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Unit 4: The Financing Mix

7. Inventory Control: With regard to inventory control, the Group considered that as an Notes
integral part of restraining the demand for bank credit by industry, adequate attention
should be paid to the question of adequacy or otherwise of stocks of inventories held by
various industries and the scope for minimizing the stocks needed by industry.
8. Implications: Financial discipline implicit in Dehejia Study Group was intended to help
the corporate and other borrowers in formulating financial plans, regulating production
on a more rational basis and economizing the demand for bank credit as regards banks. A
periodical release of the part of the resources otherwise locked up in ‘roll over’ cash
credit/overdraft to industry would enable them to meet to these extent further demands
of priority sectors of the economy and to diversify their loan transactions. This, in turn,
would increase the scope for mobilization of deposits. Commercial banks would thus be
able to play a more effective role in serving the community and the ends of social justice.

4.2.2 Recommendations of Tandon Committee

The Reserve Bank of India constituted Study Group to frame guidelines for follow up of bank
credit in July 1974 under the Chairmanship of Shri Prakash Tandon. The terms of reference of the
Group were:
1. To suggest guidelines for commercial bank to follow-up and supervise credit from the
point of view of ensuring proper end-use of funds and keeping a watch on the safety of the
advances and to suggest the type of operational data and other information that may be
obtained by banks periodically from such borrowers and by the Reserve Bank of India
from the leading banks.
2. To make recommendations for obtaining periodical forecasts from borrowers of
(a) business/production plants, (b) credit needs.
3. To make suggestions for prescribing inventory norms for different industries both in the
private and public sectors and indicate the broad criteria for deviating from these norms.
4. To suggest criteria regarding satisfactory capital structure and sound financial basis in
relation to borrowings.
5. To make recommendations regarding the sources for financing the minimum working
capital requirements.

6. To make recommendations as to whether the existing pattern of financing working capital
requirements by cash credit/overdraft system etc. requires to be modified, if so, to suggest
suitable modifications.

7. To make recommendations on any other related matter as the Group may consider germane
to the subject of enquiry or any other allied matter which may be specifically referred to
it by the Reserve Bank of India.

Observations and Recommendations

The Study Group submitted its report to the RBI in August 1975. The summary of the Group’s
main observations and recommendations is given below:

1. Supply of and Demand for Funds: Nationalization of the major commercial banks in 1969
raised expectations of a new sense of direction in bank lending, and indeed advances to
new claimants of credit, and especially to small industry and agriculture had since gone
up. The public sector has emerged is and important user of credit due both to its growing
dominance and its turning increasingly to commercial banks for its working capital finance

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