Page 67 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Working Capital Management

Notes 6. Penal Interest: The borrower should be asked to give his quarterly requirement of funds
before the commencement of the quarter on the basis of his budget, the actual requirement
being within the sanctioned limit for the particular peak level/non-peak level periods.
Drawing less than or in excess of the operative limits so fixed (with a tolerance of 10%
either way) but not exceeding sanctioned limit would be subject to a penalty to be fixed by
the Reserve Bank from time to time. For the time being the penalty may be fixed at 2% per
annum. The borrower would be required to submit his budgeted requirements in triplicate
and a copy each would be sent immediately by the branch to the controlling office for
record. The penalty will be applicable only in respect of parties enjoying credit limits of
` 10 lakh and above, subject to certain exemptions.
7. Information System: The non-submission of the returns in time is partly due to certain
features in the forms themselves. To get over this difficulty, simplified forms have been
proposed. As the quarterly information systems, is part and parcel of the revised style of
lending thunder the cash credit system, if the borrower does not submit the return within
the prescribed time, he should be penalized by charging the whole outstanding in the
account at a penal rate of interest, 10% per annum more than the contracted rate for the
advance from the due date of the return till the date of its actual submission.

8. Relaxation from Norms: Requests for relaxation of inventory norms and for ad-hoc increase
in limits would be subjected by banks to close scrutiny and agreed to only in exceptional
circumstances.
9. Toning Up-Assessment Technique: The banks should devise their own check lists in the light
of the instructions issued by the Reserve Bank for the scrutiny of data the operational level.

10. Delays in Sanction: Delays on the part of banks in sanctioning credit limits could be
reduced in cases where the borrowers cooperate in giving the necessary information
about their past performance and future projections in time.
11. Bill System: As on of the reasons for the slow growth of the bill system is the stamp duty
on usance bills and difficulty in obtaining the required denominations of stamps, these
questions may have to be taken up with the state governments.
12. Sales Bill: Bank should review the system of financing book debts though cash credit and
insist on the conversion of such cash credit limits into bill limits.
13. Drawee Bill System: A stage has come to enforce the use of drawee bills in the lending
system by making it compulsory for banks to extend at least 50% of the cash credit limit
against raw materials to manufacturing units whether in the public or private sector by
way of drawee bills. To start with, this discipline should be confined to borrowers having
aggregate working capital limits of ` 50 lakh and above from the banking system.
14. Segregation of Dues of Small Scale Industries: Bank should insist on the public sector
undertakings/large borrowers to maintain control accounts in their books to give precise
data regarding their dues to the small units and furnish such data in their quarterly
information system. This would enable the banks to take suitable measures for ensuring
payment of the dues to small units by a definite period by stipulating, if necessary, that a
portion of limits for bills acceptance (drawee bills) should be utilized only for drawee
bills of small scale units.
15. Discount House: To encourage the bill system of financing and to facilitate call money
operations an autonomous financial institution on the lines of the Discount House in UK
may be set up.

16. Correlation between Production and Bank Finance: No conclusive data are available to
establish the degree of correlation between production and quantum of credit at the

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