U. M Flujos de efectivo por actividades de operación
4.3.4 Flujos de efectivo en moneda extranjera
Banks, on the basis of security, provide finance to industry and trade. It becomes the subject of government to ensure equitable distribution in the right channels. Since November 1965, a Credit Authorization Scheme has been in operation s part of the Reserve Bank of India’s credit policy. Under this scheme, all scheduled commercial banks are required to obtain prior authorization of the Reserve Bank before sanctioning any fresh credit limits of Rs. One crore or more to any single party or any limit that would enable the party avail Rs. One crore or more from the entire banking system on secured or unsecured basis. The limit of Rs. One crores was subsequently raised to Rs. Five crores. The Reserve Bank of India regulates and controls bank finance and from time to time provide directions and guidelines to the bank by the recommendations of certain specially constituted committees entrusted with the task of examining various aspects of bank finance to industry. Bellow, the important findings and recommendations of the following committees are discussed.
Dehejia Committee Tandon Committee
Marathe Committee Chakravarty Committee Kannan Committee Report
Dehejia Committee: National credit council constituted a committee
under the chairmanship of Shri V.T. Dehejia in 1968 to determine the extent to which credit needs of industry and trade are likely to be inflated and how such trends could be checked and to go into establishing some norms for lending operations by commercial bank.
Finding and Report: Short term credit can be diverted for long term assets was prevailing tendency.
• Evolvement of norms for lending to industrial concerns was difficult. • A study of borrowers total operations should be the basis of finance rather
than security basis alone.
• The total need of the borrower should be segregated according the minimum level of inventories which the industry was required to hold for maintaining a given level of production should be put on a format term loan basis and subject to repayment schedule.
Tandon Committee: Under the chairmanship of Shri P.L. Tandon in July,
1974. Reserve Bank of India set up a committee. The terms of reference of the committee were.
To suggest sound financial basis in relations to borrowings and criteria regarding satisfactory capital structure.
To recommend sources for financing the minimum working capital needs
To make suggestions for prescribing inventory norms for both private and public sectors.
To recommend the change in the existing pattern of financing working capital, if required
To suggest guidelines for commercial banks to ensure proper end use of funds and keeping a watch on the safety of advances.
To suggest the information or data to be collected periodically from borrowers and by the RBI from the leading banks.
Opinion Report:
Bank credit is extended on the amount of security available not considering the level of operations.
Finance from bank should be treated as the first source instead of being taken as a supplementary to other sources of finance.
To control the bank finance, certain modifications are suggested for the continuation of the existing cash credit system.
To control the ban finance, certain modifications are suggested for the continuation of the existing cash credit system.
Operational plans of customers should be known in advance by the bank.
Recommendation regarding lending norms have been suggested under three alternatives.
minimum 25% of the working capital is to be financed from long tem funds.
Minimum 25% of the total current assets from long term funds . Contribution from long term fund will be to the extent of the entire
core current assets and a minimum of 25% of the balance current assets.
Chore Committee: Under the chairmanship of Shri K.B. Chore in March,
1979. Reserve Bank of India set up a committee. The term of reference of the committee was to review the working of cash credit system in recent years with particular reference to the gap between sanctioned limits and the extent of their utilization and also to suggest alternative type of credit facilities which should ensure greater credit discipline. Recommendation of the Committee:
The banks should obtain quarterly statements in the prescribed format from all barrowers having working capital credit limit of Rs. 50 lack and above
The banks should undertake a periodical review of limits of Rs. 10 lack and above.
The banks should not bifurcate cash credit accounts into demand loan and cash credit components.
If a borrower does not submit the quarterly returns in time the banks may charge penal interest of one percent on the total amount outstanding for the period of default.
banks should discourage sanction of temporary limits by charging additional one per cent interest over the normal rate on these limits.
The banks should fix separate credit limits for peak level and non peak level, wherever possible.
Banks should take steps to convert cash credit limits into bill limits for financing sales.
Morathe Committee Report: Under the chairmanship of Marathe in
1982, Reserve Bank of India set up a committee to review the working of credit authorization scheme (CAS) and suggest measures for giving meaningful directions to the credit management function of the Reserve Bank. Reserve Bank of India accepted the recommendations of the committee with minor modifications. Recommendation by the Committee:
The third method of lending suggested by the Tondon Committee was dropped. Hence, the second method of lending is accepted.
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 where the following requirement are fulfilled :
The projections in regard to production, sales chargeable current assets, other current assets, current liabilities other than bank borrowings and net working capital are reasonable in terms of the past, trend and assumptions regarding most likely trends during the future projected period.
The classification of assets and liabilities as ‘current’ and ‘non- current’ is in conformity with the guidelines issued by the Reserve Bank of India.
The projected current ratio is not below 1.33%
The borrower has been submitting quarterly information and operating statements for the past fix months within the prescribed time and undertakes to do the same in future also.
The borrower undertakes to submit to the bank 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.
Chakravarty Committee: The Reserve Bank of India appointed another
committee under the chairmanship of Sukhamoy Chakravarty to review the working of the monetary system of India. The committee submitted is report in April 1985. The committee made two major recommendations in regard to the working capital finance:
(i) Penal Interest for Delayed Payments: The committee has suggested that the government must insist that all public sector units, large private sector units and government departments must include penal interest payment clause in their contracts for payments delayed beyond a specified period. The penal interest may be fixed at 2 percent higher than the minimum lending rate of the supplier’s bank.
