NEW SYSTEM OF
REPORTING AND LOAN SYSTEM FOR DELIVERY OF BANK CREDIT
Reserve Bank of India, now‑a‑days, plays the role of a
regulator, rather than exercising a great deal of control over the functioning of
commercial banks. It lays down policies and frames broad guidelines within
which the banks are allowed to formulate their own policies for implementation
at their end. The broad guidelines of RBI extend to various areas of
functioning such as deposits, cash management and credit etc.
In earlier days, when credit was scarce RBI controlled the banks in a
significant manner through various control measures. 'Credit Authorisation
Scheme' which came into operation way back in November 1965 was one such scheme,
which directly exercised a check on advances
granted by banks to large borrowers. Under
the scheme prior authorisation from Reserve Bank of India was necessary
before sanctioning any fresh credit limit of Rs. 1.00 crore or more to any single party or any limit that would take the
total limit enjoyed by such party from the entire banking system to Rs. 1.00
crore or more. The main objectives assigned to the scheme were as under:
·
To ensure that additional bank credit is in
conformity with the approved purposes and priorities and that the bigger borrowers
do not pre-empt scarce resources;
·
To enforce financial discipline on the larger
borrowers, where necessary, on uniform principles;
·
Where a borrower is financed by more than one
bank, to ensure that the customer's proposal is assessed in the light of the
information available with all the banks; and
·
To bring about improvement in the techniques of
credit appraisal by banks and their system of follow up.
As a major policy change announced by Reserve Bank of India on 8th
October 1988, the existing system of prior authorisation by Reserve Bank under
Credit, Authorisation Scheme for sanction of working capital limits / term
loans above the prescribed cut‑off points was withdrawn effective from
10th Oct, 1988. The 'Credit Authorisation Scheme' itself was renamed as 'Credit
Monitoring Arrangement' (CMA) and Reserve Bank assumed the role of making post‑sanction
scrutiny of proposals relating to sanction of term loans as well as working
capital limits beyond stipulated level. Thus banks were required to report to
the RBI for post sanction scrutiny any sanction/ renewal of credit limits to
borrowers enjoying working capital facilities (funded) of Rs. 10 crores and
above and sanction of additional limits to the existing borrowers which would
take their total fund based limits from the entire banking system to Rs. 10
crores and above. Similarly, reporting for post sanction scrutiny was
compulsory for all sanctions of term loans of Rs. 5 crores and above from the
entire banking system.
The reporting under CMA was basically to serve the same objective as was
being served under CAS. However, due to changing scenario banks were given more
and more freedom to carry out their operations. On the basis of recommendations
of three groups set up by RBI and also the internal reviews, banks were given
the discretion to decide on the levels of holding of inventories as also
receivables keeping in view the production/processing cycle of the industry as
well as financial and other relevant parameters of the borrower. The guidelines
relating to the mandatory formation of consortium were withdrawn and banks were
given the discretion to adopt the consortium/ syndication or multiple banking
route. The cash credit system which facilitated to some extent pre‑emption
of credit, was replaced by the loan system1 in the case of large borrowers. Consistent with these measures,
operational freedom to banks in more and more areas was granted and even the
earlier prescription of MPBF based on minimum current ratio of 1.33:1 was
withdrawn.
In the context of these developments, reporting under CMA was no longer
considered necessary and therefore it was withdrawn in December, 1997.
New System of Reporting
In order to have a database in relation to flow of bank credit to
borrowers in various industries, a new reporting system has been brought into
effect replacing earlier CMA. As per this system, banks should report to the
Reserve Bank, in respect of borrowers availing of working capital credit or
term loan (including deferred payment guarantee) limit of Rs. 10 crore or above
from the entire banking system, on a fortnightly basis (i.e. from 1st to 15th
and 16th to the last date of the month) additional/enhancement in credit limits
or reductions therein effected, in the prescribed proforma. In respect of
borrowers availing of working capital credit or term loan limit (including
deferred payment guarantee) of Rs. 1 crore or above but less than Rs. 10 crore
from the banking system, banks should report on a monthly basis, again in the
prescribed proforma, giving industry‑wise break‑up of net
additional credit limits sanctioned. The fortnightly statement covering
sanctions made during the fortnight (i.e. between 1st and 15th and 16th to end
of month) should be sent so as to reach Reserve Bank of India (IECD) positively
by the end of the following week and the monthly statement should be sent so as
to reach Reserve Bank before 15th of the month following the month to which the
report relates.
