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