25-03-2014, 10:13 PM
TANDON COMMITTEE
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INTRODUCTION
As a result of the failure of implementing Dehejia committee recommendations another committee was appointed by RBI in July 1974,under the chairmanship of shri. Prakash tandon for the urgent necessity of reviewing the existing credit system.
The committee submitted its report on 9th august 1975.the report of this group is widely known as Tandon Committee Report.
MOST BANKS IN INDIA EVEN TODAY CONTINUE TO LOOK AT THE NEEDS OF THE CORPORATES IN THE LIGHT OF THE METHODOLOGY RECOMMENDED BY THE GROUP.
Breaking away from traditional methods of security oriented lending, the committee enjoyed upon the banks to move towards need based lending. The committee pointed out that the best security of bank loan is a well functioning business enterprise, not the collateral one
Principles
The borrower should observe a proper financial discipline.
The banker should supplement the borrower’s resources to carry on acceptable level of current assets
The bank should know the end-use of bank credit.
THE NORMS
The norms for holding different current assets were expressed as follows:
Raw materials as so many months’ consumption
Stock in process as so many months’cost of production
Finished goods and accounts receivable as so many months’ cost of sales and sales respectively.
Stock of spares was not included in the norms as it was considered to be a small part of total operating expenditure
RECOMMENDATIONS
Assessment of need based credit to the borrower on a rational basis on the basis of their business plans.
Bank credit would only be supplementary to the borrower’s resources and not replace them
Bank should ensure proper end use of bank credit by keeping a closer watch on borrower’s business, and impose financial decision on them