Regulation of Bank Finance^447
(vii) The present reporting system to Reserve Bank of India under the Credit
Monitoring Arrangement (CMA) shall also continue in force.
MPBF system as per the recommendation. of Tandon Committee report was introduced
in November, 1975 and has been well established by now. Despite its prescription being
withdrawn by Reserve Bank, most of the banks are still continuing with this approach.
Cash budgeting system will require many changes in the accounting system being present
adopted by the borrowers and a new information system, the transition to the new
system is, therefore going to be slow and perhaps no Indian Bank has adopted this
system of assessment of working capital needs so far in the real sense.
Many banks have however, adopted turnover method for assessment of working capital
needs upto Rs. 2.00 crores in respect of all borrowers.
Recent RBI Guidelines Regarding Working Capital Finance
The following recent changes have been made by RBI in the guidelines for bank lending
for working capital purposes and by way of term loans. These measures are set out
below:
(i) Lending Norms for Working Capital
(a) Banks would henceforth decide the levels of holding of individuals item of
inventory as also of receivables, which should be supported by bank finance,
after taking into account the production/processing cycle of an industry as well
as other relevant factors. RBI would no more prescribe detailed norms for
each item of inventory as also of receivables; it would only advise the overall
levels of inventory and receivables for different industries to serve as broad
indicators for guidance of banks.
(b) Banks would be free to sanction ad hoc credit limits to borrowers, where
considered necessary and charging of additional interest for this purpose is no
longer mandatory.
(c) Other aspects of the lending discipline, viz., maintenance of minimum current
ratio, submission and use of data furnished under quarterly information system,
etc. would continue, though with certain modifications, which would make it
easier for smaller borrowers, to comply with these guidelines.
ii. Treatment of term loan instalments for assessment of working capital
purposes
Hitherto term loan instalments falling due for repayment in the next twelve months
were treated as part of current liabilities for assessment of maximum permissible bank
finance (MPBF). In terms of current policy, which was imple≠mented in stages, such
instalments are not required to be treated as an item of current liabilities for the limited