Requisition

Requisition — Meaning, Definition & Full Explanation

A requisition is a formal, documented request made within an organisation for goods, services, or a specific action. It initiates an internal process to obtain necessary resources, ensuring accountability and adherence to established procedures. This formal request serves as a critical internal control mechanism, tracking demands and facilitating planned resource allocation.

What is Requisition?

A requisition is essentially an internal demand note, formally submitted by an employee or department to request something they need for their work. This "something" could range from physical items like office supplies, new equipment, or raw materials, to services such as software development, maintenance, or training programs, or even specific actions like transferring funds or approving a project phase. The primary purpose of a requisition is to standardise and control the procurement or resource allocation process. By requiring a formal requisition, organisations ensure that all requests are justified, approved by the appropriate authorities, and documented for auditing and budgeting purposes. It prevents unauthorised spending and helps manage inventory and expenses effectively. Historically, requisitions were paper-based, but increasingly, businesses, including banking institutions, use digital systems (like Enterprise Resource Planning or ERP software) for greater efficiency and transparency.

How Requisition Works

The process of a requisition typically follows several structured steps to ensure proper governance and resource management:

1. Need Identification: An employee or department identifies a requirement for a specific item, service, or action that is essential for their operations. For instance, a branch might need new printing paper or a new biometric device.
2. Requisition Creation: The initiator fills out a requisition form. This form, whether physical or digital, details the requested item/service (quantity, specifications), justification for the request, estimated cost, and the relevant budget code.
3. Approval Process: The created requisition is then routed through an internal approval hierarchy. This usually involves the immediate supervisor, department head, and potentially the finance department or a dedicated procurement committee, depending on the value and nature of the request. Approvals ensure the request aligns with budget, policy, and strategic needs.
4. Forwarding to Procurement/Relevant Department: Once all necessary approvals are obtained, the approved requisition is forwarded to the procurement department (for external purchases) or the relevant internal team (for internal services or transfers).
5. Action Initiation: The procurement department then uses the approved requisition as the basis to initiate a purchase order with an external vendor. If it's an internal service, the relevant department commences the requested action.

This structured process ensures transparency, prevents arbitrary spending, and creates an audit trail for all resource demands within the organisation.

Requisition in Indian Banking

In the Indian banking sector, requisitions play a vital role in the internal operational efficiency and robust governance framework mandated by the Reserve Bank of India (RBI). While not directly visible to customers, banks extensively use formal requisition processes for managing their vast internal needs. For example, a branch manager might raise a requisition for new computer systems, an ATM cash replenishment, or specific marketing materials. The IT department might requisition new software licenses or hardware upgrades, while the HR department could requisition training programs for employees.

These internal requisition systems are typically integrated into the bank's Enterprise Resource Planning (ERP) or Core Banking System (CBS) platforms, ensuring digital tracking, multi-level approvals, and seamless integration with budget allocations. This aligns with RBI's focus on strong internal controls, operational risk management, and audit trails, as outlined in various guidelines on internal audit and governance. The process ensures that all internal expenditures, from a ₹500 stationery order to a ₹50 lakh technology upgrade, are properly justified, budgeted, and approved. For candidates appearing for exams like JAIIB and CAIIB, understanding requisitions is relevant to topics covering internal controls, operational banking processes, and financial accounting within banking institutions.

Practical Example

Consider Ramesh, a salaried employee and Head of Operations at a major private sector bank's branch in Pune. The branch's existing customer service desk requires a new, more ergonomic chair to improve employee comfort and efficiency, as the old one is broken. Ramesh identifies this need and initiates a digital requisition.

Using the bank's internal ERP system, Ramesh logs in and fills out a "Furniture Requisition" form. He specifies "Ergonomic Office Chair," quantity "1," provides a brief justification ("Replacement for broken chair at customer service desk; essential for employee well-being and productivity"), and links it to the branch's allocated budget code for office supplies. The system automatically routes this requisition to his immediate supervisor, the Branch Manager, for initial approval. Upon approval, it then goes to the Zonal Operations Head for a second layer of approval. Finally, once approved by both, the requisition is automatically forwarded to the bank's central Procurement Department located in Mumbai. The Procurement Department then uses this approved requisition to generate a formal Purchase Order to a furniture vendor, leading to the delivery of the new chair to Ramesh's branch.

Requisition vs Purchase Order

Requisition and Purchase Order (PO) are both documents used in the procurement process, but they serve distinct purposes and are used at different stages.

Feature	Requisition	Purchase Order (PO)
Purpose	Internal request for goods, services, or action	External commitment to purchase from a vendor
Audience	Internal departments (e.g., procurement, finance)	External vendor
Legality	Not legally binding	Legally binding contract offer
Timing	Precedes the creation of a Purchase Order	Follows an approved requisition

A requisition is an internal document that signals a need within the organisation and initiates the procurement cycle. It's an internal "ask." A purchase order, conversely, is an external document issued by the buyer to a vendor, committing to buy specific goods or services at agreed-upon terms, effectively a formal "buy."

Key Takeaways

• A requisition is a formal internal request for goods, services, or specific actions within an organisation.
• It serves as a critical internal control mechanism, ensuring accountability and adherence to budgets.
• The requisition process typically involves need identification, creation, multi-level internal approval, and forwarding.
• Modern organisations, including Indian banks, predominantly use digital requisition systems integrated with ERP/CBS.
• In Indian banking, requisitions are crucial for managing internal operations and align with RBI's focus on robust governance and audit trails.
• A requisition is distinct from a purchase order, which is an external, legally binding document issued to a vendor.
• Understanding requisitions is important for banking professionals, touching upon operational risk management and internal audit functions.
• It helps track and account for all internal demands for resources, preventing unauthorised spending and improving resource allocation.

Frequently Asked Questions

Q: Who typically creates a requisition? A: Any employee or department within an organisation that identifies a legitimate need for goods, services, or a specific action usually initiates a requisition. This request is then submitted through the established internal approval hierarchy.

Q: Can a requisition be rejected? A: Yes, a requisition can be rejected if it doesn't meet budgetary constraints, lacks proper justification, violates internal policies, or is deemed unnecessary by an approving authority. The approval process acts as a critical check to ensure all requests are legitimate and aligned with organisational goals.

Q: How does a requisition benefit an organisation? A: A requisition benefits an organisation by providing a structured, transparent process for all internal requests, which enhances budget control, improves accountability, and creates an essential audit trail for resource utilisation. This systematic approach ultimately leads to more efficient resource allocation and cost management.