Rbi Prescribes 80% Loan Component For Working Capital

Following the announcement in credit policy, the Reserve Bank of India (RBI) has issued a circular to banks prescribing a uniform level of 'loan component' of 80 per cent for all borrowers of working capital credit limits of Rs 10 crore and above. The apex bank has instructed banks to implement the new system by December 31, 1997.

Further, if a borrower desires a higher per centage of 'loan component', RBI has given the banks the freedom to permit it. The Reserve Bank has categorically stated in the credit policy that there is no intention to raise the percentage of 'loan component' any further.

 

Earlier, as a measure of imparting an element of discipline in the utilisation of bank credit, the percentage of 'loan component' in the working capital credit limits was linked to working capital credit limit a borrower could avail of (a) Rs 10 crore and above, but less than Rs 20 crore; and (b) Rs 20 crore or above.

In the circular, RBI has further stated that in the case of borrowers with working capital credit limit of less than Rs 10 crore, banks may persuade them to go in for the 'loan system' by offering an incentive in the form of lower rate of interest on the 'loan component' as compared to the 'cash credit component'. The actual percentage of 'loan component' may be settled by the bank with its borrower clients.

The central bank, in another circular, has removed the pre-set ceilings on FCNR(B) deposit rates and has instructed banks to link the ceiling on FCNR(B) deposits to the international rates for the various currencies and maturities. Banks can accept FCNR(B) deposits denominated in the four major foreign currencies, viz dollar, pound, mark, and yen.

In case of deposits with a maturity of one year or below, banks may use the Libor prevailing on last trading day of the preceding week as the ceiling. In case of deposits of over a year's maturity, RBI has clarified that banks may use the international swap rates prevailing on the last trading day of the preceeding week as a ceiling for the respective currencies and maturities.

These rates are available on the trading screens of various news agencies in banks' dealing rooms. Banks are free to use the rates flashed by any of the news agencies. In case of floating rates, RBI has suggested that banks reset the rates every six months.