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Indian Financial System

Notes The scheme covered only genuine trade bills. The following categories of bills were treated
eligible for rediscounting purpose:
1. Bills arising out of the genuine trade transactions. Such bills should be drawn on and
accepted by the purchaser's bank or drawn on the buyer and the buyer's bank jointly and
accepted by them jointly. The bill should also bear the endorsement of a licensed scheduled
bank if the purchaser's bank is not a licensed scheduled bank.
2. Bills drawn and accepted by the buyer under an irrevocable letter of credit and certified by
the buyer's bank (which has opened the letter of credit) to the effect that such bill was
drawn for supply of goods and that the terms and conditions of the letter of credit have
been fully complied with by the seller.
3. Bills accepted by a licensed scheduled bank for a purchaser and discounted for a seller, if
both are clients of the same bank.

4. Bills of exchange arising out of sale of goods to government departments or semi-
government bodies, provided they satisfy other requirements of the same and bills of
exchange drawn on and accepted by ICICI on behalf of its purchaser constituents.
The banks seeking rediscounting facility were authorised to keep with them, on behalf of their
discounting institutions, individual bills up to ` 10 lakhs. The banks will have to submit return
in the prescribed form to the discounting institutions providing details of such bills.

Notes The bills for rediscounting purpose should have usance of 90 days but in exceptional
cases, it may have usance up to 120 days, provided at the time of offering to the RBI for
rediscount, it has a usance not exceeding 90 days. For export bills, the maturity period was
180 days.

Initially, the minimum amount of a single bill was fixed at ` 5000 and the maximum limit of an
advance was fixed at ` 50,000. With effect from November 1971, banks were not required to
deliver bills to the RBI, but were authorised to retain bills with them. Hence, the regulation with
respect to the minimum value of a single bill was dispensed with.
The new scheme did not help much to develop bill market in the country. The scheme was
primarily directed to providing liquidity or accommodation to banks. There was poor response
from public sector undertakings as also from big business house in availing of the bill financing
facility. The restricted period of credit limit up to 90 days as against the normal credit period of
6 months to 9 months rendered the scheme unpopular. Commercial banks, instead of approaching
other banks for rediscounting bills, approached the RBI whenever there was an urgent need of
funds making bill-rediscounting cheaper than call loans. Thus, the RBI acted more as the lender
of the first resort instead of lender as the last resort. Further, small business units found it
difficult to get bills accepted by banks, which was an essential requirement under the new
scheme. The continued insistence of the banks to treat bills only was a security and the availability
of alternate, less cumbersome and cheaper means of finance have also restricted the growth of
the bill market. Absence of quality bills is also responsible for the lack bill culture in India. The
government and the public sector units did not evince much interest in developing bill culture.
In sum, both the bill market schemes failed to provide necessary dynamism and infrastructure
to bill market in the country, such as ensuring availability of acceptance services, services of
dealers and brokers, interbank rediscounting of bills, etc.
In November, 1981, the RBI stopped rediscounting the bills under the scheme and permitted the
banks to rediscount the bills with one another or with the approved financial institutions. The
reason for the change in the policy was that the amount of bills rediscounted with the RBI had

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