RECOMMENDATION OF DAHEJA,TANDON,CHORE AND MARATHE COMMITTEE WORKING CAPITAL MANAGEMENT

• RECOMMENDATION OF DAHEJA,TANDON,CHORE AND MARATHE COMMITTEE
  WORKING CAPITAL MANAGEMENT
  DEHEJA COMMITTEE REPORT
• NATIONAL CREDIT COUNCIL CONSTITUTED A COMMITTEE UNDER THE CHAIRMANSHIP OF SH. V.T DEHEJA IN 1968 FOR THE PURPOSE OF :

1. DETERMINE THE EXTENT TO WHICH CREDIT NEEDS OF THE INDUSTRY AND TRADE ARE LIKELY TO BE INFLATED
2. HOW SUCH TRENDS ARE CHECKED AND ESTABLISHMENT OF NORMS FOR LENDING

• COMMITTEE’S VIEW:-

1. ALSO TENDENCY TO DIVERT SHORT TERM CREDIT FOR LONG TERM ASSETS
2. DIFFICULT TO SET NORMS FOR SETTING NORMS

·         RECOMMENDATION OF THE COMMITTEE:-

1. FINANCING OF INDUSTRY ON THE BASIS OF BORROWER ‘S TOTAL OPERATIONS RATHER SECURITY BASIS ALONE
2. TOTAL CREDIT REQUIREMENT SHOULD BE SEGREGATED INTO HARD CORE AND SHORT TERM COMPONENT( HARD CORE-MINIMUM LEVEL OF INVENTORY)
3.  CUSTOMER SHOULD CONFINE THE DEALING TO ONE BANK

• TANDON COMMITTEE REPORT

• RBI SET UP A COMMITTEE UNDER THE CHAIRMANSHIP OF SH P.L TANDON IN JULY 1974
• THE TERMS OF REFERENCE:_

1. TO SUGGEST GUIDELINES FOR COMMERCIAL BANKS FOR FOLLOWUP AND SUPERVISION OF CREDIT
2. SUGGEST THE TYPE OF INFORMATION AND DATE REQUIRED BY ABNKS AND RBI
3. TO MAKE RECOMMENDATION REGARDING RESOURCES FOR FINANCING THE MINUM WORKING CAPITAL REQUIREMENTS
4. TO SUGGEST CRITERIA REGARDING SATISFACTORY CAPITAL STRUCTURE AND SOUND FINANCIAL BASIS
5. TO SUGGEST MODIFICATION IN THE EXISTING PATTERN OF FINANCING
6. RECOMMENDATION OF THE TONDON COMMITTEE
7. CONTINUATION OF THE EXISTING CASH CREDIT SYSTEM
8. SUGGESTED CERTAIN MODIFICATION FOR CONTROLLING THE BANK FIANCE
9. THE BANKS SHOULD GET THE INFORMATION REGARDING THE OPERATIONAL PLANS OF THE CUSTOMERS FOR REALSITIC APPRISAL
10. BANKS SHOULD ALSO KNOW THE  END USE OF THE BANK CREDIT

• RECOMMENDATION OF THE TONDON COMMITTEE
• LENDING NORMS:- EXAMPLE
• FIRST METHOD
• CA-CL=WORKING CAPITAL GAP AND HERE THE BORROWER HAS TO CONTRIBUTE 25% OF WORKING CAPITAL GAP FROM LONG SOURCES
• EXAMPLE
• TOTAL CURRENT ASSETS=50,000
• CURRENT LIABILITIES OTHER THAN BANK BORROWING=20,000
• CORE CURRENT ASSETS=5,000
• WORKING CAPITAL GAP=50,000-20,000=30,000
• 25% OF 30,000=7500 FROM LONG TERM SOURCES
• 75% IS MAXIMUM PERMISSIBLE BORROWING=22,500

