Companies will have to pay for the unused amount of the sanctioned loan

Banks are formulating new terms and conditions of sanction for lending to companies

Many companies take loan from the bank but do not utilize the whole amount of the loan for which they have taken. So Banks plan to charge a levy on unutilized portion of credit.

According to new terms and conditions companies from now on will have to pay a price for unused term loans sanctioned by banks.



Currently companies avail of the sanctioned loan in phases depending on their needs. The companies having strong financial position often do not draw the entire loans sanctioned. However, the unused amounts are included in calculating a banks total admittance to a company.



Banks are working towards put in new clauses in their loan agreements which would allow them to levy a charge on companies for not utilizing the entire loan amount sanctioned to them.



On the other hand, if a company is not willing to pay a charge, banks will keep the right to revoke the unutilized portion of the sanctioned loans. This clause will be included in the new terms of sanction for lending to companies.



From this year, banks will be required to keep aside capital for unused portion of loans under the new capital adequacy guidelines. So far, only amount of loans drawn attracted capital adequacy norms.





A senior official of a Mumbai-based public sector bank said, “We are taking some steps to ensure we are unnecessarily not paying a charge. There will be a provision in the sanction letter or in the loan agreement with the corporate that if the limits are not drawn as per the drawl schedule, the limits will be considered cancelled.”



For companies that want banks to keep with their committed credit limits, banks would levy a charge on the undrawn portion of the loan. Banks are likely to levy a commitment charge of 50-100 basis points on the undrawn loan amount, which would translate into a Rs 5,000-Rs 10,000 charge for every Rs 1 lakh of undrawn loan. One basis point is one-hundredth of a percentage point.



Already banks is levying a commitment charge on companies for drawing less than 70-80 per cent of cash credit facilities committed to them. These working capital loans are renewed every year. Now, bank will impose a commitment charge on term loans also, which are drawn over 3-5 years.



The commitment charge will be used to cover the cost of capital which banks would have to allocate for the undrawn loan amounts, under the revised capital adequacy framework, popularly known as Basel-II. If a company draws only Rs 400 crore of the sanctioned Rs 500 crore loan, the lender would have to give capital for 20 per cent of the undrawn amount (or Rs 20 crore) if the residual term of the sanctioned credit is up to one year.



Applying a risk weight of 100 per cent, as applicable to a BBB-rated corporate, the bank will have to provide an additional Rs 1.8 crore of capital. If the residual maturity of a loan is more than one year, then 50 per cent of the undrawn amount would have to be considered for calculating capital required to be allocated.



The executive director of another public sector bank informed all banks will have to do this. So far we were not compulsory charging. Now this could be in the sanctioned terms and conditions or in the approval note sent with the sanction letter.



Banks have in the past ceased from levying any commitment charge on top-rated companies despite having a provision in the loan agreement due to fear of losing the loan account to another bank. There will be a period of adjustment.



There would be better appreciation by large corporates of the banks’ situation. If there is a Rs 100 crore limit lying unutilized, I am earning zero on the loan account (as) I have to provide capital, said the official.



For the time being the new terms would be incorporated in the new loan agreements, for existing loans, banks are asking companies to reassess if they really need the sanctioned limits. For the existing contracts, banks will take them up with the clients for discussion and they will have to agree to one of these options.



A senior banker said if the companies do not agree, they can withdraw and go to another bank. The head of corporate credit of the Mumbai-based public sector bank said, “We are seeking legal advice as to what to do about the existing contracts?”