Tandon Committee for JAIIB PPB: Recommendations, Working Capital & Solved Case

The Tandon Committee is one of the most frequently tested topics in the JAIIB Principles. Practices of Banking (PPB) paper. And one of the most misunderstood.

If you can explain how it changed working-capital lending in India. Solve a simple numerical on it. You have locked in easy marks that many candidates lose.

This 2026 guide breaks the whole topic down in plain English. Walks you through a fully solved case study. And shows you exactly how examiners frame the questions.

Indian banking has been shaped by a series of expert committees. But few had the day-to-day impact of the Tandon Committee. Before it.

There were no standardised rules for how much working capital a bank should lend a borrower. The result was over-financing, idle funds, and rising bad loans. The committee fixed that.

And its logic still sits at the heart of credit appraisal today.

What Was the Tandon Committee?

The Tandon Committee was a study group constituted by the Reserve Bank of India (RBI). Chaired by Shri Prakash Lal Tandon. Its full name was the Study Group to Frame Guidelines for Follow-up of Bank Credit.

Its core job was to examine how commercial banks financed the working capital needs of industry. Trade. And to recommend a disciplined, uniform system.

For the exact year of constitution and submission of its report. Always confirm on the latest official IIBF notification or your prescribed PPB textbook. As questions sometimes test the date.

Why Working Capital Needed Reform

In the pre-Tandon era, bank lending in India had three big problems:

• No standard norms: Each branch judged loan size differently. So similar firms got very different limits.
• Idle. Diverted funds: Borrowers held excess inventory. Sometimes diverted working-capital loans into fixed assets or other uses.
• Security-first thinking: Banks lent against the value of stock. Book debts rather than the genuine need of the business.

The committee’s philosophy flipped this. Lending was to be based on a reasonable estimate of need. The proper end-use of funds. Not merely on available security. This single shift is the heart of every JAIIB question on the topic.

The Main Recommendations of the Tandon Committee

For the JAIIB PPB exam. Group the Tandon Committee recommendations into four clear buckets. Memorise the buckets, not random sentences.

1. Inventory. Receivable norms: The borrower should hold only a reasonable level of raw materials. Work-in-progress. Finished goods and book debts — not excessive stock financed by the bank.
2. Lending discipline (the three methods): The borrower must fund a growing share of working capital from long-term sources (own funds. Term loans). Reducing dependence on the bank.
3. Information. Follow-up system: Borrowers should submit regular operating data. Fund-flow statements so the bank can monitor the actual use of credit.
4. Style of credit: A part of the limit could be carved into a loan component. A fluctuating cash-credit component. To bring discipline to the cash credit system.

Working Capital Gap and MPBF Explained

This is the section that earns marks in the numerical case study. So go slowly. Two terms matter: the working capital gap. Maximum Permissible Bank Finance (MPBF).

The working capital gap (WCG) is simply:

Working Capital Gap = Current Assets − Current Liabilities (other than bank borrowings)

In other words. Take the funds tied up in current assets. Subtract the spontaneous current liabilities (like trade creditors) that already fund part of them. What remains is the gap that has to be financed. Partly by the borrower and partly by the bank.

The Three Methods of Lending

The committee suggested three progressive methods. With each method. The borrower’s own contribution rises and bank finance falls. This is the single most tested idea in the chapter.

Notice the trend: Method 1 is the most liberal. Method 3 is the strictest. As you move down. The current ratio improves because the borrower brings in more long-term funds. Method 3 was rarely implemented in practice, but it is still examinable.

Solved Case Study: Tandon Committee Numerical

Here is the kind of Tandon Committee case study JAIIB loves. Read the figures, then work the two methods with me.

Step 1. Find the working capital gap.Working Capital Gap = Current Assets − Current Liabilities = 400 − 100 = ₹300 lakh.

Step 2 — MPBF under Method 1 (borrower funds 25% of the gap):MPBF = 75% of 300 = ₹225 lakh. Borrower’s contribution = ₹75 lakh.

Step 3. MPBF under Method 2 (borrower funds 25% of total current assets):25% of Current Assets = 25% of 400 = ₹100 lakh (borrower’s contribution).MPBF = (75% of 400) − 100 = 300 − 100 = ₹200 lakh.

Result: MPBF falls from ₹225 lakh (Method 1) to ₹200 lakh (Method 2), and the borrower’s stake rises from ₹75 lakh to ₹100 lakh. That is the entire point of the committee — more borrower discipline, less bank exposure. Practise three or four such sums on our mock tests until the steps feel automatic.

How to Study the Tandon Committee for JAIIB

You do not need to memorise the whole report. You need a tight, exam-focused approach. Here is a study plan that works.

• Lock the formulas first. Write the WCG. The three MPBF formulas on a flashcard and recall them daily.
• Solve, don’t just read. Numericals stick only through practice. Do at least five solved sums.
• Link it to the next committee. Study the Chore Committee right after Tandon — examiners often compare the two.
• Use bilingual notes. If Hindi terms confuse you. Keep a small English–Hindi glossary for words like working capital. Current assets.
• Revise with MCQs weekly. Free explanations and crash content are linked from our free guides.

Common Mistakes Students Make

Most lost marks on this topic come from a handful of avoidable errors. Check yourself against this list before exam day.

1. Confusing the three methods. Remember: Method 1 = 25% of gap; Method 2 = 25% of total current assets. Mixing these up changes your whole answer.
2. Including bank borrowings in current liabilities. The WCG formula uses current liabilities other than bank borrowing. Subtract the wrong figure and the sum collapses.
3. Forgetting the direction of the trend. Bank finance decreases from Method 1 to Method 3; the current ratio improves. Many candidates state it backwards.
4. Quoting unverified dates or percentages. If you are unsure of a year. Do not guess. Confirm on the latest official IIBF notification or your textbook.
5. Treating it as theory only. JAIIB increasingly tests application. Always be ready for a one-line numerical.

Tandon Committee — Quick Facts Table

Frequently Asked Questions (FAQ)

What is the main objective of the Tandon Committee?

Its main objective was to study the working capital finance system in India. Recommend disciplined. Need-based lending norms for commercial banks. Including inventory limits and the concept of MPBF.

What are the three methods of lending under the Tandon Committee?

Method 1 funds 75% of the working capital gap. Method 2 requires the borrower to bring 25% of total current assets. Method 3 also factors in core current assets. The borrower’s contribution rises. Bank finance falls from Method 1 to Method 3.

How is the working capital gap calculated?

Working Capital Gap = Current Assets − Current Liabilities (other than bank borrowings). This gap is then financed partly by the borrower. Partly by the bank as MPBF.

Is the Tandon Committee still relevant after the loan system reforms?

Yes, conceptually. While the rigid MPBF system was later liberalised. Its core ideas — need-based lending. Borrower contribution and end-use monitoring. Still guide credit appraisal and remain in the JAIIB syllabus.

How important is the Tandon Committee for the JAIIB PPB exam?

Very important. It is a high-yield topic that can appear as conceptual MCQs. As a short numerical case study. A few hours of focused practice usually converts into reliable marks.

Conclusion: Turn This Topic Into Easy Marks

The Tandon Committee looks intimidating only until you see the structure: one objective. Four recommendation buckets, one gap formula, and three lending methods. Lock those in. Solve a handful of numericals. And this becomes one of the most reliable scoring areas in your JAIIB PPB preparation.

Be consistent. Revise with MCQs. And always verify any date or figure against your official source. Master this chapter now. And you will walk into the exam hall confident that the working-capital questions belong to you.

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