Reporting of Quarterly Data in 'Form A'
Banks are required to submit to RBI (IECD) the statement in Form A as on
the last Friday of every quarter, showing limits sanctioned and balances
outstanding (facility‑wise) in borrowal accounts of parties having
working capital limits of Rs. 10 crore or above from the entire banking system,
within 15 days from the date to which it relates. If certain parties have
availed of term loan of Rs. 10 crore or above, the details of borrowal accounts
of such parties should also be included regardless of whether the limits are
Rs. 10 crore or above or less than Rs. 10 crore.
Banks are required to submit the above data in floppies effective from
the last Friday of the quarter ending June 1997.
Granting of Bridge Loans
Sanctioning of bridge loan/interim finance was banned by Reserve Bank of
India w.e.f 17th April, 1995. The banks were also disallowed to permit any
extension of the existing bridge loans.
However, the banks have now been permitted to sanction bridge loans
against term loans sanctioned by other banks/financial institutions when such
banks/FIs are unable to disburse the sanctioned term loans due to temporary
liquidity constrains being faced by them. Bridge loans in these circumstances
may be considered by the banks on compliance with the following terms and
conditions:
(i) The
bank extending bridge loan/interim finance must obtain prior approval of the
other bank and/or FI which has sanctioned the term loan.
(ii) Sanctioning
bank must also obtain a commitment from other bank/ FI that latter would
directly remit the amount of term loan to it at the time of disbursement.
(iii) The
period of such bridge loan should not exceed four months. No further extension
in repayment period can be granted.
(iv) The bridge loan is to be utilised for the
purpose for which term loan has been sanctioned by the other bank/FI.
Reserve Bank has also permitted banks to sanction bridge loans to
companies against expected equity flows/issues. The period of such bridge loans
should not exceed one year. Banks may also extend bridge loans against expected
proceeds of NCDs/ECBs/GDRs/funds in the nature of FDI.
Sanctioning of Credit Limits by Banks
For sanctioning of credit limits, banks prescribe certain forms which
need to be filled up. The borrowers may familiarise themselves with these forms
and give complete and precise information which will help banks in early
sanction of limits. Proformae of all the forms are given in Appendices 17.I to
17.XIII. Important points which are to be kept in mind while completing these
forms are given below:
A. FOR TRADERS AND MERCHANT
EXPORTERS
Form I: (Appendix 17.I)
(i) Information
should be given separately in respect of each of working capital credit facilities
viz. cash credit/overdrafts, export packing credit, working capital term loans,
bills purchased and discounted, both inland and exports etc. Details of quasi‑credit
facilities viz. Letters of credit, Co‑acceptances, Guarantees, etc.
should also be indicated. Data relating to Term loans/DPGs etc. should be shown
separately under sub‑head ‘B’.
(ii) In
the case of a multi‑division company if separate credit limits are
sanctioned for the different divisions, data should be shown division‑wise.
Division‑wise sub‑totals should also be indicated.
(iii) Details
of credit facilities, if any, availed of by the borrowers from non‑consortium
banks should be indicated separately. Details of deposit accounts, if any,
maintained with over non‑consortium banks should also be indicated. 432
(iv) Maximum
and minimum utilization of the limits during tile past 12 months and
outstanding balances as on a recent date should only be given; monthwise
figures need not be indicated.
(v)
In case die existing sanctioned limits have
remained/are largely unutilised, the reasons there for should be given.
(vi) Information
on associate companies if any, should be given separately, in Annexure to Form
I. Details of name, type of activity, annual make up of accounts, limits from
all banks and financial institutions should be furnished in respect of each of
the associate companies clearly indicating the nature of association.
