Regulation of Bank Finance^429
net working capital are reasonable in terms of past trends and norms (wherever
specified), and assumptions regarding most likely trends during the future
projected period.(ii) The classification of assets and liabilities as ëcurrentí and ënon-currentí is in
conformity with the guidelines issued by RBI.
(iii) The borrower has been submitting quarterly operating statements for the past
6 months within the stipulated time and undertakes to do so in future also,
(iv) The borrower undertakes to submit his annual accounts promptly and the bank
carries out the annual review of facilities irrespective of the fact whether the
borrower needs enhancement in credit facilities or not.
The progress made in the adoption of the ëfast trackí represented by the above
recommendation of the Marathe Committee has been rather slow. This is not perhaps
surprising, as the five eligibility conditions which have been laid down are quite
comprehensive and further the sanction of credit facilities under the ëfast trackí would
still come under post-disbursal scrutiny of the RBI as in the case of sanction of credit
facilities above Rs. 1 crore and below the cut-off point (now Rs. 4 crores for prior
authorisation).
The Marathe Committee envisaged that the need for a regulatory role for the Reserve
Bank in respect of individual credit limits will diminish, if not disappear if the banks are
able to evolve an operational culture which will be immune to unhealthy pressures and
which will have an in-built discipline in conforming to the broader parameters of policy
laid down by the Central Banking Authority. It however, cautioned that the ìgradual
diminution of the area in which prior authorisation by the Reserve Bank is needed
before banks can disburse credit to individual parties should not, therefore, mean any
erosion of its roleî
The basic approach to regulation of credit to industry and trade adopted by the Reserve
Bank over the years as briefly reviewed above may be broadly summed up as follows:
(a) The basis of bank lending should be changed from security-based lending to
lending based on funds flow.
(b) Credit needs are to be assessed and met by banks based on industry-wise
working capital norms, deviations ëfrom these norms beyond the prescribed
tolerance limits being seen as evidence improper credit use by the borrower
requiring prompt rectification.
(c) Reliance of borrowers on bank finance for financing working capital should be
progressively reduced by insistence on maintenance of a current ratio of 1,33:1
by a growing segment of borrowers, the minimum acceptable ratio being 1:1.
(d) Assessment of credit needs should be made on the basis of detailed information