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Working Capital Management

Notes It’s not only the bankers but also the customers were required to be trained in understanding the
implications of the norms and the quarterly information system, an innovation brought in by
the Tandon committee. No doubt the big parties had the qualified staff to give the data in forms
prescribed on quarterly basis, but these forms were not forthcoming in time. If they were
submitted each time after the current quarter or even much later upon reminder, the very
purpose of calling for quarterly data were to be defeated as in that event follow-up supervision
and control were difficult or not possible.
In the case of some of the big parties, it had been found that they were run like family concerns
on partnership or proprietary basis and they did not maintain proper books of accounts. Such
parties were likely to plead inability to furnish the data as per the Tandon form. To make matter
worse or difficult for banks, they maintained account in regional language too. Even if the forms
were coming with lot of persuasion and understanding form the borrowers it was difficult to
convince them in individual cases to abide by the norms for carrying current assets if they were
already above the norms. No doubt, ultimately it was the banker’s judgment that should prevail
in credit decisions after a dialogue with the parties, but in superimposing such decisions over
the customers’ judgment, there was likely to be misunderstanding or clash sort of thing with the
borrowers. It was quite possible that aggrieved borrowers getting lesser limit might perhaps
consider higher limits.
Another problem which was no less important could be about the manipulation in the figures of
“other current assets”, “other current liabilities”, etc. as the permissible bank finance was based
on figure work only. Further it was felt that the calculation of excess finance poses a realistic
problem because while the working capital gap was computed on the basis of the projected net
current assets, the figures of liability were the existing ones and not the projected levels. For
growing higher levels of current assets, the Committee provided exceptions where under higher
holdings might be permitted. It was feared that each party might argue to be brought within the
exceptions to circumvent the rigors of the norms.
However, in order to improve the operational efficiency and to develop and better understanding
of the new lending system of banks, if all the banks are serious in implementing the Tandon
Scheme and if they are able to get the cooperation from their customers, the problem areas are
nothing and can be ignored. On the other hand, if unwarranted concessions and deviations are
shown by banks against the ethics of the implementation of the scheme as a whole, the very
philosophy of the Tandon Scheme will be defeated and it will create a situation in which the
scrupulous banks will regret for going the Tandon way.

4.2.3 Recommendations of Chore Committee

While reviewing the monetary and credit trends in March 1979, the Governor of the Reserve
Bank of India stressed the need for exercising continued restraint on expansion of credit. He also
indicated in his meeting with bankers the need for considering certain long-term issues relating
to baking operations. In his letter dated 16th March, 1979 to all scheduled commercial banks, he
indicated:
“I would like to initiate action on certain structural matters which need further examination. It
is necessary to take a fresh look at another major problem faced by banks in implementing the
credit regulatory measures, viz., the extensive use of the cash credit system. Its drawbacks have
been pointed out by the various Committees in the past including the Tandon Committee,
which suggested the bifurcation of credit limits into a demand loan and a fluctuating cash credit
component. Although the banks were advised to implement this recommendation, I am afraid;
the progress achieved has been very slow. Clearly, this problem needs to be looked into further
and for this purpose I purposes to set up immediately a small Working Group, to report to
me….. on the reforms to be introduced”.

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