New Delhi, Dec 18: Up in arms against private banks for allegedly imposing penal charges for foreclosure of cash credit line, the leading industry body of micro, small and medium enterprises (MSMEs) has filed a complaint with Finance Minister Nirmala Sitharaman.
Submitting inputs for Union Budget 2022-23, Federation of Indian Micro and Small Medium Enterprises (FISME) President Animesh Saxena has highlighted the issue facing the small borrowers.
“To evade guidelines against imposition of penal charges if an MSME opts for foreclosure of facilities like Cash Credit (CC) limit, a few private sector banks term CC limits as overdraft and impose penalties,” said FISME President Animesh Saxena. The industry association in a memo to the Finance Minister has said, “The malpractice by private sector banks to term CC limits as overdrafts to evade RBI guidelines for foreclosure need to be stopped and banks perpetrating such practices ought to be penalized.”
An industry executive said that few private banks charge penalties ranging from 2 to 4% from MSMEs in violation of Code of Bank’s commitment to Micro and Small Enterprises.
FISME has maintained that cash credit limits are subject to drawing power based on stock and book-debt statement at monthly intervals. Further, cash credit limit in banking system was invented basically to finance the inventory and when the said stock is kept in locked stock-room and to be opened by keys of bank’s representative it was called CC Pledge and when all possession is with borrower it was called CC Hypothecation.
“Later it was extended to cover the business receivables as well. On the other hand, overdraft was invented as reputation/goodwill based finance by allowing cheques passing even when there is insufficiency of balance in current account of customer and was later extended for other purposes as well,” said FISME.
It has been contended that basic ingredients of CC limit is current assets security based finance with main purpose to finance working capital however the purpose of OD is to be decided between lender and borrower and is otherwise than working capital finance.
“The CC limit has some guidelines or regulation imposed by RBI in respect of conduct and closing of CC account inter alia foreclosure and over draft account does not have such regulation therefore to avoid the following of RBI guidelines some banks are deceitfully calling CC account by name OD account whereas such accounts are CC accounts,” the trade body said in a statement.
