MUMBAI: The Reserve Bank's newly introduced guidelines curbing working capital limits may lead to better financial discipline, says a report.
The RBI 'Guidelines on loan system for delivery of bank credit' will lead to a better assessment of working capital requirements by borrowers, and improve financial discipline among them, rating agency Crisil said in a note Thursday.
There is no likelihood of a "widespread disruption" on account of the new rules, it said, adding there is a need for closer monitoring of liquidity as 60 per cent of the fund-based working capital facilities of large borrowers shall have scheduled repayments.
The policy on rolling over of working capital loans will also become crucial, it said.
Effective July 1, the RBI made it mandatory for borrowers with an aggregate fund-based working capital exposure to banns in excess of Rs 150 crore to maintain 60 per cent of this as loan component, up from 40 per cent earlier.
Further, the report said the undrawn portion of cash credit or overdraft facilities sanctioned to such borrowers will attract a 'credit conversion factor' of 20 per cent, implying higher capital cost.
"The move would goad towards better working capital planning by corporates, aligning their limits to the cash conversion cycle," the report said, reasoning that this is because the flexibility of cash credit facilities-- innumerable withdrawals and deposits (within the drawing power and limits) --would no longer be available fully.
"The objective is to shift the onus of treasury operations from lenders to borrowers, thereby fostering greater financial discipline," the report said.
Crisil studied the impact of the regulation on 11,000 entities and said the new regulation will apply to 3 percent of the ratings as the ability of large borrowers to gauge their working capital needs, monitor repayments and mobilise funds from multiple sources is relatively better.
Of the 350 rated entities affected by the new norms, 320 are in investment grade, it said, adding these entities had Rs 2.5 trillion in fund-based working capital facilities.
After conducting a survey on nine bankers, it said the regulation may impair the liquidity profile of an entity, possibly triggering a credit cliff.
"Fears that banks may start imposing on undrawn cash credit or overdraft facilities would encourage trimming down bank lines, which would free up idle capital," it said.