Forms II, III and IV (Appendices 17 II to
17 IV)
(i) In
case tile audited balance sheet and profit and loss account for tile previous
accounting year are not available estimated/provisional data for that year may
be indicated in Column (2) of Forms II, III & IV.
(ii) The
assumptions on which the projection viz. sales turnover, profitability, build up
of stocks in‑trade and receivables, other current assets, current
liabilities etc. have been based, should be indicated.
(iii) In
the case of a multi‑division company, division‑wise data should be
indicated separately for each division,
on Form II and IV. In such cases, Form III (Analysis of Balance Sheet) should encompass data for the company
as a whole, wherever possible, separate data for each division may also be
indicated on Form III.
(iv) The
valuation of sales‑projections should be based on the current ruling
prices. Similarly, the valuation of various inputs of cost of sales ill
projections should also be based on current costs.
(v)
The projected carry of stocks in‑trade
and receivable shown in form III should normally be in conformity with the
levels prevailing ill tile trade and/or the past trends/levels usually
maintained by the borrowers whichever are lower. In case the level of projected
stocks in trade/receivables is higher than that prevailing in the trade/past
levels, the reasons there for should be explained. In such cases, a definite
programme for conforming to the stipulated levels should also be indicated.
While projecting the levels of stocks‑in‑trade/receivables, the
Government/RBI guidelines/directives, selective credit control provisions etc
in force in this regard, should be kept in view. In all cases, case of
inventory on speculative ground is prohibited.
(vi) The
projected level of current assets other than stock‑in‑trade and
receivables, and that of current liabilities should also compare with the past
trends and prevailing market conditions. In case there are significant/abnormal
variations, the position should be explained in respect of each item of
variation.
(vi)
The basis of valuation of current assets should
be in accordance with that adopted for statutory balance sheet. The estimates
of current liabilities and recording of income and expenses should also be on
the same basis as that adopted for the statutory financial statements.
(viii) The
classification of current assets and current liabilities should be done as per
usually accepted approach of banks and not as per definitions ill tile
Companies Act. Detailed discussion in this regard is given ill a separate
chapter oil assessment of working capital in this book.
(ix) Deposits from dealers, selling agents etc. may be treated, as term liabilities irrespective of their tenure, if such deposits are accepted to be repayable only when the dealership/agency is terminated. The deposits which do not satisfy the above condition should be clarified as current liabilities.
(x) In case specific provisions have not been made for known liabilities like dividend payable, tax payable, etc. estimates thereof should be made for eventual payment during the year and the amounts, though not provided, should be shown as current liabilities.
(xi) Details of term
liabilities raised during the year (Debentures, Term loans, deferred payment
credits, long. term deposits etc.) should be furnished
separately.
(xii)
Bills purchased /discounted (shown as
contingent liability in the balance sheet should be included under items (i)
and (ii) of Form (III).
(xiii) Outstanding
liabilities in respect of credit purchases under usance Letter of credit/Co‑acceptances
facility from the banks should be shown under item 3/Form III [Sundry creditors
(trade)].
(xiv) In case
of borrowers having seasonal activity where the working capital limits am
required to be sanctioned based on peak level requirements (not coinciding with
balance sheet date) the corresponding data in respect of current assets and
current liabilities for the previous/preceding year(s) should also be indicated
separately on Form (IV) in such cases. The corresponding build‑up of
balance shoot position as on the date of peak requirement should also be
indicated.
(xv)
If the canalised items form a significant part
of the stocks in trade, this may be shown separately.
(xvi) Income
received from and the expenses paid to and sales/purchases in respect of subsidiary
companies/affiliates should be indicated separately b way of footnote(s) to
Form II.
(xvi)
If the company is a subsidiary company, the
extent and nature of interest the holding company is having and also its name
should be furnished as a footnote to the Form III.
(xviii) If the
company is holding company, the extent and nature of its interest in subsidiary
companies and their names should be furnished as a foot note to Form III,
(xix) 3
copies of the last audited balance sheet should be submitted alongwith the
appraisal data.
Form V (Appendix
17.V)
(i) In
all cases other than sick/weak units, the computation of permissible bank
finance should be done as per the IInd method of lending.
