Glossary Of Financial Terms starting with T
List of Financial Terms (Alphabet Wise)Tandon Committee A study group set up by the Reserve Bank of India (RBI) in 1974, to examine the then prevailing system of WORKING CAPITAL financing by banks and to make suitable recommendations on the same.
- The framing of norms for INVENTORY and receivables for 15 major industries.
- Determining the amount of permissible bank finance.
Raw materials : 2.75 months' consumption
Stocks in process : 1/2 month's cost of production
Finished goods : 2 months' cost of sales
Receivables : 1.25 months' sales
For determining the maximum permissible bank finance (MPBF), the methods suggested were :
Method I : 0.75 (CA – CL)
Method II : 0.75 CA – CL
Method III : 0.75 (CA – CCA) – CL
Here CA stands for CURRENT ASSETS corresponding to the suggested norms or past levels if lower, CL represents CURRENT LIABILITIES excluding bank lending and CCA stands for the 'Core Current Assets', i.e., permanent current assets. Method I and, following the CHORE COMMITTEE recommendations, Method II have been used by banks in assessing working capital needs of businesses, for the last several years. In October 1993, the RBI infused operational autonomy by permitting banks to determine appropriate levels of inventory and receivables, based on production, processing cycle, etc. These lending norms were made applicable to all borrowers enjoying an aggregate (FUND-BASED) working capital limit of Rs.1 crore and above from the banking system. However, the requirement of the CURRENT RATIO at 1.33 was retained.
Other recommendations of the Tandon Committee related to the mode of lending and an information and reporting system concerning the operation of the lending system. (See also KANNAN COMMITTEE).
Tarapore Committee A committee on Capital Account CONVERTIBILITY (CAC), which was headed by S. S. Tarapore of the Reserve Bank of India. Among other things, the committee was asked to recommend measures for achieving CAC and to specify the sequence and time-table for such measures. Some of the recommendations in the report submitted in 1997 are :
- A phased implementation of CAC over a three-year period, i.e. 1997-2000.
- The implementation of measures in each phase to be based on certain preconditions or signposts.
- The preconditions include a specified reduction in the GROSS FISCAL DEFICIT of the Union Government, a nominal INFLATION rate, full deregulation in the interest rates, reduction in the CASH RESERVE RATIO and the level of NON-PERFORMING ASSETS and monitoring of various macroeconomic indicators such as the exchange rate, adequacy of reserves, etc.
- Progressively allowing individual residents, corporates and others to invest overseas in financial ASSETS and industrial ventures.
- Measures to develop and integrate the forex, MONEY and CAPITAL MARKETS, such as permitting all participants in the SPOT MARKET to operate in the forward market. (See also CONVERTIBILITY (Full)).
- Ad-hoc T-Bills (or Ad-hocs) of 91 days maturity (which were non-marketable) to the RBI to replenish the Central Government's cash balance.
- Ordinary T-Bills "on tap" that are taken up mainly by banks, for short-term investment or to comply with statutory requirements.
There have been major changes in recent years with regard to T-Bills :
- An agreement was singed between the Finance Ministry and the RBI in September 1994 to limit the net issue of Ad-hoc T-Bills, with the express objective of phasing them out within three years.
- Discontinuation of the issuance of Ad-hocs and tap T-Bills from April 1997. The former has been substituted by a system of WAYS and MEANS ADVANCES to the Union Government, with specific limits.
- Conversion of outstanding Ad-hocs and tap Bills as on March 31, 1997 into special securities, bearing an interest rate of 4.60 percent per annum and having an indefinite life.
- Issue of 14-day Intermediate T-Bills from April 1997 to serve as investment vehicles exclusively for State Governments, foreign CENTRAL BANKS and other specified bodies.
- Proposed introduction of 28-day and 182-day (not issued since April 1992) Bills, so as to promote the emergence of a YIELD CURVE for short-term RISK-FREE securities.
- Introduction of the practice of notifying amounts in the case of all T-Bill auctions.
- The proposed use of uniform price auction method in the case of 91-day T-Bills, to eliminate the problem of "WINNER'S CURSE".
Treasury Stock The equity shares repurchased by the issuing company. Companies in the U.S. undertake treasury stock operations for a variety of reasons-the shares could be used for ACQUISITIONS, stock option plans or other purposes. In India, however, the Companies Act 1956, vide Section 77, has explicitly forbidden treasury stock operations.
By an ordinance promulgated in October 1998, companies have been allowed to buy back their shares up to 25 percent of their PAID-UP CAPITAL and free reserves; the same ordinance also permits companies to issue SWEAT EQUITY. As a sequel, the Securities and Exchange Board of India has announced the related regulations.