Dissatisfied with the old bill market scheme, in February 1970, the Reserve Bank of India constituted a Study Group under the chairmanship of Sh Narasimhan to go into the question of enlarging the use of bills of exchange as an instrument of credit and the creation of genuine bill market in India.
On the recommendations of the report of the study group, the Reserve Bank introduced the New Bill Market Scheme in November 1970 under Section 17 (2) of the Reserve Bank of India Act.
The main features of the New Bill Market Scheme are:
(i) All licensed scheduled commercial banks including the public sector banks will be eligible to offer bills of exchange to the Reserve Bank for rediscounting.
(ii) The bills covered under the scheme must be genuine trade bills relating to the sale or dispatch of goods.
(iii) The Reserve Bank rediscounts these bills. That is why the scheme is also called ‘Bills Rediscounting Scheme’. The rediscounting facility should be available at the Reserve Bank’s offices at Bombay, Calcutta, Madras and New Delhi. To avoid rediscounting of large number of small bills, such bills should be given in bunches.
(iv) The bill should be drawn on and accepted by the purchaser’s bank. If the purchaser’s bank is not a licensed scheduled bank, the bill should in addition bear the signatures of a licensed scheduled bank.
(v) The bills should have maximum of 90 days.
(vi) The bills should bear at least two good signatures.
(vii) The scheme does not cover the bills of exchange relating to the sale of goods to the government departments and quasi-government bodies as well as to statutory corporations to the sale of such commodities which are indicated by the Reserve Bank from time to time.
(viii) According to the modification of the scheme in 1971, the bills of exchange relating to the sale of goods to government departments and quasi government bodies as well as to statutory corporations have also been covered by the scheme.
(ix) With effect from April 1972, the bills of exchange drawn and accepted by the Industrial Credit and Investment Corporation of India (ICICI) were also made eligible for discount under the scheme.