(ii) In
other cases appraisal of working capital requirements is sought to be done
under Ist method of lending, specific reasons thereof should be furnished.
Form VI (Appendix 17.VI)
(i) Increase
in stocks‑in‑trade and receivables which is disproportionate to
percentage rise in sales turnover should be explain in detail separately.
(ii) Similarly,
a decrease in current liabilities which is not commensurate with percentage
rise or fall in sales turnover should be explained in details separately.
(iii) In
case the increase in working capital gap is not commensurate with the increase
in net sales, the position should be explained in detail separately.
(iv) Item 7
(not surplus/deficit) and item 8 (increase/decrease in bank borrowings) would
be algebraical opposite figures, and these should agree with each other.
B. FOR MANUFACTURERS
Form I (Appendix 17.VII)
(i)
Information should be given separately in
respect of each of the working capital credit facilities viz cash
credit/overdrafts, export packing credit, working capital term loan, bills
purchased and discounted, both inland and exports etc. Details of quasi‑credit
facilities viz. letters of credit, co‑acceptances, guarantees etc. should
also be indicated. Data relating to term loans/DPGs including foreign currency
loans as also foreign currency loans not backed by DPGs issued by banks in
India applied to shown separately under sub‑head ‘B’. The exchange rate
applied to arrive at the outstandings under existing foreign currency loans
should be indicated.
(ii)
In the case of a multi‑division company,
'if separate credit limits are sanctioned for the different divisions, the data
should be shown divisionvise. Division‑wise sub totals should also be
indicated.
(iii) Details
of credit facilities, if any, availed of by the borrower from non-consortium
banks should be indicated separately. Details of deposits accounts, if any,
maintained with other non‑consortium banks should also be indicated.
(iii)
Maximum and minimum utilisation of the limits
during the past 12 months and outstanding balances as on a recent date should
only be given; monthwise figures need not be indicated.
(v) In
case the existing sanctioned limits have remained /are largely unutilised, the
reasons therefore should be given.
Forms II, III & IV (Appendices 17.VIII
to 17.X)
(i)
In case the audited balance sheet and profit
and loss account for the previous accounting year are not available,
estimated/provisional data for that year may be indicated in Column (2) of
Forms II, III & IV.
(ii)
The assumptions on which the projections viz.
sales turnover, profitability, build up of inventory and receivables, other
than current assets, current liabilities etc. have been based, should be
indicated.
(iii) In
the case of a multi-division company, division-wise data should be indicated separately for each division on
forms II & IV. In such cases Form III (Analysis of Balance Sheet) should encompass data for the company as a whole. Wherever
possible, separate data for each division may also be indicated on Form III.
(iv) The valuation
of sales projections should be based on the current ruling prices. Similarly,
the valuation of various inputs of cost of sales in the projections should also
be based on current costs. It should be ensured that price escalation are not
built into the projections. Where the projections relating to production show
wide variations in comparison with the past trend, information in regard to
the, physical quantity of goods produced/to be produced, their unit price, etc.
should also be furnished as per the form prescribed for this purpose (Appendix
17.XIV). Where number of items manufactured is large, the information may be
classified under three or four broad categories.
(v) The
projected carry of inventory and receivables shown in form IV should normally
be in conformity with the norms and/or the past trends/ levels usually
maintained by the borrower, whichever are lower. In case the level of projected
inventory/receivables is higher than the norms/ past levels, the reasons
therefor should be explained. In such cases, a definite programme for
conforming to the stipulated norms should also be indicated.
(vi)
Spares should be classified as non‑current
assets. However, the projected levels of spares on the basis of past experience
but not exceeding 12 month's consumption for imported items and 9 month's
consumption for indigenous items may be treated as current assets for the
purpose of assessment of working capital
requirements.
(vii)
The projected level of current assets other
than inventory and receivables, and that of current liabilities should also
compare with the past trends and prevailing market conditions. In case there
are significant/abnormal variations, the position should be explained in
respect of each item of variation.
