Reserve Bank of India has framed guidelines for extending working capital finance to the Information Technology and Software Industry, based on the recommendations of the National Taskforce on Information Technology and Software development. However, said guidelines prepared by the central bank are not mandatory for lenders. They are free to modify RBI framed guidelines, built on their own experience on this line of business without referring to RBI about the modification.
In terms of RBI guidelines, the working capital credit proposal of an IT company is appraised just like all other types of credit proposals such as sanctioning the limits based on the track record of the promoters’ group affiliation, the composition of the management team, and their work experience as well as the infrastructure.
The turnover method (Nayak Committee recommendation) can be applied in the case of borrowers with working capital limits of up to Rs 2 crore i.e. assessment may be made at 20 percent of the projected turnover. Alternatively, MPBF can be considered on the basis of the monthly cash budget system. For the borrowers enjoying working capital limits of Rs 10 crore and above from the banking system, the guidelines regarding the loan system would be applicable.
Margin: Reasonable amount of margin may be fixed as the promoter’s contribution.
Security: First/ second charge on current assets, if available, may be obtained. Banks may envisage collateral security wherever available.
Rate of Interest: The rate of interest as prescribed for the general category of borrowers may be levied. Concessional rate of interest as applicable to pre-shipment/post-shipment credit may be levied.
Follow-up: Banks may develop a tailor-made follow-up system for such advances. The banks could obtain quarterly statements of cash flows to monitor the operations. In case the sanction was not made on the basis of the cash budgets, they can devise a reporting system, as they deem fit.