New rules for small company loans were released by the Reserve Bank of India (RBI), giving banks more leeway in determining how much extra interest or spread to charge over the course of the loan.
The Reserve Bank of India has also loosened lending regulations for companies that use gold as a raw material.
The acquisition of gold or silver in any form, as well as lending secured by primary gold or silver, are generally forbidden for banks. However, the statement stated that Scheduled Commercial Banks (SCBs) have been given permission to issue working capital loans to jewelers.
Previously, banks could only adjust the spread associated with a borrower’s credit risk once every three years when it came to commercial loans.
In order to help borrowers, banks are now permitted to lower additional spread components before the three-year period under the new regulation. At the time of reset, borrowers will also have the choice to convert to a fixed-rate loan.
The jewelry industry, which previously had few exceptions for financing the purchase of gold and silver, is now able to receive credit through working capital loans from banks to any business that uses gold as a raw material.
Three of the RBI’s seven directives for lenders are required, while the remaining four are available for discussion. The RBI has until October 20 to receive input on these initiatives.
The central bank has extended the accessibility of credit by increasing the involvement of smaller urban cooperatives in lending.
Additionally, capital regulations have been relaxed, allowing banks to employ overseas rupee and foreign currency bonds as Additional Tier 1 capital, which facilitates access to international markets.
Credit Institutions (CIs) were required by the RBI’s directive to submit credit information to Credit Information Companies (CICs) every two weeks or less frequently.
The RBI has now suggested that CIs submit credit information to CICs once a week.
According to the statement, the draft amendments also call for actions to speed up data reporting and error correction by the CIs.
Additionally, it is suggested that the Central Know Your Customer (CKYC) number be included in a distinct section in the consumer segment’s reporting format in order to make it easier for CICs to aggregate credit data, the announcement stated.