Kallapanna Awade Ichalkaranji Janata Sahakari Bank Ltd.
 

Posted On : August 17,2018

RBI Issues Guidelines on Loan System for Delivery of Bank Credit

The Reserve Bank of India (RBI) on Monday, in “draft guidelines on loan system for delivery of bank credit”, said that borrowers who have a total working capital limit of Rs 150 crore and above should have at least 40% of it as working capital loans from October 1, 2018.

The Reserve Bank of India (RBI) on Monday, in “draft guidelines on loan system for delivery of bank credit”, said that borrowers who have a total working capital limit of Rs 150 crore and above should have at least 40% of it as working capital loans from October 1, 2018. It will be revised to 60% from April 1, 2019.

Banks provide working capital finance by way of cash creditor overdraft, working capital demand loan, purchase or discount of bills, bank guarantee, letter of credit, factoring, of which cash credit (CC) is by far the most popular mode of working capital financing. While CC has its benefits, RBI said, it also poses several regulatory challenges such as perpetual roll overs, transmission of liquidity management from the borrowers to banks or RBI, hampering of smooth transmission of monetary policy.

“In respect of borrowers having aggregate fund based working capital limit of Rs 150 crore and above from the banking system, a minimum level of ‘loan component’ of 40% shall be effective from October 1, 2018,” the central bank said. The central bank said that for such borrowers, availing up to 40% of the total fund-based working capital limits will be allowed from the loan component. “Drawings in excess of the minimum loan component threshold may be allowed in the form of cash credit facility,” it said. In its bi-monthly monetary policy in April, RBI had proposed to stipulate a minimum level of ‘loan component’ in fund based working capital finance for larger borrowers “with a view to promoting greater credit discipline among working capital borrowers”.

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