Sunshine Ltd. is sanctioned ₹10 crore cash credit limit but utilises only ₹8 crore on an average at contracted rate of 20%. The borrower will have to pay a commitment fee @ 0.50% on the unused portion of the credit limit

CS Professional · Banking - Law and Practice · PYQS · December 2016
Sunshine Ltd. is sanctioned ₹10 crore cash credit limit but utilises only ₹8 crore on an average at contracted rate of 20%. The borrower will have to pay a commitment fee @ 0.50% on the unused portion of the credit limit. Additionally, the bank insists for margin (cash deposit) of 20% of the utilised limit and 5% of the unutilised portion. Reserve requirement imposed by central bank is 10% of the deposits. In light of the above – Work out estimated funds outlay for the borrower.

Answer & Explanation:

Calculation of funds outlay for the borrower Utilized Credit limit less (Margin requirement + Reserve requirement) ₹8 crore - (₹8 crore x 0.20 + ₹2 crore x 0.05) - (₹1.6 crore + ₹0.10 Crore) x 0.10 = 8 - (1.60 + 0.10) - (1.7 x 0.10) = 8 - 1.70 - 0.17 = ₹6.13 crore Alternate Method Computation of funds outlay for the borrower Amount (₹) Cash outflow (net of margin @ 20%) (8,00,00,000 x 80%) 6,40,00,000 Less: Cash inflow from commitment Charges of unutilized limit (2,00,00,000 x 5%) 10,00,000 6,30,00,000 Less: Margin requirement of RBI- @ 10% (on loan margin amount) 10% of (8,00,00,000 x 20% + 5% x 2,00,00,000) 17,00,000 Or 10% of (1,60,00,000 + 10,00,000) Total funds outlay for the borrower 6,13,00,000

Topics: Banking Finance

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