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Unit 4: The Financing Mix

industry level. As this issue is obviously of great concern to the monetary authorities the Notes
Reserve bank may undertake a detailed scientific study in this regard.
17. Communication of Credit Control Measures to Branches and Follow-up: Credit control
measures to be affective will have to be immediately communicated to the operational
level and followed up. There should be a ‘Cell’ attached to the Chairman’s office at the
Central Office of each bank to attend to such matters. The Central Offices of banks should
take a second look at the credit budget as soon as changes in credit policy are announced
by the Reserve Bank and revise their plan of action in the light of the new policy and
communicate the corrective measures to the operational levels as quickly as possible.

18. Monitoring of Key Branches and Critical Accounts: The banks should continuously monitor
the credit portfolio of the ‘key’ branches irrespective of the fact whether there is a change
in credit policy or not. For effective credit monitoring, the number of critical accounts
should be kept under a close watch over the utilization of limits and inventory build up.
19. Delay in Collection of Bills/Cheques: To reduce the delay in collection of bills and cheques,
return of documents by the collecting branches, etc., the Group suggested toning up the
communication channels and systems and procedures within the banking system.

20. Bill Facilities and Current Accounts with other Banks: Although banks usually object to
their borrower’s dealing with other banks without their consent, some of the borrowers
still maintain current accounts and arrange bill facilities with other banks. Apart from
diluting the control over the advance by the main banker, this practice often enables the
borrower to divert sales proceeds for unapproved purposes without the knowledge of his
main banker. Banks should be suitably advised in this matter by the Reserve Bank to check
this unhealthy practice.

4.2.4 Recommendations of Marathe Committee

The Reserve Bank of India, in 1982, appointed a committee under the chairmanship of Marathe
to review the working of Credit Authorisation Scheme (CAS) and suggest measures for giving
meaningful directions to the credit management function of the Reserve Bank. The
recommendations of the committee have been accepted by the Reserve Bank of India with
minor modifications.
The principal recommendations of the Marathe Committee include:
1. The committee has declared the Third Method of Lending as suggested by the Tandon
Committee to be dropped. Hence, in future, the banks would provide credit for working
capital according to the Second Method of Lending.

2. The committee has suggested the introduction of the ‘Fast Track Scheme’ to improve the
quality of credit appraisal in banks. It recommended that commercial banks can release
without prior approval of the Reserve Bank 50% of the additional credit required by the
borrowers (75% in case of export oriented manufacturing units) where the following
requirements are fulfilled:
(a) The estimates/projections in regard to production, sales, chargeable current assets,
other current assets, current liabilities other than bank borrowings, and net working
capital are reasonable in terms of the past trends and assumptions regarding most
likely trends during the future projected period.
(b) The classification of assets and liabilities as ‘current’ and ‘non-current’ is in conformity
with the guidelines issued by the Reserve Bank of India.

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