Mpbf Has To Change, Says Apex Bank

The concept of `maximum permissible bank finance (MPBF) would have to undergo a change with gradual movement towards a loan-based lending system and with the introduction of capital adequacy and other prudential norms, according to the Reserve Bank of India (RBI).

The gradual movement away from the cash credit system was expected to bring about greater discipline in the credit delivery system, the Reserve Bank op India said in its report on trend and progress of banking in India, 1995-96.

The recent initiative by some banks in the form of lower margin over prime lending rate (PLR) for demand loans was a step in the right direction and delinking of the issuance of commercial paper from cash credit component would also bring flexibility to borrowers in their credit planning, ReserveBank said.

 

The loan system for delivery of bank credit was introduced in april 1995 for imparting discipline in the utilisation of credit by large borrowers and enforcing effective control over credit flows in general.

Effective October 19, the cash credit component for borrowers with maximum permissible bank finance (MPBF) of Rs 20 crore and above was brought down to 25 per cent and for borrowers with MPBF of less than Rs 20 crore and upto Rs 10 crore was brought down to 60 per cent.