Tandon committee was appointed by the RBI in july 1974 under the
chairpersonship of Shri P.L. Tandon who was the Chairman of PNB then. The terms
of references of the committee were:
Findings of the committee: The committedd studied the existing system of extending
working capital finance to industry and identified the following as its major
weaknesses:
(ii)Lending Norms
The lending norms have been suggested in view of the realization that the
banker’s role as a lender is only to supplement the borrower’s resources. The
committee has suggested three alternative methods for working out the maximum
permissible level of bank borrowings. Each successive method reduces the
involvement of short-term credit to finance the current assets, and increases the use of
long-term funds.
Tandon Committee recommendations are not relevant. Now banks are flush
with funds. But good borrowers aren’t many. Tandon Committee recommendations
were relevant when controlled economy prepared. Today, it is open economy.
Besides, these recommendations were relevant in these years when money market was
tight and capital rationing was needed. Today, the whole environment has changed.
Now banks want to provide long-term loans as well. Actually from April 15 1997, all
instructions relating to maximum permissible bank finance(MPBF) were withdrawn.