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Authorisation Scheme for sanction of working capital limits / term loans above the prescribed cut‑off points was withdrawn effective from 10th Oct, 1988.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.                                                       

 

Applicability :

 

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 Institution

Name 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 [R1]Explained later in the Chapter.

 [R2]As per new guidelines issued by RBI vide IECD. 3/8.15.01/2000‑2001, dt.10.10.2000, as amended from time to time. For details refer chapter on ‘Issue of Commercial Paper.'