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 contribution of the committee, headed by Prakash Tandon, that stands out relates to :

• The framing of norms for INVENTORY and receivables for 15 major industries.
• Determining the amount of permissible bank finance.

The committee suggested norms, i.e., ceilings for inventory and receivables, which could be considered for bank finance. The 15 industries included cotton and synthetic textiles, paper, cement, pharmaceuticals and engineering. Thus, for instance, the norms proposed for the pharmaceutical industry were :

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)).

Treasury Bill (T-Bill) A short-term debt instrument of the Government of India. This security bears no DEFAULT RISK and has a high degree of LIQUIDITY and low INTEREST RATE RISK in view of its short term. The instrument is negotiable and is issued at a discount from the FACE VALUE. At MATURITY, the investor receives the face value and hence the increment constitutes the interest earned. Two types of T-Bills were issued in India, by the Reserve Bank of India (RBI), on behalf of the government :

• 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.

For several years, T-Bills were issued on tap at a fixed DISCOUNT of 4.60 percent per annum. The purpose behind the low rate was to control the burden of interest charges. However, the system caused large-scale monetization of government debt. Financing government expenditure by issuing Ad-hoc Bills to the RBI caused an increase in the outstanding RESERVE MONEY, i.e., money created by the RBI. This situation was compounded by the REDISCOUNTING of tap T-Bills by banks with the RBI. To control such monetization, the government resorted to auctions of 182-day T-Bills from November 1986, 364-day T-Bills from April 1992, and 91 day T-Bills from January 1993 (in addition to the tap bill). The idea was to improve the YIELD, so as to attract investment from sources other than the RBI.

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".

More recently, it has been decided that 14-day and 91-day Bills will be auctioned weekly, whereas 182-day and 364-day Bills will be auctioned fortnightly. Further, the notified amounts are to be pre-announced for the whole year, although the discretion to change the amounts will rest with the RBI

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.