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(^408) Financial Management
l Even though the lender have claim on the book debts, only the borrower will
collect the receivables and the lenders right will arise when the borrower fails
to repay the loans.
l If a loan is made on the notification basis, the notified debtor will directly pay
his due amount to the lender instead of the borrower.
Charge on inventory - The manufacturing and trading companies, generally create
charge on their stocks against working capital facilities provided by the Banks or Finance
companies. The charge is created on the inventory items in the following ways :
l Floating charge : With creation of floating charge on the stocks, the borrowing
firm gives the lender a general claim against the entire class of assets which
are moving items. The lenderís right on the stocks will be crystallised only
when the borrower defaults in payment of his dues.
l Charge against trust receipts: When the items in inventory are easily
identifiable, such as goods having serial numbers, a trust receipt can be eyed to
guarantee a loan. A trust receipt is an agreement between the borrower and
lender under which the borrower holds the goods in inventory and immediately
forwards any sale proceeds from the sale of the inventory to the lender.
l Pledge of Warehouse receipts : When the inventory is kept at borrowerís
warehouse, but which is separated from other inventories can be pledged
separately for specific loan purpose based on the warehouse receipt. If inventory
is kept at third party warehouse then, there will be cost of warehousing also.
The borrower can deal with or operate with the inventory pledged on warehouse
receipt only when the charge is lifted by payment or otherwise.
Recommendations various committees Bank Financing
Dehejia Study Group
The National Credit Council constituted, in October 1968, a study Group under the
Chairmanship of Shri V.T. Dehejia to examine the subject of the extent to which credit
needs of industry and trade are likely to be inflated and how such trends could be
checked. Since the bulk of bank credit is short-term, the Groupís enquiry was primarily
concerned with the inflation of the short-term bank credit. The credit needs of industry
or trade may be considered to be inflated or either of the two sectors may be regarded
to have received credit in excess of its genuine requirements (i) if, over a period of
years, the rise in short-term credit is found to be substantially higher than the growth in
the value of industrial production; (ii) if the rise in short-term credit in appreciably
higher than the increase in inventories with industry or trade, (iii) if there is a diversion
of short-term bank borrowings of concerns in industry for building up of fixed assets or
other non-current assets such as loans and investments, (iv) if there is double or multiple
financing of the same stocks; (v) if the period of credit is unduly lengthened.