Traffic Problems in India
Report of the Working Group on Discounting of Bills by Banks
Executive Summary
Preamble
Bill Financing - Historical Perspective
Bill Financing - Key Issues
Alternatives to Bill Financing
Banker’s Acceptance
Bill Financing - Services Sector
Challenges of e-Commerce
Preamble
1.0 Financing post-sale operations against bill of exchange is always considered beneficial from the bankers’ point of view since bills represent the receivables stage of the operating cycle of a commercial activity, short term in tenor, self liquidating in nature, provide credit enhancement through acceptance by the drawee, a third party, and offer liquidity to the bank through re-discounting window. However, in the Indian Banking scenario, for decades now, Cash Credit/Overdraft continues to be the preponderant style of working capital funding. While Cash Credit constitutes about 70% of the total bank credit, bill finance is barely at around 10% of total bank credit. Further, bill financing is historically associated with movement of tangible goods and did not cover in its ambit the various types of activities in the services sector, though they arose out of commercial transactions. Services sector is transforming the economic profile of the country and is poised to register tremendous growth and contribute significantly to the overall economy in terms of wealth creation. It is against this backdrop that the Reserve Bank of India constituted a Working Group in December 1999 to examine the possibility of strengthening the existing bill discounting mechanism and extend its scope to services sector in view of the latter’s growing importance.
1.1 The terms of reference of the Group are: -
a. To examine the feasibility and suggest measures to strengthen the existing bill discounting mechanism as an instrument for facilitating financing, in particular trade and services sectors, including discounting of Trade bills against letters of credit opened by banks.
b. To examine
Executive Summary
Preamble
Bill Financing - Historical Perspective
Bill Financing - Key Issues
Alternatives to Bill Financing
Banker’s Acceptance
Bill Financing - Services Sector
Challenges of e-Commerce
Preamble
1.0 Financing post-sale operations against bill of exchange is always considered beneficial from the bankers’ point of view since bills represent the receivables stage of the operating cycle of a commercial activity, short term in tenor, self liquidating in nature, provide credit enhancement through acceptance by the drawee, a third party, and offer liquidity to the bank through re-discounting window. However, in the Indian Banking scenario, for decades now, Cash Credit/Overdraft continues to be the preponderant style of working capital funding. While Cash Credit constitutes about 70% of the total bank credit, bill finance is barely at around 10% of total bank credit. Further, bill financing is historically associated with movement of tangible goods and did not cover in its ambit the various types of activities in the services sector, though they arose out of commercial transactions. Services sector is transforming the economic profile of the country and is poised to register tremendous growth and contribute significantly to the overall economy in terms of wealth creation. It is against this backdrop that the Reserve Bank of India constituted a Working Group in December 1999 to examine the possibility of strengthening the existing bill discounting mechanism and extend its scope to services sector in view of the latter’s growing importance.
1.1 The terms of reference of the Group are: -
a. To examine the feasibility and suggest measures to strengthen the existing bill discounting mechanism as an instrument for facilitating financing, in particular trade and services sectors, including discounting of Trade bills against letters of credit opened by banks.
b. To examine