Page 23 - Banking Finance March 2021

ARTICLE

Background Credit issued vide ref no. RBI/2018-19/87 DBR.BP.BC.No.12/
21.04.048/2018-19 dated 5th December 2018. Now the
In order to bring about an element of discipline in the
utilisation of bank credit, as per the recommendation of delivery of bank credit for such large borrowers shall be as
Jilani Committee, "loan system" for delivery of bank credit under:
was first introduced in April, 1995 in respect of borrowers
with assessed maximum permissible bank finance (MPBF) of Minimum level of 'loan component':
Rs 20.00 crore (rupees twenty crore) and above from the The above guidelines are applicable in respect of borrowers
banking system. Under the new dispensation the "cash having Aggregate Fund Based Working Capital (FBWC) limit
credit component" was to be restricted to 75 per cent of of Rs. 150.00 crore and above from the banking system
MPBF and the balance was to be sanctioned as "Loan excluding the export credit limits (pre-shipment and post-
Component". The "cash credit component" was further shipment) and bills limit for inland sales from the working
reduced to a maximum of 60 per cent of MPBF in capital limit. Identification of such borrowers will be done
September, 1995. based on declaration/submission of the borrower of the
aggregate existing limit of Rs. 150.00 crore and above and
In April, 1996, further changes in the system were also based on CRILC/CIC information/Sharing of information
introduced with 'cash credit component' being reduced to in consortium & multiple banking etc.
just 40 per cent of assessed MPBF. "Loan System" for
delivery of bank credit was also made applicable to A minimum level of 'loan component' of 40% of FBWC
borrowers with assessed MPBF of Rs. 10 crore and above. exposure is being maintained in the system (CBS) for
While announcing the credit policy for the busy season in identified / eligible accounts with effect from 1st April 2019
Oct. 1996, the percentage of "cash credit component" had and 60% with effect from 1st July 2019 in line with RBI
been increased once again to 75 per cent and certain direction. Further, Investment by the banking system in the
important changes were also brought in the scheme. In the commercial papers issued by the borrower shall form part
course of time, however, the 'cash credit component' was of the loan component, provided the investment is
reduced gradually. sanctioned as part of the working capital limit

Further changes have been brought out in this scheme while Accordingly, for such identified borrowers, the 'loan
announcing the credit policies from time to time. RBI again component' (Working Capital Loan - WCL) must be equal to
revised the guidelines during Oct, 2001. Accordingly the loan at least 40 percent of the sanctioned fund based working
system for Delivery of Bank Credit was made applicable for capital limit, including adhoc limits and TODs. For the
borrowers enjoying credit limits of Rs. 10.00 crore and above purpose of arriving at loan component, the entire
from banking system, but those guidelines were not outstanding component of TOD and adhoc, initially w.e.f
mandatory, so despite having the guidelines on loan system 01.04.2019 if any have been converted into separate WCL.
for delivery of bank credit RBI was not able to inculcate the The illustration by RBI is as follows-
discipline in the utilisation of bank credit among borrowers.
Hence moving forward on 5th December 2018, RBI come
up with new guidelines of Loan system for Delivery of Bank
Credit

RBI notification on Loan system for
Delivery of Bank Credit dated 5th

December 2018:
With a view to enhance credit discipline among the large
borrowers enjoying working capital from the banking
system, delivery of bank credit for such borrower shall be
as per RBI notification on Loan system for Delivery of Bank

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