Download - Rediscounting bills
WHAT IS REDISCOUNTING OF BILLS ??• Rediscounting of
commercial bills is an activity involving bills • where a financial institution
rediscount • un-matured discounted
commercial bills• with another financial institution
by rediscounting.
It is a way of financing among financial
institutions.
Person with Commercial Bill
BANK
PERSON GOES TO BANK FOR DISCOUTING OF BILL
RBI / BANK
BANK REDISCOUNTS WITH ANOTHER BANK OR RBI
PROCESS OF REDISCOUNTING OF BILLS
BILL REDISCOUNTING BILL SCHEME
• In 1968 ,The Dahejia Committee • commercial banks , industry and trade• develop the practice of issuing • bills which have discounting facilities .
The study group chaired by Shri M. Narasimham emphasized in 1970 that progressive use of the bills as an instrument of credit advantageous not onlyfor imposing financial discipline on borrowers but also on lenders.
New Bills Rediscounting Scheme introduced was
expected to impart flexibility to the Money Market, even
out liquidity within the banking system and enable
the Reserve Bank to exercise more effective control over
the money market.
ON NOVEMBER 1,1970
OBJECTIVES OF BRS SCHEMECREATION OF AN INSTRUMENT WHICH
ENCOURAGES MORE DISCIPLINED USE OF BANK CREDIT
PROVIDES LIQUIDITY IN BANKING SYSTEM
IS GENUINE FOR SALE AND PURCHASE TRANSACTIONS
BILLS ELIGIBLE FOR REDISCOUNT
UNDER THE BRS SCHEME , ALL SCHEDULED COMMERCIAL BANKS ARE ELIGIBLE TO
REDISCOUNT THE ELIGILE BILLS WITH THE RBI OR THER INSTITUION
CONDITIONS FOR ELIGIBILITY
GENUINE TRADE BILL
NATURE ON TRANSACTION INDICATED ON FACE OF BILL
USANCE NOT MORE THAN 90
DAYS
ACCEPTED BY PURCHASER’S
LINCENSED BANK
COMMODITIES OF RBI ARE
NOT ELIGIBLEM
SHOULD HAVE TWO GOOD
SIGNATURES , ONE OF BANK
REDISCOUNTING PROCEDURE BY BANKS
• COMMERCIAL BANKS ARE ALLOWED TO DRAW DERIVATIVES USANCE PROMISSORY NOTES FOR MATURIRTES UP TO 90 DAYS ON THE STRENGTH OF COMMERCIAL BILLS DISCOUNTED BY THEIR BRANCHES.
• THE FUCTION OF REDISCOUNTING OF BILLS AND DRAWING DERIVATIVES PROMISSORY NOTE IS CENTRALISED WITH THE BANK’S MAIN FUND ACTIVITY FOR EFFECTIVE CONTROL.
•REDISCOUNTING BANK ISSUES CERITFICATE TO THE BANK OF WHOSE BILLS IT HAS REDISCOUNTED CONTAINING ACKMOWLEDGEMENT AND VALUE
RBI’S DERIVATIVES REGARDING BILL REDISCOUNTING• REDISCOUNTING IN EXCESS OF ELIGIBLE BILL WILL BE
TREATED AS UNSECURED BORROWING.• ONLY USANCE BILLS HELD BY OTHER BANKS CAN BE
REDISCOUNTED.• FINANCE COMPANIES CANNOT AVAIL THIS FACILITY.• BILLS DISCOUNTED BY NON-BANKS SHOULD NOT BE
REDISCOUNTED BY BANKS.• ACCOMMODATIONS BILLS CANNOT BE REDISCOUNTED.
LODGING OF BILLS WITH RBI• IN THE BEGINNING , AT THE TIME OF REDISCOUNTING OF BILLS , THE BANKS WERE REQUIRED TO LODGE ALL SUCH BILLS WITH RBI.•THIS INVOLVED A LOT OF WORK.•TO MINIMIZE THESE DIFFICULTIES , THE RBI HAS DISPENSED WITH THE REQUIREMENT OF LODGING OF ELIGIBLE BILLS UP TO FACE VALUE OF RS. 10 LAKH.
SO BANKS NOW KEEP THE BILLS EVEN AFTER REDISCOUNTING WITH THEM AS AGENTS OF RBI . ON DUE DATE PAYMENT IS MADE.
RBI ASKS BANK TO KEEP THE REDISCOUNTED BILL
WITH ITSELF ONLY
AS AGENT OF RBI BANK COLLECTS MONEY ON MATURITY FROM THE
BANK IT HAD BOUGTH.
REASONS FOR SLOW SUCCESS
RELUCTANCE LIMITED COVERAGE
POOR RESPONSE BY PUBLIC SECTORS
LIMITATION OF 90 DAYS
BILL MARKETS RATE• SBI HUNDI RATE – RATE AT WHICH SBI USED TO
DISCOUNT HUNDIS OF INDEGENOUS BANKERS.•COMMERCIAL BANKS RATE – THE RATE AT WHICH
COMMERCIAL BANKS GETS BILL DISCOUNTED WITH EACH OTHER.• SBI DISCOUNT RATE – RATE AT WHICH SBI DISCOUNTS
FIRST CLASS USANCE BILLS.•BANK RATE – RATE AT WHICH THE RBI DISCOUNTS
ELIGIBLE BILLS FROM COMMERCIAL BANKS.
[(1+R/(100xP))P - 1] x 100
COMPUTATION OF YIELD DISCOUNT IS REALISED AT THE TIME OF
REDISCOUNTING , SUCH DISCOUNT CAN BE REINVESTED.
R = RATE OF DISCOUNT PER ANNUMP = PERIOD OF COMPUNDING PER ANNUM SO IF IT IS A 3 MONTH BILL THEN PERIOD OF COMPOUNDING IN 12/3 =4
IMPORTANCE OF BRS IN FUNDS MANAGEMENT
•DEFINITE MATURITY PERIOD.• IF DISHONOURED , PROVISIONS FOR PENALTY ARE ATTRACTIVE•TWO GOOD SIGNATURE MINIMISES THE RISK.•BETER WAY OF USING CREDIT•BANKS CAN MEET THEIR MEET THEIR FUNDS REQUIREMENTS BY DISCOUNTING WITH RBI
SUMMARY WE ALL LEARNED TODAY
• MEANING OF REDISCOUNTING• HOW IT CAME IN INDIA• OBJECTIVES AND ELIGIBILITY OF BRS SCHEME• REDISCOUNTING PROCEDURE BY BANKS• LODGING OF BILLS WITH RBI• REASON FOR SLOW SUCCESS• BILL MARKET RATES• COMPUTATION OF YIELD• IMPORTANCE OF BRS IN FUNDS MANAGEMENT.