. A small industrial unit which wishes to have an
overseas presence should be allowed to invest up
to US $ 20,000 based on a sample procedure. This
will increase export and upgrade technology.
KANNAN COMMITTEE
1. The banks should be given full operational
freedom in assessing the working capital
requirements of their borrowers, under the
overall prudential norms and regulatory
guidelines of the Reserve Bank of India.
2. While framing internal guidelines for
working capital assessment by the bank, the
following methods of assessment as
suggested by the Committee may be kept in
view.
3. Working capital facilities by way CC, PC,
PCFC, BD, OD BP, FBP, Loan, L/C,
Guarantees, etc., may be decided by each
bank taking into account its corporate loan
policy.
4. The borrowers with working capital requirements
over Rs. 20 crore, may be granted the facility of
100% by way of loan.
5.The borrowers availing of 100% of working
capital finance by way of loan component may be
given an incentive by lower rate of interest than
PLR.
6. The banks should be given discretion to decide
the margin and inventory level as security.
7.Current Ratio and Debt Equity Ratio should be
decided by each bank as per its corporate loan
policy.
8. Periodical statements of stock, book debts
coupled with physical verification of securities,
business sites of the borrowers, etc. should be
continued as the basic monitoring tool.
9. Modality of periodical review should be decided
by each bank independently.
10. Time schedule for disposal of loan application
is left to be framed by the bank it its policy.
11. As Cash Budget System has been
recommended for the borrowers with working
capital requirement over Rs. 5 crore, there is no
necessity for submitting separate cash projections.
12. Annual verification of current assets by the
borrower’s auditors should be insisted.
13. The borrower should obtain the prior approval
for investment of funds outside business.
14. In consortium lending, the legal aspects of
documentation should be taken care of by
individual banks in consultation with other financing
banks.
15. The member banks of consortium
should frame the ground rules based on
the consensus for smooth functioning of
consortium.
16. Quarterly Information system and
Credit Monitoring Arrangement may
cease to be a Regulatory requirement.
17. The guidelines in respect of Bill culture should be
waived.
18. The restrictions on issuance of inland guarantee
and the extension of term loans for working capital
should be withdrawn.
19. Identification of current assets for the purpose of
computation of Current Ratio should based on the
guidelines of the Institute Chartered Accountants of
India.
20. Credit Rating Policy should be entirely left to the
discretion of the bank.
Thank You!!!Thank You!!!