(viii) The
basis of valuation of current assets should be in accordance with that adopted
for statutory balance‑sheet. The estimates of current liabilities and
recording of income and expenses should also be on the same basis as that
adopted for the statutory financial statements;
(viii)
The classification of current assets and
current liabilities should be done as per the usually accepted approach of the
banks and not as per definitions in the Companies Act. The usually accepted
approach of the bank in this regard has been discussed in details in chapter on
Working Capital Assessment.
(x) In
case, specific provisions have not been made for known liabilities like
dividend payable, tax payable etc. estimates thereof should be made for
eventual payment during the year and the amounts, though not provided, should
be shown as current liabilities.
(xi)
Details of term
liabilities raised during the Year (Debentures, Term Loans, Deferred Payment Credit, Long‑term
Deposits etc.) should be furnished separately.
(xii) Bills
purchased and discounted (though shown as contingent liabilities in the balance
sheet) should be included under items 28(i) & (ii) of Form III and 5 &
6 of Form IV.
(xii)
Outstanding liabilities in respect of credit
purchases under Usance Letter of Credit/Co‑acceptance facility from the
banks should be shown under item 3/Form III [Sundry creditors (trade)].
(xiii)
In case of borrowers having seasonal activity
where the working capital limits are required to be sanctioned based on peak
level requirements (not coinciding with balance sheet date) the corresponding
data for the previous/preceding year(s) should also be indicated separately on
Form IV. In such cases, the corresponding built up of balance sheet position as
on the date of peak requirement should also be indicated.
(xv) If the
canalised items form a significant part of the raw material inventory, this may
be shown separately. Income received from and the expenses paid to and
sales/purchases in respect of subsidiary companies/affiliates should be
indicated separately by way of foot note(s) to Form II.
(xvii) If the
company is a subsidiary, the extent and nature of interest the holding company
is having and also its name should be furnished as a footnote to Form III.
(xviii)
If the company is a holding company, the extent
and nature of its interest in subsidiary companies and their names should be
furnished as footnote to Form III.
(xix) 3
copies of the last audited balance sheet should be submitted alongwith the
appraisal data.
Form V (Appendix 17.Xl)
(i) In
all cases other than sick/weak units, the computation of permissible bank
finance should be done as per second method of lending.
(ii) In
other cases where appraisal of working capital requirements is sought to be
done under first method of lending, specific reasons thereof should be
furnished.
Form VI (Appendix 17.XII)
(i) Increase
in case of various items of inventory which is disproportionate to percentage
rise in sales turnover should be explained in detail separately.
(ii) Similarly,
a decrease in current liabilities which is not commensurate with percentage
rise or fall in sales turnover should be explained in detail separately.
(iii) In
case the increase in working capital gap is not commensurate with the increase
in net sales, the position should be explained in detail separately.
(iv) Item 7
(net surplus/deficit) and items 8 (increase/decrease in bank borrowings) would
be algebraical opposite figures and these should agree with each other.
Form VII (Appendix 17.XIII)
Form VII relates to total cost of the project and sources of finance. It
is required to be furnished in case of term loan proposals only.
Separate forms have also been prescribed for leasing and hire purchase
concerns and also for diamond exporters which are discussed in relevant
chapters.
INTRODUCTION OF LOAN SYSTEM FOR DELIVERY OF BANK CREDIT
In order to bring about an element of discipline in the utilisation of
bank credit, “loan system" for delivery of bank credit was first
introduced in April 1995 in respect of borrowers with assessed maximum
permissible bank finance (MPBF) of rupees twenty crores and above from the
banking system. Under the new dispensation the "cash credit component” was
to be restricted to 75 per cent of MPBF and the balance was to be sanctioned as
"Loan Component". The "cash credit component" was further
reduced to a maximum of 60 per cent of MPBF in September, 1995. Further changes
in the system were introduced in April, 1996 with ‘cash credit component’ being
reduced to just 40 per cent of assessed MPBE. "Loan System" for
delivery of bank credit was also made applicable to borrowers with assessed
MPBE of Rs. 10 crores and above. The percentage of "cash credit
component" had been increased once again to 75 per cent and certain
important changes were also brought in the scheme while announcing the credit
policy for the busy season in Oct. 1996. In the course of time, however, the
'cash credit component' was reduced gradually. Further changes have been
brought out in this scheme while announcing the credit policies from time to
time. Various anomalies and practical difficulties being faced in the
implementation of scheme have now almost been rectified. The salient features
of the loan system incorporating the latest amendments are discussed in the
succeeding paragraphs.
