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Financial Management - WORKING CAPITAL MANAGEMENT

Marathe committee - Working Capital And Banking Policy

   Posted On :  22.06.2018 12:31 am

The RBI, in 1982, appointed a committee under the chairmanship of Marathe to review the working of credit authorization scheme (CAS) and suggest measure for giving meaningful direction to the credit management function of the RBI.

Marathe committee

The RBI, in 1982, appointed a committee under the chairmanship of Marathe to review the working of credit authorization scheme (CAS) and suggest measure for giving meaningful direction to the credit management function of the RBI. The RBI with some modifications has accepted the recommendations of the committee.

Recommendations


The principal recommendations of the Marathe committee include:

1. The committee has declared the third method of lending as suggested by the Tandon committee to be dropped, hence, in future, the banks would provide credit for working capital according to the second method of lending.

2. The committee has suggested the introduction of the ‘Fast-Track Scheme’ to improve the quality of credit appraisal in banks. It recommended that commercial banks can release without prior approval of the reserve bank 50% of the additional credit required by the borrowers (75% in case of export oriented manufacturing units) where the following requirements are fulfilled:
i. The estimate/projections in regard to production, sales, chargeable current asset, current liabilities other than bank borrowings, and net working capital are reasonable in terms of the past trends and assumptions regarding most likely trends during the future projected period.
ii. The classification of assets and liabilities as ‘current’ and ‘non-current’ is in conformity with the guidelines issued by the Reserve Bank of India.
 
iii. The projected current ratio is not below 1.33:1.
iv. The borrower has been submitting quarterly information and operating statement (form 1, form 2, and 3) for the past six months within the prescribed time and undertakes to do the same in future also.

v. The borrower undertakes to submit to the banks his annual account regularly and promptly. Further, the bank is required to review the borrower’s facilities at least once in a year even if the borrower does not need enhancement in credit facilities.
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