Loan Component Rollover To Be Reviewed Every Year

In a detailed guideline issued yesterday, the apex bank said the annual review of the working capital limit should be scrupulously complied with and the credit limit should not be allowed to continue without such a review and determination of limit afresh should be on the basis of financial data.

The Reserve Bank will permit lead banks in consortium to allow individuals banks the flexibility to bifurcate a loan between the cash credit component and loan component. This will be subject to the overall limit of the borrower being bifurcated. The apex bank states in the case of multiple banking each bank must restrict the sanction of cash credit component to a maximum of 25 or 40 per cent, as the case maybe of the credit limit sanctioned by it. For this purpose, banks may evolve an arrangement for the sharing of information on the borrowing units periodically.

 

The central bank has said bifurcation of the credit limit into loan and cash credit should effected after excluding export credit limits (pre-shipment and post-shipment) and will have to be completed before December 31, 1996 or the date of next quarterly review of the account, which ever is earlier.

Commercial banks are now free to charge different interest rates on the loan component and the cash credit component and this will be made as per the prime lending rate of individual banks. The period of short-term loan for working capital purposes should not be less than six months.

The RBI has also allowed banks to incorporate suitable clauses in the loan document which will help banks to recall working capital credit facility including the loan component.

The central bank has further clarified that the working capital limit of the corporate issuing commercial paper will be reduced by the finance banking company.

The quantum of commercial paper to be issued will be adjusted from the cash credit component, the RBI said.