RBI may tighten margin for collateralised credit

RUN-UP TO THE CREDIT POLICY

In order to balance growth with inflation, the Reserve Bank of India (RBI) is likely to tighten the margin or collateralised requirement for credit or working capital loans to industrial houses while relaxing credit flow to the farm sector.

Sources said some measures to this effect would be taken in the ensuing annual policy review next week. According to banking sources, RBI is working on various options to ease the credit flow to the agricultural sector to boost production, which has slowed down.

The margin or collateral requirement for agricultural lending by banks, especially to the farming sector, may be reviewed downward. Currently, under the priority sector, collateral is given for loans after a certain limit. Sources said one of the options might be to hike the limit for non-collateralised loans under the priority sector.

On the other hand, it may tighten the margin requirements for collateralised lending facilities to traders and industrial houses. Sources said the central bank was of the view that corporate credit was making its way into various sensitive sectors such as capital market and real estate, among others.

While the risk weights and prudential norms have already been tightened for sensitive sectors, it is time to turn the heat on the companies. This could be done by raising the margin requirement on such loans for banks, especially for inflation-sensitive sectors.

On the advance side, only personal loans are non-collateralised. A collateralised loan means the borrower has to pledge some securities or mortgage assets to avail of loans. The entire cash credit facility and working capital for companies are collateralised.

While the margining requirement could be increased for such loans, banks may be directed to bring down the tenure of such cash credit facilities so that further rollover or continuation can be done only after the end use supervision.

Following a sharp hike in inflation, RBI has already started reviewing credit facilities to commodity traders and companies for select commodities, especially oilseeds. This was aimed at discouraging hoarding of such commodities.