• RECOMMENDATION OF THE TONDON COMMITTEE
• SECOND METHOD
• BORROWER WILL HAVE TO PROVIDE A MINIMUM OF 25% OF TOTAL CURRENT ASSETS FROM LONG TERM FUNDS AND MINIMUM CURRENT RATIO OF 1,33 TO 1
• CA=50,000
•  LESS 25% OF CA=12,500
•   --------------------------37,500
• LESS CL                              10,000
• ----------------------------------------27,500 MAXIMUM PERMISSIBLE WORKING CAPITAL LOAN
• RECOMMENDATION OF THE TONDON COMMITTEE
• THIRD METHOD
• BORROWER’S CONTRIBUTION FROM LONG TERM FUNDS WILL BE TO THE CORE OF CURRENT ASSETS AND MINIMUM OF 25%(CA-CORE CURRENT ASSETS) THUS STRENGTHENING THE CURRENT RATIO FURTHER
• CURRENT ASSETS=50,000
• LESS CORE CURRENT ASSETS=5,000
• NET CURRENT ASSETS=45,000
• LESS 25% TO BE PROVIDED FROM LONG TERM FUND=11,250
• LESS CURRENT LIABILITIES                          =10,000
• MAXIMUM PERMISSIBLE BANK FINANCE=23,750
• CHORE COMMITTEE  REPORT
• APPOINTMENT OF CHORE COMMITTEE BY RBI IN 1979 UNDER THE CHAIRMANSHIP OF SH. K.B CHORE FOR REVIEWING THE WORKING OF CASH CREDIT SYSTEM IN RECENT YEARS WITH PARTICULAR REFERENCE TO THE GAP BETWEEN SANCTIONED LIMIT AND THE EXTENT OF UTILIZATION AND TO SUGGEST ALTERNATIVE CREDIT FACILITIES

1. OBTAINING OF QUARTERLY STATEMENT IN THE PRESCRIBED FORMAT FROM ALL BORROWERS FROM WORKING CAPITAL CREDIT LIMIT OF RS 50 LACS OR ABOVE
2. PERIODICAL REVIEW OF THE BANK OF THE LIMITS OF RS 10 LACS OR ABOVE
3. BIFURCATION CASH CREDIT ACCOUNT INTO DEMAND LOAN AND CASH CREDIT COMPONENT
4. PENAL INTEREST OF ONE PERCENT ON TOTAL AMOUNT OUTSTANDING ON NON SUBMISSION OF THE QUARTERLY REPORT
5. DISCOURAGE OF SANCTIONING OF TEMPORARY LIMIT
6. FIX SEPARATE CREDIT LIMIT FOR PEAK LEVEL AND NON PEAK LEVEL
7. TAKE STEPS TO CONVERT CASH CREDIT LIMIT INTO BILL LIMITS FOR FINANCING SALES

• MARATHE COMMITTEE REPORT
• A COMMITTEE UNDER THE CHAIRMAN SHIP OF MARATHE IN 1982
• REVIEW THE WORKING OF CREDIT AUTHORIZATION SCHEME AND SUGGEST MEASURE FOR GIVING MEANINGFUL DIRECTION TO THE CREDIT MGMT FUNCTIONS OF THE RBI
• PRINCIPAL RECOMMENDATION:-

1. DROPPING OF THIRD METHOD OF TANDON COMMITTEE. FOLLOWING THE SECOND METHOD OF TANDON COMMITTEE
2. INTRODUCTION OF FAST TRACK SCHEME TO IMPROVE THE QUALITY OF CREDIT APPRAISAL IN BANKS
3. RECOMMENDED THAT COMMERCIAL BANKS CAN RELEASE WITHOUT PRIOR APPROVAL OF RBI 50 % OF THE ADDITIONAL CREDIT REQUIRED BY THE BORROWERS( 75% IN CASE OF EXPORT ORIENTED MANUFACTURING UNITS) ON FULFILLMENT OF THE FOLLOWING REQUIREMENT:-
4. THE ESTIMATE IN REGARD PRODUCTION,SALES,CHARGEABLE CURRENT ASSETS,OTHER CURRENT ASSETS,CURRENT LIABILITIES OTHER THAN BANK BORROWING AND NET WORKING CAPITAL ARE REASONABLE IN TERMS OF PAST TRENDS AND ASSUMPTIONS REGARDING MOST LIKELY TRENDS DURING THE FUTURE PROJECTED PERIOD
5. THE CLASSIFICATION OF ASSETS AND LIABILITIES AS CURRENT AND NON CURRENT IN CONFORMITY WITH THE GUIDELINES ISSUED BY RBI
6. THE PROJECTED CURRENT RATION IS NOT BELOW 1.33:1
7. THE BORROWER HAS BEEN SUBMITTING QUARTERLY INFORMATION AND OPERATING STATEMENTS (FORM 1,11,111) FOR THE PAST SIX MONTHS WITH IN THE PRESCRIBED TIME AND UNDERTAKE TO DO THE SAME IN FUTURE
8. SUBMERSION OF ANNUAL ACCOUNT REGULARLY AND PROMPTLY
9. REVIEWING OF BORROWER’S FACILITIES ONCE IN YEAR EVEN IF THE BORROWER DOES NT NEED ENHANCEMENT IN CREDIT FACILITIES