The Credit Authorisation Scheme (CAS) was announced as a part of the 1965/66 credit policy to introduce greater control by the government over bank credit and align it more directly with the requirements of the five-year plans devised by the Planning Commission. Following the nationalization of 14 banks in 1969 and 6 more in 1980, there was a policy shift toward priority-sector lending. Under CAS, commercial banks were required to obtain the Reserve Bank of India’s approval before releasing credit to borrowers beyond certain limits.

Initially devised as a regulatory measure to align bank-credit growth with the national economic plan and to prevent excessive lending to large borrowers, CAS evolved over the years. A committee was set up in 1983 by Manmohan Singh as Governor of the Reserve Bank of India, under the chairmanship of S. S. Marathe, Former Secretary, Ministry of Industry, to conduct a comprehensive independent review of CAS. Members included P. D. Ojha (Executive Director at RBI); B. V. Sonalker (Chairman of Central Bank of India); V. N. Nadkarni (Deputy Managing Director at State Bank of India); S. P. Acharya (CA); Sampat P. Singh (Professor at National Institute of Bank Management); and R. C. Mody (Chief Officer of Industrial Credit Department at RBI and Member-Secretary). The report found that the transformation of CAS was largely driven by the adoption of the Tandon and Chore Committees’ recommendations, which marked a shift from security-based to need-based lending and aimed to ensure that bank credit was allocated for genuinely productive needs. As of December 1982, CAS covered 877 borrowers, with the total limit amounting to Rs. 11,395 crores, underlining its substantial role in the banking sector’s credit regulation and monitoring processes.

The report’s findings underscored considerable variation in the quality of bank proposals and their compliance with CAS requirements, highlighting a pressing need for enhanced uniformity and objectivity in lending practices across banks. The committee made several structural and operational recommendations to this end. The committee recommended that banks be given greater discretionary power to deploy credit for proposals meeting specific criteria without central bank authorization, thereby streamlining the process of releasing funds to compliant borrowers. The criteria included cases in which estimates of future inflows were considered reasonable, the projected current ratio of current assets to current liabilities, which is a measure of liquidity, was not below 1.33, and the borrower submitted regular financial updates to the bank. Additionally, the committee advocated special treatment under CAS for export-oriented units by allowing banks to issue 75 percent additional credit, at their discretion, compared to 50 percent for other firms.

The Marathe Committee highlighted inconsistencies in the implementation of the Credit Authorisation Scheme, emphasizing the need for uniform lending practices and streamlined credit approvals. Its recommendations, including granting banks more discretion in lending and prioritizing export-oriented units, aimed to enhance the efficiency of and reduce government discretion in credit allocation.