INSUBCONTINENT EXCLUSIVE:
According to the RBI, cash credit is by far the most popular mode of working capital financing.
In a move to enhance credit discipline among larger borrowers, the RBI on Monday
proposed a "minimum level of loan component" of 40 per cent for borrowers having an aggregate fund-based working capital limit of Rs 150
crore and above from the banking system, a condition proposed to be effective from October 1, 2018
Issuing the draft guidelines on the loan system for bank credit, the Reserve Bank of India (RBI) also said that the undrawn portion of cash
credit and overdraft limits sanctioned to larger borrowers will attract a credit conversion factor of 20 per cent, effective from April 1,
2019.The central bank said drawings up to 40 per cent of the total fund-based working capital limits shall only be allowed from the "loan
RBI, cash credit is by far the most popular mode of working capital financing, which also poses several regulatory challenges "such as
perpetual roll overs, transmission of liquidity management from the borrowers to banks/RBI, hampering of smooth transmission of monetary
policy, etc"."Effective from April 1, 2019, the undrawn portion of cash credit/overdraft limits sanctioned to the aforesaid large borrowers,
irrespective of whether unconditionally cancellable or not, shall attract a credit conversion factor of 20 per cent," the statement
staff and is published from a syndicated feed.)
