The State Bank of India (SBI) has finalised new norms for fixing the working capital requirements of corporates.
This follows the Reserve Bank of Indias decision of giving banks freedom to evolve their own methods for arriving at the funding limits The newly formulated policy papers will be tabled before the SBI board this month for approval and the introduction of the cash gap method and cash circle method of funding working capital requirements will be proposed, sources said.
Thereafter, SBI will issue a fresh set of guidelines to all its branches for incorporating the new rules for assessing the working capital limits.
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However, sources said although the bank has formulated guidelines on pattern of advancing the loans, the new rules will not be significantly different from the original maximum permissible bank finance (MPBF) guidelines.
It may be recalled that the state Bank of India has given a dissent note to the Kannan Committee report on MPBF stating that MPBF should be done away with overnight.
The bank has framed broad parameters to replace the MPBF as it is very difficult for any bank to formulate an industry specific or client specific MPBF, sources said.
Besides, none of corporate clients have yet complained that they have been denied credit because of the original MPBF, added sources.
The list of corporates that the SBI had approached for taking their views were unable to suggest any method to the bank. All our corporate client requests were to be flexible and not rigid in assessing the company, said sources.
The bank has decided that the new funding guidelines will be centered around cash-gap and cash-circle of the company and based on which the bank will decide parameters to judge the corporates.
The emphasis is to improve the quality of credit and reduce the non-performing assets of the bank than to improve the quantity of credit, sources added.
Under the cash-gap system, the banks will look at the cash flow situation and work out the deficit.
This deficit will then form the basis of the bank limit.
In the cash-circle method, the bank will look at whether the inventories are funded by sales revenues, internal accruals or bank credit to work out the funding limit.
Meanwhile, Bank of Baroda too has set up a committee to formulate their own method of assessing the working capital needs of borrowers under the supervision of credit officer, N A Desai.
However, sources said no concrete plans have yet emerged from the committee.
There is enough liquidity in system now that the bank is looking at minimum permissible bank finance limit instead, said bank sources.