Regulation of Bank Finance^439
**Note:In Case of All Non-Priority Sector Borrowers, not covered under above points from
ë1í toí8', the Working Capital Credit requirement shall be assessed as per the Turnover
Method applicable for SSI-Borrowers requiring W/C-finance upto Rs. 200.00 lacs.
As a consequence of the proposed withdrawal of the existing system of working capital
finance based on ìMPBF-systemî, though a large leeway is available to the bank to
adopt a new method/system, the committee envisaged to retain, with appropriate
modifications, strengths, and to remove weaknesses, of existing MPBF-system
simultaneously doing away with its rigidities as regards (i) computation of working
capital bank finance, and (ii) supervision and monitoring of the credit dispensed by the
banks so that the proposed new system ensures faster credit delivery with inherent
need and merit based flexibilities. Therefore, the committee proposed to shift emphasis
from the ìLiquidity Level Lending (which is de facto security based lendingó practised
and stipulated so far by the banks), to the ìCash Deficit Lendingî (which is in essence
need based lendingóindicating the financial support required by a borrower). The
cash deficit lending has been aimed at to percieve the borrowerís requirement, rather
than to assess, after the deserving risk-analys and risk-forecasting on case to case
basis with perusal of the acceptability of the borrowerís overall financial status, projected
level of liquidity and activity, market reports, industry/activity profile and the economic
strata which a particular borrower belongs to. As such, the new system of working
capital finance may be called as Desirable Bank Finance (DBF). The committee
recommended to put DBFómethod in force immediately with the aim to make it fully
operational over a period of 3-4 months, i.e., with effect from April 1, 1998 in order to
afford, wherever necessary, adequate breathing time to bank staff and borrowers for
developing familiarity with DBF method and also to coincide with start of new financial
year for most of the borrowers as well as for the bank to afford operational convenience.
l The outlines of the DBF-method, as conceived by Kannan Committee, are
discussed hereunder:
- Diamond Industry Existing system of W/C finance is to be
continued. - Small Scale Industrial Undertakings
requiring W/C funded finance upto Rs.
2 crores;
for whom, RBI has directed to use "Turnover
Method" propounded by Nayak Committee"- Small borrowers (all sectors)
requiring: Working Capital finance
upto Rs. 2.00 Lacs (Rupees Two Lacs)
Most of such borrowers are usually covered
under one or the other Schemes Sponsored by
various Governments/local bodies. Therefore,
financing— requirements of such borrowers
shall be met as per the directives of the relevant
sponsored scheme.- Specific Long term working capital
requirements such as Bills
Discounting under IDBI/SIDBI—
schemes etc.
Existing separately set out guidelines to continue
to be in force.