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Banking > Lendings > Domestic Lendings > Committees


A study group headed by Shri Prakash Tandon, the then Chairman of Punjab National Bank, was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks, financial institutions and a wide cross-section of the industry with a view to study the entire gamut of Bank's finance for working capital and suggest ways for optimum utilisation of Bank credit. This was the first elaborate attempt by the central bank to organise the Bank credit. Most banks in India even today continue to look at the needs of the corporates in the light of methodology recommended by the Group. The report of this group is widely known as Tandon Committee report.

The weaknesses in the Cash Credit system have persisted with the non-implementation of one of the crucial recommendations of the Committee. In the background of credit expansion seen in 1977-79 and its ill effects on the economy, RBI appointed a working group to study and suggest i) modifications in the Cash Credit system to make it amenable to better management of funds by the Bankers and ii) alternate type of credit facilities to ensure better credit discipline and co relation between credit and production. The Group was headed by Sh. K.B. Chore of RBI and was named Chore Committee.

Another group headed by Sh. P.R. Nayak (Nayak Committee) was entrusted the job of looking into the difficulties faced by Small Scale Industries due to the sophisticated nature of Tandon & Chore Committee recommendations. His report is applicable to units with credit requirements of less than Rs.50 lacs.

The recommendations made by Tandon Committee and reinforced by Chore Committee were implemented in all Banks and Bank Credit became much more organised. However, the recommendations were perceived as too strict by the industry and there has been a continuous clamour from the Industry for movement from mandatory control to a voluntary market related restraint. With recent liberalisation of economy and reforms in the financial sector, RBI has given the freedom to the Banks to work out their own norms for inventory and the earlier norms are now to be taken as guidelines and not a mandate. In fact, beginning with the slack season credit policy of 1997-98, RBI has also given full freedom to all the Banks to devise their own method of assessing the short term credit requirements of their clients and grant lines of credit accordingly. Most banks, however, continue to be guided by the principles enunciated in Tandon Committee report.


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