Allahabad Bank Opts For 3-Pronged Credit Strategy

Allahabad Bank has drawn up a detailed plan to achieve Rs 1500 crore growth in advances in 1997-98. In 1996-97, Allahabad Bank could achieve a rise in net credit to the tune of Rs 122.9 crore.

After the Reserve Bank of India scrapped the maximum permissible bank finance (MPBF) rule, the bank set up a committee to draft a credit policy in the new scenario.

The bank, which has a prime lending rate of 14.5 per cent at present, has decided to adopt a three-pronged strategy while disbursing credit for working capital needs of corporates. The first method will be the turnover method. This will be applicable for credit needs up to Rs 2 crore, especially applicable to small scale sector and small traders and businessmen. In this method, the bank will provide credit equal to 20 per cent of the value of the projected sales of a company for the next fiscal. However, the bank will sanction this credit only if the borrower can put up 5 per cent of the value of projected sales figures as investments in current assets.

 

The second method will be the MPBF route. The bank will fix a cut off limit of Rs 10 crore credit for corporates wanting to take the MPBF route.

Any company wanting to take credit under the MPBF route can do so as long as its credit requirements are below Rs 10 crore.

The third method is the cash budget route. In this method, companies will be asked to draw up a cash budget for the next year detailing the periodicity and quantum of fund needs. Allahabad bank feels that this method will help borrowers in cash management and the bank will be better able to manage its funds.

Finance will be provided by the bank to the tune of 75 per cent of cash deficit of a company, while 25 per cent of the cash deposit should be contributed by the bank. The bank also plans to concentrate on product innovation for increasing credit disbursals and will revamp its schemes for education loans, consumer loans, car finance and housing finance.

Officials of the bank said, that after RBI allowed loans up to Rs 300 crore for plant and machinery to be classified as loans to small scale industry (SSI), a lot of Allahabad Banks large loans have been classified as loans to SSI.

This will help the bank in achieving a primary sector lending of 38 per cent, almost fulfilling the Reserve Bank norm of 40 per cent.