Regulation of Bank Finance^433
borrower would necessarily vary according to the scale of activity and seasonal factors.
There is another aspect of credit limits which needs to be highlighted. The credit limit
sanctioned to a borrower which is valid until it is reassessed, does not represent the
extent of credit which the borrower is free to avail of at any point in time. The utilisation
of credit limit depends on the borrower having the necessary drawing power as computed
from the stock statements submitted to the bank periodically. This means that the
utilisation of credit limits is related, through the application of margin requirements, to
the level of inventories, book debts and other eligible assets indicated in the stock
statement available to the banker. This is so because the operating banker prefers to
base his decision to lend on a legal document such as the stock statement rather than on
funds flow or even a cash flow statement indicating credit requirements for a given
future period generally of three to six months. Bank lending, therefore, essentially retains
its security orientation despite the application of more sophisticated norms. Credit limits
based on Tandon/Chore norms serve the purpose of providing a ceiling to the utilisation
of credit based on drawing power. Thus the quantum of credit that can be utilised by a
borrower at any given time is equal to the drawing power or the credit limit, whichever
is lower. The present credit appraisal procedures do not prevent utilisation of credit
facilities over and above what is justified on the basis of a cash flow analysis, so long as
the drawing power is not exhausted. As the stock statements are available once a
month or less frequently, and their submission can be delayed if it suits the borrower,
the drawing power based on the latest available stock statement does not necessarily
represent current credit requirements. Moreover, banks are often obliged to condone
excess drawals when they are in the nature of fait accompli, these being detected with
a lag when the stock statement for the relevant period is submitted.
Information System: One of the major causes of delay in sanctioning of credit limits
by banks has been the failure of borrowers to submit the quarterly statements under the
prescribed information system in the time and in adequate detail. This is so even after
the Chore Committee revised the formats relating to the information to be submitted
which were introduced when the Tandon Committee recommendations were
implemented. Even in the case of larger borrowers whose credit requests were subject
to prior authorisation of the Reserve Bank of India, it was found that out of the 2321
applications processed by the Reserve Bank of India in 1982, further particular were
sought in as many as 702 cases. The Marathe Committee has noted ìwhile there has
been considerable improvement in the commercial bankís appraisal systems, there are
still wide variations as between banks and sometimes, in the quality of proposals put up
by the same bank. There are delays, often inordinate, in processing applications. Similarly,
among the borrowers also many have introduced modern techniques for the management
of working capital and finance. In several cases, tools like planning for working capital,
cash budgeting and management information systems are increasingly being used. But