NEW DELHI, December 18: In arms against private banks for allegedly imposing criminal charges for foreclosing a cash line of credit, the leading industry body for micro, small and medium-sized enterprises (MSMEs) has filed a complaint to Minister of Finance Nirmala Sitharaman.
In submitting contributions for the Union budget 2022-23, the President of the Indian Federation of Micro and Small and Medium Enterprises (FISME), Animesh Saxena, highlighted the problem facing small borrowers.
To evade guidelines against imposing criminal charges if an MSME opts for foreclosure of facilities such as cash credit limit (CC), a few private sector banks characterize CC limits as overdraft and impose penalties, said FISME President Animesh Saxena.
The industry association, in a note to the Minister of Finance, said: âMalpractices of private sector banks regarding CC limits as overdrafts to evade RBI lockdown guidelines must be stopped and banks that commit such practices must be penalized â.
An industry executive said few private banks impose penalties ranging from 2-4% on MSMEs in violation of the Banking Code’s commitment to micro and small businesses.
FISME has maintained that cash credit limits are subject to drawing authority based on the state of inventory and book debt at monthly intervals.
In addition, the cash credit limit in the banking system was invented primarily to finance inventory and when said stock is kept in a locked warehouse opened by the keys of the bank representative, it was called CC Pledge and when all possession is with the borrower, it was called CC mortgage.
âLater it was extended to cover trade receivables as well. On the other hand, the overdraft was invented as reputation / goodwill based financing by allowing checks to be passed even when the client’s current account was insufficient and was later extended to others. purposes as well, âsaid FISME.
It has been argued that the basic ingredients of the CC limit are funding based on the security of current assets with the main objective of financing working capital, but the purpose of the DO should be decided between the lender and the borrower and is different from working capital financing.
âThe CC Limit has guidelines or regulations imposed by the RBI regarding the conduct and closure of the CC Account, among other things, foreclosure and the over-drafted account does not have such regulations. Therefore, to avoid following RBI guidelines, some banks fraudulently call the CC account by name. OD account while those accounts are CC accounts, âthe trade body said in a statement.