(ii) Classification of Credit Limit Under Three Different Heads: The committee further suggested that the total credit limit to be sanctioned to a borrower should be considered under three different heads.
- For Cash Credit Portion :
Maximum prevailing lending rate of the bank - For Bill Finance Portion :
2% below the basic lending rate of the bank - For Loan Portion:
The rate may vary between the minimum and maximum lending rate of the bank.
Kannan Committee: Under the chairmanship of Shri K. Kannan, a
Managing Director of Bank of Baroda in 1996, the Indian Banks Association constituted a committee to examine all the aspects of working capital finance including assessment of maximum permissible bank finance. Major recommendations of the committee Report
The arithmetical rigidities of MPBF as suggested by Tandon Committee and reinforced by Chore Committee should be scrapped.
To serve various borrowers more effectively freedom to each bank be given in regard to faster credit delivery.
The committee suggested to shift emphasis from the liquidity level lending to the cash deficit lending called desirable bank finance.
Banks may now adopt cash budgeting system for assessing the working capital finance in respect of large borrowers.
The banks have also been allowed to retain the present method of MPBF with necessary modification or any other system as they deem fit. Banks should lay down transparent policy and guidelines for credit
References:
(1) James C. Van Horne : Fundamentals of Financial Management, Prentice Hall of India, Private Ltd. New Delhi, III ed. P. 139.
(2) AICPA : Accounting Research Bulletin No. 43, p. 27.
(3) State Agro Industries Annual Report 1980, Schedule ‘G’ p. 76. (4) RSHC Annual Report 1982-83, Annexure, p. 26.
(5) RIICO 11th Annual Report & Accounts 1979-80, Schedule ‘F’ p. 72. (6) RSEB, Annual Statement of Accounts 1980-81, Schedule 12, p. 68. (7) RSWC 22nd Annual Report and Accounts 1979-80, p. 15.
(8) RFC. Annual Report and Accounts 1980-81, p. 43.
(9) N. Rajan Classifies the inventories relating to the public enterprises into the following four groups : (i) raw materials, components, tools, stores & spares, (ii) work-in-progress, (iii) finished goods, and (iv) other miscellaneous goods See Rajan. N. “Materials Managements in Public undertakings”, Lok Udyog, Bureau of Public Enterprises, New Delhi, Vol. III No. 6, September 1969, p. 607.
(10) Controller and Auditor General of India, New Delhi, Audit Report (Commercial), 1967, p. 10.
(11) “The profitable use of capital in Industry” by Institute of Cost and Works Accountans, London, ed. 1965, p. 47.
(12) R. S. Chadda : Inventory Management in India, Allied Publishers, Bombay, 1971, p. 17.
(13) John F. Magee : “Guide to Inventory Policy ; Functions and lot sizes,” Harvaed Business Review, 34 (January-February,1956) pp. 49-60.
(14) Harry Gross : “Financing for Small and Medium Sized Business.” Op. cit, p.61.
(15) Ibid p. 62.
(16) Starr, Martin K. and David W. Miller : Inventory Control Theory and Practice, Englewoos Cliffs, N. J. : Prentice Hall, 1962 p. 17.
(18) Robert N. Anthony : Management Accounting Text and Cases. Richard, D. Irwin, Inc., 1964, p. 182.
(19) Harry Gross : “Financing for small and medium sized business.” Op. cit. p. 29.
(20) L. R. Howard : Working Capital- Its Management and Control, Macdonold & Evans Ltd., London, 1971, p. 92, C. Gordon Hill, Accountancy Age (13th November 1970).
(21) Prasanna Chandra : ‘Financial Management’ – Theory and Practice, op. cit p. 321.
(22) Harvey M. Wagner : Principles of Operations Research with special Reference to ‘Manufactures’ inventories NBER, 1950, p. 315.
(23) B. D. Khare : Inventory Control, National Productivity Council, New Delhi, 1971, p. 15.
(24) Ibid, p. 14.
(25) Robert N. Anthony : ‘Management Accounting’ : op. cit pp. 683—684. (26) Synder, Arthur : “Principles of Inventory Management,” Financial Executive
XXXII (April, 1964)
(27) Raymond, A. Hoffman : Inventories : A Guide to their Control, Costing and Effects upon Income and taxes, Ronald Press Company, New York, 1962, pp. 22—37 (for details).
(28) (i) Bereau of Public Enterprises, Annual Report on the working of industrial and commercial undertakings of the Central Government for the year 1967— 68, p. 116, and (ii) Chatopadhyaya, Paresnath, “Interfirm comparisons : scope and application in public enterprises” Northern Indian Regional Council of the ICWA, New Delhi, September 1969, p. 23.
(29) See Bhandari, M. C. : “Budgeting and Materials Management”, Commerce, Bombay, Vol. 116 : No. 2981, June 1968, p. 15.
(30) John N. Myer : “Financial Statement Analysis” IV edition Prentice – Hall of India Pvt. Ltd. New Delhi, 1974, p. 190.
(31) Tarrif Commission as quoted in Venketsubbiah, H. : The Anatomy of Indian Planning, Vora and Co., Bombay, First Edition, 1969, p. 214.
(32) Rao, S. R. K. : “Inventory Investment in Public Sector Enterprises”. Lok Udyog, Bureau of Public Enterprises, Government of India, New Delhi, Vol. II, No. 11, February, 1969, p. 1140.
(33) Prasanna Chandra, op. cit p. 344.
(34) Figures derived from Annual Accounts of GSM for 1983—84, p. 18. (Review of Accounts of the GSM by the Controller and Auditor General of India).