Tandon Committee - Observations and Recommendations posted by
What were the main issues studied by Tandon committee to exercise control over
The observation and recommendations made by Tandon committee were:
1) Norms : The committee suggested 15 industries excluding
engineering industries. These norms were suggested in following forms:
a. For Raw materials: Consumption in months
b. For Work in Progress: Cost of production in months
c. For Finished Goods: Cost of Sales in months
d. For Receivables: Sales in months
2) Methods of Borrowings : It introduced the concept of
working capital gap which the excess of current assets over current liabilities
other than bank borrowing. They also suggested three progressive methods to
decide the maximum limits according to which banks should provide the finance.
3) Style of Lending : Is suggested that the cash credit limit
should be bifurcated into two components i.e. Minimum level of borrowing
required throughout the year should be financed by way of a term loan and the
demand cash credit to take care for fluctuating requirements.
4) Credit Information Systems : The committee recommended the
submission of a quarterly reporting system based on actual ass well as
estimations, so that the requirements of working capital may be estimated on
the basis of production needs.
5) Follow up, Supervision and Control : The committee
suggested that there should be a proper system of supervision and control.
6) Norms for Capital Structure: The committee did not suggest
any right norm for debt equity ratio, the committee opined that if the trend of
debt equity ratio is worse than the medians, the banker should persuade the
borrowers to strengthen the equity base as early as possible.