The 'loan system' will be applicable to all borrowers with an assessed
(or to be assessed) working capital credit limits of Rs. 10 crores and above
from the entire banking system. The system will be applicable to borrowal
accounts classified as 'standard' or 'sub‑standard'. Sick/weak units are
presently exempted from the above system. Borrowers with assessed Working
capital credit‑limits of less than Rs. 10 crores may also avail 'loan
component' at their option and the banks may frame their own policies in this
regard.
Bifurcation of
Working Capital Credit Limits (WCCL) : The WCCL in respect of
borrowers covered under the system will be bifurcated in two components as
under:
(i) Cash
credit component,
(ii) Loan component.
The cash credit component will be restricted to a maximum of 20 per cent
of WCCL for borrowers with assessed WCCL of Rs. 10 crores and above. The
balance WCCL, if desired, can be availed only in the form of short‑term
loan(s) repayable on demand for a stipulated period. A borrower may, however,
avail short‑term loan for working capital purposes at a level of more
than 80%, with corresponding reduction in cash credit component. To illustrate
the system of bifurcation let us consider the following example:
Borrower with an assessed WCCL of Rs. 40
crores:
WCCL will be bifurcatd as under:
Cash Credit Component - Restricted to 20% i.e. Rs. 8 crores.
Loan Component
‑ Rs. 32 crores.
The borrower may avail higher loan component than indicated above in
both the above cases with corresponding reduction in cash credit component. It
shall further be noted that 'cash credit component' is directly related to
assessed WCCL and the 'loan component' may or may not be availed by the
borrower. The net effect of this bifurcation will thus reduce the quantum of
total credit facilities available to the borrower in the shape of cash credit.
Cash credit component for the purpose of the above bifurcation now
includes all credit facilities where running A/c facility is permitted and
deposits/withdrawals in the account are permitted without any restrictions.
Exemption from application of loan system
Business activities which are cyclical and seasonal in nature or have
inherent volatility where strict application of loan system may create
practical difficulties may be exempted from application of loan system.
However, the banks are required to identify such business activities and seek
approval of their Board of Directors before allowing exemption from the loan
system.
Broad terms & conditions of sanctioning of loan component
(i) The sanctioning of loan
component by the banks may not necessarily be automatic. The borrowers are
required to approach the banks for necessary sanction of 'loan component' which
will be considered on merit of each case.
(ii) Loan
sanctioned for working capital purposes shall be repayable on demand and shall
be permitted for a stipulated period depending upon the projected cash‑flow
of the borrower. The minimum period of the loan for working capital purposes
may be fixed by banks in consultation with the borrowers. The earlier
stipulation of a minimum period of six months has since been withdrawn. Banks
may also decide to split the loan component according to the need, of the
borrower with different maturity bases for each segment.
(iii) Repayment
of loan will be permitted by way of instalments or by way of a
"bullet" payment. Repayment before
the due date will not be accepted and any amount paid for this purpose
will be credited to cash credit account of the borrower.
(iv) Roll
over/renewal of loan granted by the bank under this scheme may also be
permitted at the request of the borrower. However, annual review of working
capital limit shall be made by the bank and the credit limit will not be
allowed to continue without such a review and determination of limit afresh.
(v) Disbursement
of the 'loan component' will be made in accordance with the projected cash
budget statements/statements under Quarterly Information System.
(vi) Banks
are free to determine the rates of interest on the 'cash credit component' and
'loan component' subject to observance of the 'prime lending rate' of,
respective bank. Banks may stipulate different rates of interest on cash credit
component and loan component. The banks can also prescribe 'Prime lending
Rates' and spread over 'Prime Lending Rates' separately for 'loan component'
and 'cash credit component'.
