What changed
RBI observed that some banks were withholding disbursement of sanctioned working capital and term loans even when drawing power was available and conditions met, due to tight liquidity. With liquidity now improved, RBI advises banks to review such cases and permit drawals using normal commercial judgment. Additionally, banks are reminded to restructure SME dues where warranted under the August 27, 2008 prudential guidelines.
What it means for you
Banks must now proactively release funds against sanctioned limits for eligible borrowers, especially SMEs, and cannot use liquidity concerns as a blanket reason to delay. Lenders should also actively restructure SME accounts facing stress, following the existing framework, to avoid regulatory scrutiny. This reinforces RBI's expectation that banks support credit flow and SME viability during tight conditions.
What you must do
- Review all cases where sanctioned working capital or term loan drawals were withheld despite available drawing power and compliance, and release funds promptly.
- Ensure restructuring of SME dues is considered on merit under the August 27, 2008 prudential guidelines, and document decisions clearly.
- Align internal credit processes to avoid blanket refusals based on liquidity; use commercial judgment case-by-case.
- Monitor SME portfolio for stress and proactively offer restructuring options to eligible borrowers.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Clients with sanctioned but undrawn working capital or term loan limits, SME borrowers eligible for restructuring, Bank credit and risk management teams
Does this circular apply to all types of loans?
It specifically addresses working capital limits and term loans (including short-term loans) against sanctioned limits, where drawing power is available and conditions are met, for all clients. The restructuring part applies only to SMEs.