Recommendations of chore committee

(i) Enchancement of borrowers contribution: 

In calculating maximum permissible bank finance, the second method of lending as recommended by Tandom committee should be adopted. According to this method, the borrowers contribution from Owned funds and term finance to meet the WC requirement should be atleast 25% of total current assets. Excess borrowing should be treated as WC term loan which could be made payable in half yearly installments within a period not exceeding 5 years.

(ii) Compulsory periodic review of cash credit limits and submission of quarterly statements: 

There must be compulsory periodic review of cash credit limits atleast once a year to verify the contribution viability of the borrowers and to assess the need based character of credit limits.

          All borrowers with WC limits of Rs 50 lakhs must submit quarterly statements compulsorily prescribed under the info system designed by the Tandom committee.

(iii) No bifurcation of cash credit into demand loan for core person and fluctuating cash credit component:  The bank should not maintain differential interest rate between this two components. For already bifurcated cash credit account, the necessary step should be taken to abolish the differential interest rate with immediate effect.

(iv) Separate limits for peak and normal non peak level periods. The bank should fix separate limits for peak and normal non peak level periods and indicate the duration of this periods.

(v) With Dravel of funds to be regulated through quarterly statements. The borrower should indicate before the commencement of each quarter the requirements of the funds during the qu.

(vi) Penalty for default in submission of quarterly statements. If the borrower fails to submit this returns within prescription time limits.

(a) The bank should give notice that if default continue the account may be frozen without further notice at its discretion.

(b) The bank may charge panel interest of 1% p.a. on the total outstanding for the period of default.

(c) Inspite of level of panel interest, if default persist, bank should review the positions. Immediately if it is satisfied that a stern action is necessary the operation of the account of such borrower may be frozen if a borrower has accounts with more than 1 bank.

(viii) Adhoc or temporary limits : A request for AOTL to meet unforeseen contingencies should be considered very carefully and allowed for a predetermined period through a separate demand loan on non operatable cash credit accounts. Bank may charge additional inteof 1% p.a on this limits.

(viii) Encouragement for bill finance:

(a) Advance against book debts bank should replace cash credit against book debts by bill finances and should take the necessary steps for the review of existing cash credit and convert such cash credit limits into bill limits.

(b) Drawee bills : The bank should earmark atleast 50% of cash credit limits against raw materials to manufacturing units for drawee bill only.

(c) Payment to small units: Public sector undertakings and other large borrowers should give precise information in their quarterly statements about their dues to small units. On the basis of such information, banks may take such steps as to ensure timely payment to small units.