(vii) Banks
are free to decide the nature, type, margin and quantum of security for cash
credit/loan component. However, where commodities are covered under 'selective
credit control', directives of Reserve Bank of India issued from time to time
will be applicable.
(viii) Banks
will have right to recall the loan if performance of a borrowing unit is not
satisfactory or where a borrowing unit is found to have used the amount for
purposes other than working capital or for any other reason.
RBI Guidelines for Implementation of 'Loan System'
The guidelines issued by Reserve Bank of India for implementation of the
loan system are as under:
(i) In
cases where utilisation of existing cash credit limit was in excess 20 per cent
of WCCL, the cash credit component is to be restricted upto 20 per cent and
excess drawal is to be sanctioned in the form of working capital demand loan
(WCDL). To illustrate this point let us consider the following examples :
(a) WCCL assessed for a
borrowing unit : Rs. 16 crores
Availment : Rs. 13 crores
Maximum
permissible cash credit component (20% of WCCL) : Rs. 3.2 crores
Excess availment of
over Rs. 3.2 crores i.e. Rs. 9.8 crores will be sanctioned as WCDL and
outstanding under cash credit will be brought down to the level of Rs. 3.2
crores. The banks may also consider sanctioning of the balance WCCL of Rs. 3
crores as WCDL, if required by
the borrowing unit.
(b) WCCL assessed for a borrowing unit : Rs. 40 crores
Availment : Rs. 35 crores
Maximum permitted cash credit component (20% of WCCL) : Rs.
8 crores
Excess availment over Rs. 8 crores i.e. Rs. 27 crores will be sanctioned
as WCDL and outstanding under cash credit will be brought down to the level of
Rs. 8 crores. The balance WCCL of Rs. 5 crores may also be sanctioned by banks
as WCDL, if so required by the borrowing unit.
(ii) In
cases where utilisation is exactly 20% of the assessed WCCL, the balance WCCL
can be sanctioned by the banks as WCDL, on merits, if desired by such borrowing
units.
Example :
Assessed WCCL (Rs.
in crores)
Availment 40
Maximum permitted cash credit 8
component 8
Revised cash credit limits (20%
of WCCL)
Balance WCCL to be sanctioned 8
as WCDL on merits 32
(iii) In
cases where utilisation is less than 20% of the asessed WCCL, such borrowing
units will be allowed revised cash credit limits upto permissible level and the
balance WCCL may be sanctioned by the banks as WCDL, on merits of each case, if
so desired by the borrowing unit.
Example :
Assessed WCCL (Rs.
in crores)
Availment 40
Maximum permitted cash credit 2
component (20%
of WCCL)
Revised cash credit limits Balance WCCL to be sanctioned 8
as WCDL on merits 32
It may be reiterated that sanction of unavailed WCDL will not be
automatic and each case may be considered by the banks on merit.
Provisions relating to export credit
Export credit limits (both pre‑shipment and post shipment) would
be allowed to continue to be granted at the existing level. The bifurcation of
credit limit into 'loan' and ‘cash credit' component would be effected after
excluding 'Export Credit Limits' (preshipment and post shipment). For clear
understanding of the above provision let us consider the following examples :
Unit
Unit
A B
Assessed WCCL 40
40
Existing export
credit limits 10 24
Existing cash credit
limits (domestic) 30 16
Revised export credit
limits 10 24
(At the existing
level)
Balance MPBF 30 16
Revised cash credit
limits 6
3.20
(20% of balance WCCL)
WCDL 24 12.80
Form the examples given above we may conclude that export credit limits
may be permitted at the existing level irrespective of percentage of total
WCCL. Bifurcation into 'loan' and 'cash credit' components may be done after
excluding export credit limits from WCCL.
Provisions relating to 'Bills Limit' for Inland Sales
Bills limit for inland sales may be permitted to be fully carved out of
the loan component. Bills limit will include limits for purchase of third party
(outstation) cheques/ bank drafts. To illustrate this point let us consider the
following examples :
(Rs. in crores)
Unit Unit Unit
A B
C
WCCL 40 40
40
Export
Credit Limits 12 10
25
Existing Bills Limit 5 4
5
Cash credit limit 23 26
10
Revised limits: Export Credit 12 10
25
Balance WCCL 28 30
15
CC Component
5.60 6 3
(CC limit) (20% of WCCL)
Loan Component 22.40 24
12
Bills Limit 5 4
5
WDL 17.40
20 7
It will be observed that export credit has been excluded from MP13F
before bifurcation into 'cash credit' and 'loan' components. Bills limit has
been carved out of loan component and CC limit has been permitted to the
maximum possible extent.
