5. • Reserve Bank of India setup a committee under the
chairmanship of Shri P.L. Tandon in July 1974.
• The practices of most of the banks are still influenced by
tandon committee recommendations though financial
liberalization occurred in 1990s.
Tandon Committee Report, 1975
6. • To suggest guidelines for commercial banks to follow up and
supervise credit.
• To suggest the type of operational data and other Information
that may be obtained by banks periodically.
• To make suggestions for prescribing inventory norms for the
different industries.
The terms of reference
7. • To make recommendations regarding resources for financing the minimum
working capital requirements.
• To suggest criteria regarding satisfactory’ capital structure and sound
financial basis in relation to borrowings.
• To make recommendations as to whether the existing pattern of financing
working capital requirements by cash credit/overdraft system etc, requires
to be modified, if so, to suggest suitable modifications.
Contd…
8. Findings of the committee
• It is the borrower who decides how much he would borrow.
• Bank Credit is treated as first source of finance.
• Bank Credit is extended on the amount of security available and not
according to the level of the operation of borrower.
• There is a wrong notion that security itself ensure the safety of bank`s
funds.
9. Recommendations
Report Submitted on 9th August 1975
• A proper financial discipline has to be observed by the borrower.
• The main function of a banker as a lender is to supplement the
borrower`s resources to carry an acceptable level of current assets.
• The bank should know the end use of the bank credit so that it is used
only for purpose for which it is made available.
10. Salient features of recommendations made by
committee:
1. Fixation of norms
2. Style of credit
3. Differential lending Rates
4. Follow up and supervision of credit
5. Norms for capital structure
6. Need for uniformity and cooperation
Editor's Notes
from the point of view of ensuring proper end use of funds and keeping a watch on the safety of advances.
from the borrowers and by the Reserve Bank of India from the leading banks.
, both in the private and public sectors and indicate the broad criteria for deviating from these norms.
The banker cannot do any credit planning since he does not decide how much he would lend.
instead of being taken as supplementary to other source of finance, is treated as the first source of Finance.
As a matter of fact, safety essentially lies in efficient follow up of the industrial operations of the borrower.
He should supply to the banker information regarding his operational plans well in advance.