Skip to main content

Working capital loans to now come with withdrawal commitment & fees

 Working capital loans to now come with withdrawal commitment & fees 
The Reserve Bank of India on Thursday tightened norms for firms seeking working capital loans by ordering them to pay a fee and commit on withdrawal of sanctioned funds in an attempt to shore up bank treasuries to handle surplus funds from now on.
The RBI said large borrowers will have to stipulate a minimum level of ‘loan component’ in fundbased working capital finance to promote greater credit discipline among borrowers. RBI said that a draft norm on this will be released soon. 
“The working capital requirements of borrowing entities are met by banks through a cash credit limit which is a revolving facility. The cash credit facility places undue burden on the banks in managing their liquidity requirements. Currently banks do not charge any commitment fee and do not maintain any capital on the undrawn portion of the cash credit because it is classified as an unconditionally cancellable facility,” said RBI deputy governor N S Vishwanathan. 
“We therefore want to control the possible volatility in utilisation of cash credit limits by making it mandatory to have a working capital demand loan portion in the working capital facility,” he added. As of now, once a borrower is sanctioned working capital limit, he can draw the loan amount within the limit anytime within a year. This gives the borrower flexibility and comfort to withdraw funds. Large corporates have working capital limits with several banks but most of these limits are not drawn. 
However, banks are mandated to set aside capital on sanctioned amount of working capital loan. Under the new norm borrowers will have to commit to withdraw a fixed amount of the sanctioned limit. 
“The introduction of a mandatory loan requirement in working capital loans will provide the much-needed credit discipline,” said State Bank of India’s chairman Rajnish Kumar. Banks expect the RBI to fix a limit of minimum drawdown based on the size of the loan and the industry. A minimum limit was introduced in the past, but borrowers did not take to it, said a senior banker. 
However, when mandated to assign capital even on the undrawn limit, banks felt the pinch. To mitigate risk on higher capital requirements, many lenders introduced unconditional cancellability clause in the loan agreement. Lenders say that large borrowers have declined to add this clause in the agreement and banks have made exceptions in some such cases. 

The Economic  Times, New Delhi, 18th June 2018

Comments

Popular posts from this blog

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...

After RBI rate cut, check latest home loan interest rates of top banks for loans above Rs 75 lakh

  The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points from 6.50% to 6.25% in its monetary policy review as announced on February 7, 2025. After the RBI repo rate cut, banks such as SBI, Canara Bank, PNB, and Union Bank among others have cut their repo linked lending rates. Most other banks are also expected to cut their lending rates in line with the RBI rate cut. After banks cut their lending rates, their home loan borrowers will have to pay less interest. Normally, when a lender cuts the lending rate, borrowers get two options: Either to go for a reduction in EMIs or reduce the tenure of the loan. The second option will help the borrowers clear their home loan outstanding faster. In case, the borrower goes for reduction in EMI then the lower lending rate of the lender would mean lower Equated Monthly Installment (EMI) for borrowers.   EMI is the amount you will pay on a specific date each month till the loan is repaid in full.A repo rate-linked home ...

GST collections rise 9.9% to exceed Rs 1.96 trillion in March 2025

  Gross GST collection in March grew 9.9 per cent to over Rs 1.96 lakh crore, government data showed on Tuesday. GST revenue from domestic transactions rose 8.8 per cent to Rs 1.49 lakh crore, while revenue from imported goods was higher 13.56 per cent to Rs 46,919 crore. Total refunds during March rose 41 per cent to Rs 19,615 crore. After adjusting refunds, net GST revenue stood at over Rs 1.76 lakh crore in March 2025, a 7.3 per cent growth over the year-ago period.       - Business Standard 02 th March, 2025