Provisions relating to Commercial Papers*
Commercial papers can be issued by all bank borrowers eligible to issue
the same if they have been sanctioned the working capital (fund based) limit
and the borrowed account is classified as 'Standard Asset', subject to
compliance with other prescribed terms and conditions. The aggregate amount of
CP from an issuer shall be within the limit as approved by its Board of
Directors or the quantum indicated by the Credit Rating Agency for the
specified rating, whichever is lower. Banks will, however, have the flexibility
to fix working capital limits duly taking into account the resource pattern of
companies financing including CPs. In view of CP being a 'stand alone' product,
banks will not be under any obligation to provide standby facility to the
issuers of CP. They will, however, have the flexibility to provide for a CP
issue, credit enhancement by way of standby assistance/credit back stop
facility, etc., based on their commercial judgement and as per terms prescribed
by them. However, these should be within the prudential norms as applicable and
subject to specific approval of the Board.
Provision relating to sanctioning of additional adhoc limits
Full availment of 'loan component' is a pre‑condition for
sanctioning of any additional/adhoc limits for working capital. Sanctioning of
additional/adhoc limits will thus be considered by the bank, on merits of each
case as per extant guidelines, only when 'cash credit component' and 'loan
component' have been fully availed. It will not be possible to approach for
higher cash credit facilities on adhoc basis if the loan component as per
existing WCCL remains unavailed.
Provisions relating to Consortium/Multiple Banking Arrangements
In case of consortium/multiple banking arrangement each bank is required
to bifurcate the WCCL allocated to it in 'cash credit component' and 'loan
component' on pro‑rata basis. This system shall also be applicable in
cases of 'loan syndication' for working capital purposes. The level of
individual bank's share shall continue to be governed by the norm for single
borrower/group exposure.
Provisions for investing short‑term surplus funds of borrower
Switch over to correspondingly high loan component may result in short
term surplus with large borrowers. These borrowers may be permitted by the
banks to invest their short term/temporary surpluses in short term money market
instruments like Commercial Paper, Certificate of Deposit and in Term Deposit
with bank etc.
APPENDIX 17.I
FORM-I
Particulars of the Existing
/Proposed Limits from the Banking System
(For Traders and Merchant
Exporters)
(Limits from all Banks and
Financial Institutions as on date of application)
(Amount: Rs. in lacs)
|
Sl. No. |
Name
of Bank/ Financial
Institutions |
Nature
of facility |
Existing Limits |
Extent
to which limits Were
utilised during The
last 12 months |
Balance
o/s As
on (date………) |
Limits
now Requested |
A. WORKING CAPITAL LIMITS
1.
2.
3.
4.
5.
6.
7.
8.
|
Sl. No. |
Name
of Bank/ Financial
Institutions |
Sanctioned limit |
Outstanding
as on |
Overdues,
if any |
Remarks |
B. TERM LOANS/DPGs
(excluding working capital term
loans)
ANNEXURE
TO FORM I
INFORMATION
ON ASSOCIATE COMPANIES
(Companies/firms/concerns
in which directors/partners/proprietor and /or their family members of the borrower
company is/are associated with the other unit as directors/ partners/proprietor
or has/have furnished guarantees).
(Amount
‑ Rs. in lacs)
|
Sl. No. |
Name of the Associate Company |
Line
of activity |
Annual
make-up of accounts (Date of balance sheet) |
Limits from all banks and Financial InstitutionName of
Bank/ Working Capital Term
DPG Overdues, Financial ______________ loan if any Institutions Fund Non-fund based based |
|
(1) |
(2) |
(3) |
(4) |
(5) (6) (7) (8) (9) (10) |
|
|
|
|
|
|