In the late 1970s, India’s industrial financing system faced significant challenges due to a lack of coordination between term lending institutions, which provided medium- and long-term loans for industrial capacity creation, and commercial banks, which financed short-term working capital needs. This disjointed approach led to inefficiencies, delays, and difficulties in credit planning. The problem was compounded by increasing industrial sickness, with over 300 large units requiring rehabilitation, collectively accounting for ₹800 crores of outstanding bank credit. Recognizing these issues, the Reserve Bank of India established the Bhuchar Committee in March 1978 to examine and improve coordination between these financial institutions.

The committee identified key problems in the existing system. There were no standardized norms for sharing term loans between banks and term lending institutions, resulting in ad hoc practices and inefficiencies. Delays in project appraisals and disbursal of funds were exacerbated by redundant processes, such as individual scrutiny of property titles by multiple entities. Banks and term lending institutions operated in silos, limiting information sharing and collaboration. The industrial sickness further strained the system, as sick units faced cash losses, erosion of working capital, and difficulties in securing rehabilitation funding. By 1977, banks’ involvement in term loans had increased to 22.1%, reflecting a growing overlap in functions without a systematic framework for collaboration.

The committee recommended establishing clear criteria for sharing term loans, with banks participating up to 25-30% in loans above a defined threshold. Joint appraisals by banks and term lending institutions were proposed to streamline processes and ensure timely disbursal of working capital. The report advocated for simplified and standardized loan documentation and equitable sharing of securities, including pari passu charges over fixed assets for term loans. To address industrial sickness, the committee recommended coordinated rehabilitation programs involving both, banks and term lending institutions, and proposed regional institutions modelled on the Industrial Reconstruction Corporation of India to manage such efforts. To sustain long-term improvements, the committee called for a Standing Coordination Committee under the RBI to align policies and resolve operational issues.

These measures aimed to enhance efficiency, improve credit planning, and address the challenges of industrial financing and rehabilitation, fostering better integration between India’s term lending institutions and commercial banks.