The S. Chakravarty Committee was formed in 1985 under the chairmanship of Prof. Sukhamoy Chakravarty to review India's monetary system and enable price stability. The committee submitted its report in April 1985 with two major recommendations: 1) requiring public and private sector entities to include penal interest clauses of 2% above bank rates for delayed payments, and 2) classifying credit limits under three heads (cash credit I for government supplies, cash credit II for special circumstances, and normal working capital limit) with different applicable interest rates.

1. CHAKRAVARTHY COMMITTIEE
BY:
SHEREEN SHAHANA
S3 MBA

2. • S. Chakravarty Committee was formed in
1985 under the chairmanship of
Prof. Sukhamoy Chakravarty.
• The committee was set up to review the working
of monetary system of India
• Its goal was to improve monetary regulation, a
feat that was hoped would enable price stability.
• The committee submitted its report in April ,
1985

3. Recommendations by committee:
• The committee made two major
recommendations in regard to the working
capital finance:
1. Penal interest for delayed payments
2. Classification of credit limit under three
different heads.

4. Penal interest for delayed payments
• Committee has suggested that the government
must insist that all public sector units, large
private sector units and government
departments must include penal interest
payment clause
• In their contracts for payments delayed beyond a
specific period
• Penal interest may be fixed at 2 per cent higher
than the minimum lending rate of the supplier’s
bank

5. Classification of credit limit under
three different heads
• The total credit limit to be sanctioned to a
borrower should be considered under three
different heads:
1. Cash credit I to include supplies to government
2. Cash credit II to cover special circumstances
3. Normal working capital limit to cover the
balance credit facilities

6. • The interest proposed for three heads are also
different.
• Basic lending rate of the bank should be charged to
Cash Credit II, and the Normal Working Capital,
limit may charge as below:
a. For cash credit portion: maximum prevailing
lending rate of the bank
b. For bill finance portion:2 % below the basic
lending rate of the bank
c. For loan portion:rate may vary between minimum
& maximum lending rate of the bank