RBI’s capital disbursement norms to hit borrowers: Icra

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Mumbai | Published: July 4, 2018 2:38:23 AM

As per RBI’s draft guidelines, borrowers having aggregate fund based working capital limits of `150 crore and above, a minimum level of ‘loan component’ of 40% shall be made effective from October 1.

rbi, central bankAs per RBI’s draft guidelines, borrowers having aggregate fund based working capital limits of Rs 150 crore and above, a minimum level of ‘loan component’ of 40% shall be made effective from October 1, 2018

Rating agency Icra on Tuesday said that Reserve Bank of India’s (RBI) plan to change disbursement norms of working capital would exert pressure on the liquidity profile of borrowers, specifically those having a high dependence on cash credit or overdraft facilities while lacking alternative sources of liquidity.

As per RBI’s draft guidelines, borrowers having aggregate fund based working capital limits of Rs 150 crore and above, a minimum level of ‘loan component’ of 40% shall be made effective from October 1, 2018; which shall thereafter increase to 60% with effect from April 1, 2019.

This, Icra said, means that a borrower who is able to fully utilise the sanctioned revolving bank facilities such as cash credit and overdraft, without having to bear the burden of principal repayment, would now have to adjust to the new paradigm whereby at least 40% or 60% of the working capital borrowings would have a defined repayment schedule.

“As per Icra’s analysis, the adverse impact might be more pronounced on entities in sectors including cut and polished diamonds, gems and jewellery (retail), media broadcasting, metals, thermal power, sugar, and textiles (cotton spinning),” it said.

According to Icra, these are the sectors where not only the average sanctioned working capital debt per entity in its rated portfolio is estimated to be upwards of `150 crore, but also the gross cash conversion cycle is high—ranging between 120 days to 220 days.

“Banks will have the discretion to stipulate repayment of the ‘loan component’ in installments or by way of a bullet repayment, subject to the tenor not being less than seven days and likely within one year,” it said, adding that repayments, as opposed to a rollover, would exert pressure on the liquidity profile of borrowers, specifically those that have a high dependence on cash credit or overdraft facilities while lacking alternative sources of liquidity.

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