Ch. 5 Commercial Bill Market Introduction:- Purchase & Discounting of BOE is a way of employing bank funds. The amt of working capital provides mainly through cash credit, overdraft or discounting. A Commercial Bill or a BOE is a short term negotiable & self liquidating money market instrument which evidences the liability to make a payment on a fixed date when the goods are purchased on credit. Assets with high liquidity & low risk. Bill finance 1 major type of finance in foreign countries but in India is underdevelopment. Share of bill finance in the total bank credit is between 8 to 22 %. Bills Of Exchange(BOE):- It is generally drawn by a creditor on his debtor. Presented to debtor for his acceptance. Debtor after signifying his acceptance returns BOE to the creditor. Debtor is known as acceptor or drawee who commits to make payment on due date. Accepted bill can be discounted by drawer with a bank before due date. The Negotiable Instrument Act 1881, defines a BOE as a written instrument, containing an unconditional order, signed by the maker, directing a certain person, to pay a certain sum of money only, to the order of a certain person or to the bearer of the instrument.

Size of Bill market in India:- The commercial banks prefers to use the bills as instruments for providing credit to their customers. Market facilities for rediscounting means secondary market for bills also developed. The no of times the bill changes hands is known as velocity. Velocity would be higher in a well developed bill market. Amount of bills purchased & discounted increased from Rs 149 crores in 1955-56 to Rs 47142 crores in 2002-03. As per bill market scheme 1970, all licensed scheduled commercial banks were eligible for offering B.O.E to RBI for rediscount. The bills should have usance of 90 days, at least 2 sign & minimum amount of single bill was Rs 5000. Bill Market Rates:- Bill rate is at which RBI can rediscount eligible bills from commercial banks. RBI fixes rate at which commercial banks can discount bills, it is called commercial banks bills finance rate. Bank rate, SBI Hundi Rate, Bazar Bill Rate, Commercial Banks Bills Finance Rate & SBI Discount Rate. Bank rate remains unchanged since 1981. Only SBI discount rate are applicable. Increase from 8.5% in 1970-71 to 16.5% in 1987-88 -15.5%. Market For Long Term Bills:- market for long term bills came into existence with the introduction of Bills Rediscounting Scheme by IDBI in 1965. Specially designed for manufacturers of machinery. Maturity is normally upto 5 yrs & in special cases extended to 7 yrs. Rate of interest differs & IDBI are fixed by themselves. Volume increased from 1.9 crores in 1965-66 to 2685 in 1988-89.