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Chore Committee

The Chore Committee was formed in 1979 to review India's cash credit system and suggest modifications to promote greater credit discipline. Some major recommendations included: 1) Borrowers should contribute more of their own funds to finance working capital requirements instead of relying solely on bank credit. 2) Credit limits should be separated into "peak" and "normal" levels for borrowers with credit limits over 10 lacs, and any utilization over 10% of the peak level without prior notice would be considered an irregularity subject to a 1% additional interest charge. 3) The existing lending systems of cash credit, working capital term loans, and bill discounting should continue, but cash credit accounts for large borrowers should

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414 views

Chore Committee

The Chore Committee was formed in 1979 to review India's cash credit system and suggest modifications to promote greater credit discipline. Some major recommendations included: 1) Borrowers should contribute more of their own funds to finance working capital requirements instead of relying solely on bank credit. 2) Credit limits should be separated into "peak" and "normal" levels for borrowers with credit limits over 10 lacs, and any utilization over 10% of the peak level without prior notice would be considered an irregularity subject to a 1% additional interest charge. 3) The existing lending systems of cash credit, working capital term loans, and bill discounting should continue, but cash credit accounts for large borrowers should

Uploaded by

dharshini
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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CHORE COMMITTEE

• In April 1979, the Reserve Bank of India constituted a working group to review
the system of cash credit under the chairmanship of Mr K.B. Chore . The main
terms of reference for the group were to review the cash credit system and
suggest modifications and /or alternate types of credit facilities to promote
greater credit discipline and relate credit limits to production . The major
recommendations having a bearing on bank credit to firms of the Group are as
follows.
CHORE COMMITTE RECOMENDATION
1. Reduced dependence on Bank credit :
The borrowers should contribute more funds to finance their working
capital requirements. The idea was to place all borrowers in the 2 method suggested
by the Tandon Committee. In case of difficulties the resort could be taken to WCTL.
2. Credit limits to be separated in to “Peak level” and “Non Peak level”
limits:
Credit limit should be assesed and separated in to “Peak level” and “ Normal
level” for borrowers with credit limits more than 10 lacs. Borrowers should, in
advance , inform the requirement of peak level limits. Moreover, any deviation in
Utilization beyond 10% tolerance, should be treated as an irregularity. Additional
interest of 1% should be chargedon ad hoc borrowings .
3. Existing lending system to continue : The Existing system had three types of
lending :
a) Cash credit
b) WCTL
c ) Bill discounting
Cash credit system should be replaced by the other two wherever possible. Cash credit
accounts of large borrowers to be Scruitinized, at least once a year
4. Information System : The Discipline regarding submission of quarterly
statements should be strictly adhered to , in respect of all borrowers having limits of 50
lacs and above.

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