CHAKRAVARTHY COMMITTIEEBY: SHEREEN SHAHANAS3 MBA

• 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

Recommendations by committee:

•The committee made two major recommendations in regard to the working capital finance:

1. Penal interest for delayed payments2. Classification of credit limit under

three different heads.

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

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

• 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

Thank you