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Ch. 5 Commercial Bill Market



Introduction:-
Purchase & Discounting of BOE is a way of employing bank
funds.
The amt of working capital provides mainly through cash
credit, overdraft or discounting.
A Commercial Bill or a BOE is a short term negotiable & self
liquidating money market instrument which evidences the
liability to make a payment on a fixed date when the goods
are purchased on credit.
Assets with high liquidity & low risk.
Bill finance 1 major type of finance in foreign countries but
in India is underdevelopment.
Share of bill finance in the total bank credit is between 8 to
22 %.

Bills Of Exchange(BOE):-
It is generally drawn by a creditor on his debtor.
Presented to debtor for his acceptance.
Debtor after signifying his acceptance returns BOE to the
creditor.
Debtor is known as acceptor or drawee who commits to make
payment on due date.

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Accepted bill can be discounted by drawer with a bank
before due date.
The Negotiable Instrument Act 1881 defines a BOE as a
written instrument, containing an unconditional order, signed
by the maker, directing a certain person, to pay a certain
sum of money only, to the order of a certain person or to the
bearer of the instrument.

Size of Bill market in India:-
The commercial banks prefer to use the bills as instruments
for providing credit to their customers.
Market facilities for rediscounting means secondary market
for bills also developed.
The no of times the bill changes hands is known as velocity.
Velocity would be higher in a well developed bill market.
Amount of bills purchased & discounted increased from Rs 149
crores in 1955-56 to Rs 47142 crores in 2002-03.
As per bill market scheme 1970, all licensed scheduled
commercial banks were eligible for offering B.O.E to RBI for
rediscount.
The bills should have usance of 90 days, at least 2 sign &
minimum amount of single bill was Rs 5000.




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Bill Market Rates:-
Bill rate is at which RBI can rediscount eligible bills from
commercial banks.
RBI fixes rate at which commercial banks can discount bills, it
is called commercial banks bills finance rate.
Bank rate, SBI Hundi Rate, Bazar Bill Rate, Commercial Banks
Bills Finance Rate & SBI Discount Rate.
Bank rate remains unchanged since 1981.
Only SBI discount rates are applicable.
Increase from 8.5% in 1970-71 to 16.5% in 1987-88 -15.5%.

Market For Long Term Bills:-
Market for long term bills came into existence with the
introduction of Bills Rediscounting Scheme by IDBI in 1965.
Specially designed for manufacturers of machinery.
Maturity is normally up to 5 yrs & in special cases extended to
7 yrs.
Rate of interest differs & IDBI are fixed by themselves.
Volume increased from 1.9 crores in 1965-66 to 2685 in 1988-
89.