About Financial Terms like Kannan and Khusro Committee

Kannan Committee A committee constituted by the Indian Banks’ Association to examine the relevance of the concept of Maximum Permissible Bank Finance (MPBF) as a method of assessing the requirements of bank credit for WORKING CAPITAL, and to suggest alternative methods. The committee was headed by K. Kannan, Chairman, Bank of Baroda and its report submitted in 1997, includes the following recommendations :

The MPBF prescription is not to be enforced and banks may use their discretion to determine the credit limits of corporates.

The CREDIT MONITORING ARRANGEMENT and QIS may cease to be regulatory requirements.

The financing bank may use its discretion to determine the level of stocks and receivables as security for working capital assistance.

The mechanism for verifying the end-use of bank credit should be strengthened.

A credit Information Bureau may be floated independently by banks.

Since April 1997, banks have been given the freedom to assess working capital requirement within prudential guidelines and exposure norms. Banks may evolve their methods to assess the working capital needs of borrowers – the Turnover Method or the Cash Budget Method or the MPBF System with necessary modifications or any other system. Khan Committee A working group that was appointed by the Reserve Bank of India (RBI) in December 1997 to harmonize the role and operations of development finance institutions (DFIs) and banks. Headed by S.H. Khan, then Chairman of the Industrial Development Bank of India, the terms of reference of the committee included the following :

To review the role, structure and operations of DFIS and commercial banks in the emerging environment and to suggest changes.
To suggest measures for achieving harmonization in the activities of DFIS and banks.

The developments that prompted the decision to appoint the Committee were the gradual entry by DFIs and banks into each other’s territory, viz., term finance and WORKING CAPITAL, the dwindling supply of funds to DFIs owing to a reduction in the STATUTORY LIQUIDITY RATIO, and the absence of reserve requirements of DFIs, an advantage vis-à-vis banks. Some of the recommendations of the committee are :

A gradual move towards UNIVERSAL BANKING with an appropriate enabling regulatory framework for that purpose.
Exploring the possibility of gainful mergers between banks, and among banks and financial institutions.
Speedy implementation of legal reforms to hasten debt recovery.
Reducing CASH RESERVE RATIO to international standards and phasing out the STATUTORY LIQUIDITY RATIO.

Khusro Committee A Committee headed by an economist, A.M. Khusro, that conducted an appraisal of the agricultural credit system in India. Several observations and recommendations were made in its report in 1989, including the following :

Setting up of an apex institution for the co-operative banks.
Merger of Regional Rural Banks (RRBs) with the respective sponsoring banks.
Establishment of Agricultural and Rural Development Corporations for some eastern and north-eastern states of India, in order to increase the tempo of agricultural lending.