Regulation of Bank Finance^427
Correlation between Production and Bank Finance
No conclusive data are available to establish the degree of correlation between production
and quantum of credit at the industry level. As this issue is obviously of great concern
to the monetary authorities the Reserve Bank may undertake a detailed scientific study
in this regard.
Communication of Credit Control Measures to Branches and Follow-up
Credit control measures to be affective will have to be immediately communicated to
the operational level and followed up. There should be a ëCellí attached to the Chairmanís
office at the Central Office of each bank to attend to such matters. The Central Offices
of banks should take a second look at the credit budget as soon as changes in credit
policy are announced by the Reserve Bank and revise their plan of action in the light of
the new policy and communicate the corrective measures to the operational levels as
quickly as possible.
Monitoring of Key Branches and Critical Accounts
The banks should continuously monitor the credit portfolio of the ëkeyí branches
irrespective of the fact whether there is a change in credit policy or not. For effective
credit monitoring, the number of critical accounts should be kept under a close watch
over the utilisation of limits and inventory build up.
Delay in Collection of Bills/Cheques
To reduce the delay in collection of bills and cheques, return of documents by the
collecting branches, etc, the Group suggested to tone up the communication channels
and systems and procedures within the banking system.
Bill Facilities and Current Accounts with other Banks
Although banks usually object to their borrowerís dealing with other banks without
their consent, some of the borrowers still maintain current accounts and arrange bill
facilities with other banks. Apart from diluting the control over the advance by the main
banker, this practice often enables the borrower to divert sales proceeds for unapproved
purposes without the knowledge of his main banker. Banks should be suitably advised
in this matter by the Reserve Bank to check this unhealthy practice.
Marathe Committee
With the incorporation of the guidelines of the Tandon Committee and the Chore
Committee, bank lending to industry came increasingly under the direct supervision of
the Reserve Bank of India. In 1982 it was felt that an independent review of the Credit
Authorisation Scheme (CAS) which had been in operation for several years would be
useful and accordingly the Reserve Bank of India appointed a Committee in November
1982 to review the working of the Credit Authorisation Scheme. The Committee which