The development of bills discounting as a financial service depends upon the existence of a full fledged bill market. The Reserve Bank of India (RBI) has constantly endeavored to develop the commercial bills market. Several committees set up to examine the system of bank financing, and the money market had strongly recommended a gradual shift to bills finance and phase out of the cash credit system. The most notable of these were: (1) Dehejia Committee, 1969, (2) Tandon Committee, 1974, (3) Chore Committee, 1980 and (4) Vaghul Committee, 1985.This section briefly outlines the efforts made by the RBI in the direction of the development of a full fledged bill market.
Bill Market Scheme, 1952 :
The salient features of the scheme were as follows:
(1) The schemes was announced under section 17(4)(c) of RBI Act enables it to make advances to scheduled banks against the security of issuance of promissory notes or bills drawn on and payable in India and arising out of bonafide commercial or trade transaction bearing two or more good signatures one of which should be that of scheduled bank and maturing within 90 days from the date of advances.
(2) The scheduled banks were required to convert a portion of the demand promissory notes obtained by them, from their constituents in respect of loans/overdrafts and cash credits granted to them into usance promissory notes maturing within 90 days, to be able to avail of refinance under the scheme;
(3) The existing loan, cash credit or overdraft accounts were, therefore, required to be split up into two parts viz.,
(A) one part was to remain covered by the demand promissory notes, in this account further withdrawals or repayments were as usual being permitted.
(B) the other part, which would represent the minimum requirement of the borrower during the next three months would be converted into usance promissory notes maturing within ninety days.
(4) This procedure did not bring any change in offering the same facilities as offered before by the banks to their constituents. Banks could lodge the usance promissory notes with the RBI for advances as eligible security for borrowing so as to replenish their loanable funds.
(5) The amount advanced by the RBI was not to exceed the amount lent by the scheduled banks to the respective borrowers.
(6) The scheduled bank applying for accommodation had to certify that the paper presented by it as collateral arose out of bona fide commercial transactions and that the party was creditworthy.
Bill Market Scheme, 1970:
In pursuance of the recommendations of the Dehejia Committee, the RBI constituted a working group to evolve a scheme to enlarge the use of bills. Based on the scheme suggested by the study group, the RBI introduced, with effect from November 1, 1970 the new bill market scheme in order to facilitate the re-discounting of eligible bills of exchange by banks with it. To popularize the use of bills, the scope of the scheme was enlarged, the number of participants was increased, and the procedure was simplified over the years.
The salient features of the scheme are as follows:
Eligible Institutions: All licensed scheduled banks and those which do not require a license (i.e. the State Bank of India, its associate banks and nationalized banks) are eligible to offer bills of exchange to the RBI for rediscount. There is no objection to a bill, accepted by such banks, being purchased by others banks and financial institutions but the RBI rediscounts only those bills as are offered to it by an eligible bank.
Eligibility of Bills: The eligibility of bills offered under the scheme to the RBI is determined by the statutory provisions embodied in section 17(2)(a) of the Reserve Bank of India Act, which authorize the purchase, sale and rediscount of bills of exchange and promissory notes, drawn on and payable in India and arising out of bona fide commercial or trade transactions, bearing two or more good signatures one of the which should be that of a scheduled bank or a state cooperative bank ands maturing:
(1) In the case of bills of exchange and promissory notes arising out of any such transaction relating to the export of goods from India, within one hundred and eighty days
(2) In any other case, within ninety days from the date of purchase or rediscount exclusive of days of grace;
(3) The scheme is confined to genuine trade bills arising out of genuine sale of goods. The bill should normally have a maturity of not more than 90 days. A bill having a maturity of 90 to 120 days is also eligible for rediscount, provided at the time of offering to the RBI for rediscount it has a usance not exceeding 90 days. The bills presented for rediscount should bear at least two good signatures. The signature of a licensed scheduled bank is treated as a good signature;
(4) Bill of exchange arising out of the sale of commodities covered by the selective credit control directives of the RBI has been excluded from the scope of the scheme, to facilitate the selective credit controls and to keep a watch on the level of outstanding credit against the affected commodities.