Page 22 - Banking Finance March 2021

COVER STORY

SYSTEM OF LOAN

DELIVERY OF

BANK CREDIT

AND ITS IMPACT

Introduction: Hence with a view to enhance credit discipline in the
utilization of bank credit among the large borrowers and
Cash Credit Limit is the most popular form of working capital
and functions like an overdraft account. A firm which held a gaining better control over the flow of credit, Reserve Bank
certain cash credit limit with a bank would withdraw money of India came out with guidelines on loan delivery system
from that account whenever they required and repay it back mechanism in 2018.
whenever they have received the sale proceeds and pay the
The guidelines are applicable in respect of borrowers having
interest as per agreed rate of interest. It is true that having
Aggregate Fund Based Working Capital (FBWC) limit of Rs.
this type of credit facility is very useful for firms, but it
created some volatility in liquidity management for banks. 150.00 crore and above from the banking system excluding
Many big firms often enjoy substantial cash credit limits but the export credit limits (pre-shipment and post-shipment)
hardly use them, due to this reason banks are not earning and bills limit for inland sales under the working capital limit.
any income from that un-utilised limit and at the same time Identification of such borrowers is being done based on
declaration/submission of documents by the borrower of the
banks are unable to meet the credit requirement of other
firms because of lack of liquidity. aggregate existing limit of Rs. 150.00 crore and above and
also based on CRILC/CIC information/sharing of information
in consortium & multiple banking etc.

About the author Accordingly, if any borrower availing fund based working
capital limit of Rs 150.00 crore and above from the banking
Dhirendra Kumar system, a minimum level of 'loan component' of 60 percent
Chief Manager,, Faculty (Credit)
Union Bank of India shall be allowed from the 'loan component'. Drawings in
Staff College,Bengaluru excess of the minimum 'loan component' threshold may be
allowed in the form of cash credit facility.

22 | 2021 | MARCH | BANKING FINANCE