Short Notes on Credit Authorisation Scheme of Credit

The Credit Authorisation Scheme (CAS) for bank advances was introduced by the Reserve Bank of India in 1965.

Under the Scheme, all scheduled commercial banks have to obtain prior authorisation of the Reserve Bank before granting any fresh credit limit of Rs. 1 crore or more to any single borrower. This limit was, however, raised to Rs. 2 crores in 1975.

The banks first scrutinise the proposals of the borrowers and then send them to the Reserve Bank for approval.

The Reserve Bank goes through the proposal and if found suitable, then it may authorise the concerned bank to sanction the loans asked for. The CAS is being reviewed by the Reserve Bank from time to time and is progressively liberalised.

Recently, following the Vaghul Committee’s Report on Money Market, certain changes have been introduced in the CAS for promoting the bill financing.

(i) From April 1, 1988, in the case of borrowers who enjoy aggregate working capital facilities exceeding the cut-off point under the CAS, the limit sanctioned against book debts should not be more than 75 per cent of aggregate limits sanctioned to such a borrower for financing his inland credit sales.

(ii) Sanctioning of separate additional ad hoc inland bill limit is left to the discretion of the banks.

(Hi) All borrowers subject to the CAS have to attain a ratio of bill acceptances to total inland credit purchases of 25 per cent.

Since the out-off point is raised from Rs. 4 crores to Rs. 6 crores from April, 1986, the number of CAS parties covered under the scheme decreased from 843 in March 1986 to 629 in March 1987. Total limits in force also dropped from Rs. 21,671 crores to Rs. 21,137 crores during this period.

The RBI received 749 applications for authorisation in 1986-87 of which 316 were approved and Rs. 5,146 crores of loans was sanctioned.