Working capital financing by

bank
Chore Committee
• Formed by RBI to the new cash credit system of the banks .
• The recommendations are as follows:
1)It should obtain quarterly statement in the prescribed.
2)It should undertaken a periodical review.
3)It should not bifurcate the component.
4)It should fix separate credit limits.
5)Should take steps to convert cash credit into bill limits.
Tandon committee
• To suggest guidelines for commercial banks for the follow up and
supervision of credit.
• To make recommendation for obtaining from borrowers periodical
forecast eg:
1)Business /production plans.
2)Credit needs.
• To make suggestion for prescribing inventory norms for different
industries.
• To suggest criteria relating borrowings.
• To suggest the minimum working requirement
• Method of lending
First method :bank can work out on the working capital gap
Second method : under this the borrower should provide for minimum
of 25%of Total Current assets.
Third method: Under this method the borrowers contributionwill be
extent of the entire core current asset.
Nayak committee Report
• Nayak committee under the chairmanship of SH. P.R Nayak,
appointed by RBI to look into the problem.

• Nayak committee was constituted by RBI in December 1991

• Its main role is to examine the issues confronting SSIs(now MSE) in

the matter of obtaining finance
TERMS OF REFERENCE FOR NAYAK
COMMITTEE
1. To examine the adequacy of institutional credit for the SSI sector
• Increase in cost of raw materials
• Term finance
• Revision in RBI guidelines- rehabilitation of sick SSI units

2. In the light of the above, to suggest:

• ensuring adequate flow of institutional credit for working capital and term finance
• modifications/relaxations of norms prescribed by the Tandon / Chore Committee.
• Methods for minimizing delays in realization of bills

3. Recommendation required for on any other related matter.

 INSTITUTIONAL CREDIT FACILITIES FOR SSI

• SMALL SCALE INDUSTRIES

• includes industries with high capital investment

• Also includes tiny industrial units
• Village and cottage industries.

• Subsectors:

• SSI engaged in manufacturing processing preservation of goods( investment <= 60 lakh, 70

lakh in case of EOUs)
• Tiny enterprises ( investment in plant and machinery <= 5 lakh)
• Village and cottage industries( eg artisians, khadi, handloom, sericulture, handicrafts)
DISADVANTAGES FACED BY SSI IN 1992

• Inadequacies in Infrastructure and technology

• Captive to large industries or middlemen

• Weak Capital base

• Large reliance on borrowed funds

• Lack of organizational, managerial and financial skills

• Credit Institutions are thus hesitant to cater to financial needs of SSI sector
Essentials For Bank Credit
Five principle
1) Cash flow
2) Liquidity
3) Leverage
4) Collateral
5) Quality of Management
• Thank you