Nayak

Committee
Narasimham2
Committee
Various
Committees
Narasimham1
Committee
Kapoor
Committee
Tarapore on
Convertibility
HOME PAGE

Tondon Commiffee on FoIIow-up of 8onk Credif

The group (headed by Sh. Prakash Tandon) was appointed in July 1974 which was to frame
guidelines for follow-up of bank credit and submitted its final report during 1975 and gave
following recommendations, applicable to borrowers availing fund based working capital limits
of Rs. 10 lac or more:

Norms for inventory and receivabIes

Norms for 15 major industries proposed by the committee now have more than 50
disintegrated industry groups. Normally the borrower would not be allowed deviations from
norms except in case of bunched receipt of raw material, power cuts, strikes, transport
delays, accumulation of finished goods due to non-availability of shipping space for exports,
build up of finished goods stocks due to failure on the part of purchasers. For those units
which are not covered by the norms, past trends to be made the basis of assessment of
working capital. (Discretion given to individual banks for deviations in norms)

Approach to Iending

The committee suggested three methods of lending out of which RB accepted two methods
for implementation. According to First Method, the borrower can be allowed maximum bank
finance upto 75% of the working capital gap (working capital gap denotes difference between
total current assets required and amount of finance available in the shape of current liabilities
other than short term bank borrowings). The balance 25% to be brought by the borrower as
surplus of long term funds over the long term outlay.

As per Second Method of lending, the contribution of the borrower has to be 25% of the total
current assets build-up instead of working capital gap. (Method of lending as per Vaz
Committee will now apply to borrowers availing working capital fund based limits of Rs. 100
lac or more only)

Other major recommendations of the committee were:
O No slip back in current ratio, normally.
O Classification guidelines for Current assets and current liabilities.
O dentification of excess borrowing.
O nformation system, which was modified by Chore Committee Recommendations.
O Bifurcation of limits into loan and demand component.

All instructions relating to maximum permissible bank finance withdrawn by RB as per Credit
Policy announced on 15.04.1997)

Go back to TOP Home Page Disclaimer

copyright bankingindiaupdate.com All rights reserved worldwide.