Chore Committee

The quality of lending improved considerably but the cash credit system continued to pose few difficulties. Bifurcation of working capital limit in two parts as demand loan and a fluctuating cash credit component, as suggested by Tandon Group, was not done by many banks. It was, therefore, considered necessary by Reserve Bank to review the system of cash credit in all its aspects and for this purpose a 'Working Group' headed by Sh. K. B. Chore was appointed in 1979. The terms of reference to the 'Group' were as follows: To review the operation of cash credit system in recent years, particularly with reference to the gap between sanctioned credit limits and the extent of their utilisation; In the light of the review, to suggest: (a) Modifications in the system with a view to making the system more amenable to rational management of funds by commercial banks, and/or (b) alternative types of credit facilities, which would ensure greater credit discipline and also enable banks to relate credit limits to increases in output or other productive activities, and To make recommendations on any other related matter as the 'Group' may consider germane to the subject.

Recommendations
The 'Group' gave its recommendations in 1979. Important recommendations which are accepted by Reserve Bank and have a direct bearing on credit limits of the borrowers are discussed below. No Structural Change Continuation of Cash Credit, Loan and Bills Facilities No structural changes in the lending system are considered necessary and working capital credit limits are to be sanctioned as a combination of cash credit, loans and bills facilities as hitherto. However, a directional change is necessary and the cash credit limit is to be supplemented by loan and bill facility, wherever possible. Review of Borrowal Accounts All borrowal accounts enjoying total working capital credit limits of Rs.10 lacs and above from the entire banking system must be reviewed at least once in a year. The review is necessary not only to ensure the continued viability of the borrower but also to assess the need based requirement for credit limits.

Bifurcation of Cash Credit Limit

The scheme of bifurcating the cash credit limit in two parts as demand loan and variable cash credit portion as recommended by 'Tandon Group' and accepted by Reserve Bank is scrapped as it did not find any acceptance either at borrower's level or at bank's level. The scheme was basically suggested to enable the banks to have proper credit planning. The objective is now desired to be achieved by streamlining and strengthening the information system.

All borrowers enjoying working capital credit limits of Rs.100 lacs and above from the entire banking systems are now required to submit the following statements indicating in advance at the commencement of each quarter the requirements of funds during that quarter: Estimates for the ensuing quarter: This statement is to be submitted in Form 1 in the week preceding the commencement of the quarter to which the statement relates. It gives the level of current assets and current liabilities as are estimated for the ensuing quarter on the basis of which operating limits will be fixed by the banks. The discipline on the borrowers will be exercised on the strength of this operating statement. As from April 1991, the Performa of this form has been revised. Separate preformed have since been prescribed for traders/merchant exporters and manufacturers (Appendix 16.1 & 16.11). Performance during the previous quarter: This statement is to be submitted in Form 11 (Appendix 16.111 & IV) within 6 weeks from the close of the quarter to which the statement relates. In fact Form I submitted by the borrower for the ensuing quarter is to be followed by Form H after the end of that quarter. Form I gives the estimates whereas Form II gives the actual during the quarter. By making comparisons between these statements the quality of credit planning by the borrower and his efficiency to translate his plans into actual production can be effectively ascertained. New forms effective from April 1991 have been prescribed by Reserve Bank. Separate perform for (a) traders and merchant exporters and (b) manufacturers have been given. The revised formats are given as Appendix 16 111 & 16 IV.

Half Yearly Operating and Funds Flow Statements Form III. The form III has since been bifurcated effective from I st April, 1991 as under Form IIIA Half yearly operating statement Form IIIB Half yearly Funds Flow Statement These statements are to be submitted within two months from the close of half year to which they relate. Separate proformae have been prescribed for traders/merchant exporters and for manufacturers. For preformed, refer to Appendices 16.V to 16.VIII.