Recent developments in Commercial Bill Market
NOVEMBER 30, 2009
University School of Management Studies
Guru Gobind Singh Indraprastha University
SACHIN GOEL (68)
MANAV MUDGAL (69)
MBA (IIIrd SEMESTER)
A non-bank bill of exchange (loan) generated by merchant or investment banks and companies. The bill is evidence of the borrower's debt and commitment to repay at the due date. These bills are covered by the Bills of Exchange Act 1909 - 73, as are bank bills, but they are called 'commercial' to indicate they are issued by institutions other than banks.
Types of Commercial Bills:
Commercial bill is an important tool finance credit sales. It may be a demand bill or a usance bill. A demand bill is payable on demand, that is immediately at sight or on presentation by the drawee. A usance bill is payable after a specified time. If the seller wishes to give sometime for payment, the bill would be payable at a future date. These bills can either be clean bills or documentary bills. In a clean bill, documents are enclosed and delivered against acceptance by drawee, after which it becomes clear. In the case of a documentary bill, documents are delivered against payment accepted by the drawee and documents of bill are filed by bankers till the bill is paid. Commercial bills can be inland bills or foreign bills. Inland bills must (1) be drawn or made in India and must be payable in India: or (2) drawn upon any person resident in India. Foreign bills, on the other hand, are (1) drawn outside India and may be payable and by a party outside India, or may be payable in India or drawn on a party in India or (2) it may be drawn in India and made payable outside India. A related classification of bills is export bills and import bills. While export bills are drawn by exporters in any country outside India, import bills are drawn on importers in India by exporters abroad. The indigenous variety of bill of exchange for financing the movement of agricultural produce, called a ‘hundi’ has a long tradition of use in India. It is vogue among indigenous bankers for raising money or remitting funds or to finance inland trade. A hundi is an important instrument in India; so indigenous bankers dominate the bill market. However, with reforms in the financial system and lack of availability of funds from private sources, the role of indigenous bankers is declining.
The market for commercial bills is an important segment of the financial market in many developed countries. Unfortunately in India, the market is virtually a non-starter given the cash-credit system of credit delivery of banks for very short-term working capital requirements of corporate. In an effort to develop the bills market, the interest rate ceiling of 12.50% on rediscounting of commercial bills was removed in May 1, 1989. However, after the securities “scam” of 1992, RBI curbed the market by imposing control on the banks to discount bills to the extent of assessed working capital requirements and credit norms. Till date the bills discounting scheme has yet to find enthusiastic takers in the banking industry. The development of bills discounting as a financial service depends upon the existence of a fully fledged bill market. The Reserve Bank of India (RBI) has constantly endeavored to develop the commercial bills market. Several committees set up to examine the system of bank financing, and the money market had strongly recommended a gradual shift to bills finance and phase out of the cash credit system. The most notable of these were: (1) Dehejia Committee, 1969, (2) Tandon Committee, 1974, (3) Chore Committee, 1980 and (4) Vaghul Committee, 1985.This section briefly outlines the efforts made by the RBI in the direction of the development of a full fledged bill market.
Bill Market Scheme, 1952:
The salient features of the scheme were as follows:
1) The schemes was announced under section...