Financial and Strategic Management

What are the Different Committee of RBI for Working Capital Management?

Commercial banks grant working capital advances by way of cash credit limits and are the major suppliers of working capital to trade and industry. In the past, the practices in commercial banks as revealed by the findings of different Study Groups appointed by RBI were as follows:

1. Daheja Study Group

To control the tendency of over-financing and the diversion of the bank’s funds, Daheja Study Group (National Credit Council constituted in 1968 under the Chairmanship of V.T. Daheja) made recommendations for the banking system to finance industry on the basis of a total study of the borrower’s operations rather than on security considerations. The credit application should be appraised by the bankers with reference to the present and projected total financial position as shown by cash flow analysis and forecast submitted by borrowers. The recommendations given by Dehejia Committee could not be implemented, further in view of unprecedented inflation during 1974 the demand for bank credit rose sharply.

2. Tandon Committee

Although the above recommendations were implemented no improvement was noticed in money drain to strong industrial groups by banks and RBI appointed another study group under the chairmanship of Shri P.L. Tandon in July 1974. Tandon committee made certain recommendations inter alia comprising of recommendations on norms for inventory and receivables for 15 major industries, a new approach to bank lending, style of lending credit, information system and follow up, supervision and control, and norms of capital structure.

3. Chore Committee

Reserve Bank of India accepted the above recommendations of the Tandon Committee but found that the gap between the sanctioned cash credit limit and its utilization has remained unanswered. In this context, RBI appointed in April 1979 a working group under the Chairmanship of Mr. K.B. Chore to look into this gap between the sanctioned limits and their utilization.

4. Marathe Committee

The Marathe Committee was given terms of reference to examine the Credit Authorisation Scheme from the point of view of its operational aspects stressed that the ‘CAS is not to be looked upon as a mere regulatory measure which is confined to large borrowers. The basic purpose of CAS is to ensure orderly credit management and improve the quality of bank lending so that all borrowings, whether large or small, are in conformity with the policies and priorities laid down by the Central Banking Authority. If the CAS scrutiny has to be limited to a certain segment of borrowers, it is because of administrative limitations or convenience, and it should not imply that there are to be different criteria for lending to the borrowers above the cut-off point as compared to those who do not come within the purview of the scheme.

5. Chakraborty Committee

The Reserve Bank of India constituted a committee under the chairmanship of Sukhomoy Chakraborty to review the working of the monetary system in India. The committee examined the matter in detail and submitted its report in April 1985 with wide-ranging suggestions for its improvement. The committee made two major recommendations which were as under –

  1. The observation of the committee was that the delay in making payment by public sector units, some big private sector units, and Government, departments continues unabated. The suggestion of the committee in this regard was that the Government should take initiative to include a penal interest payment clause in purchase contracts with suppliers for delayed payments beyond a pre-specified period.
  2. The credit limits to be sanctioned to a borrower should be segregated under three different heads – Cash credit-I – to cover the supplies to Govt. Cash credit II – to cover special circumstances and contingencies Normal working capital limit – to cover the balance of the credit facilities.

About the author

Shreya Kushwaha

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