IECD No.7/08.12.01/99-2000 Update Update Update Update Update Update Update

November 2,1999

The Chairmen/Chief Executives

of all Commercial banks

Dear Sirs,

"Bill" finance for settlement of dues

A reference is invited to the mandatory bills discipline for credit purchases introduced vide our circulars IECD No.16 and 3/08.12.01/97-98 dated November 4, 1997 and July 8, 1998, respectively, with a view to encouraging bills culture. A mandatory minimum 25 per cent for acceptance of bills was prescribed.

2. A number of banks/ corporates/ trade bodies have represented to us that there are practical difficulties in implementing the scheme and operationally it has not been found possible to adhere to prescribed percentages.

3. The banks referred to the operational problems in enforcing the minimum prescribed percentages in the context of the statement on "Mid-Term Review of Monetary and Credit Policy for the year 1999-2000", announced by Governor on October 29, 1999, wherein banks have been given freedom to charge interest rate on discounting of bills without reference to PLR. It is now expected that banks will be able to offer competitive rate of interest on the bill discounting facility in view of predetermined dates of repayment and that corporates will be motivated to go in for the bill route for receiving/paying their credit sales/credit purchases, in view of the cost advantage likely to accrue to them. Banks reiterated their commitment to give maximum support to development of the bills culture in the country.

4. On a review of the matter, it has been decided that the mandatory stipulation contained in the circulars dated November 4, 1997 and July 8, 1998, ibid, be withdrawn.

5. Accordingly, sub-paragraph 1.2(ii) of paragraph13.B.I.1 of the Manual of Instructions (DBOD, DBS and IECD) may be deleted.

Yours faithfully,

(V.G.Damle)
Chief General Manager