Skip to main content

Working capital loans to now come with withdrawal commitment & fees

By
 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

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more