Renewal of Advances
Working capital advances are generally granted for one year at a time and require renewal if the borrower wants to continue the facility beyond that
period at the same level, reduced level or increased level, depending upon the borrower’s needs, its financial ratios, the bank’s perception of risk and so on. Loans repayable over a period of time in instalments are not renewed. However, some banks have a system of reviewing these loans from time to time primarily with the objective of risk evaluation and interest rate resetting.
The procedure described above for sanction of advances is also followed, to the extent applicable, for renewal of advances already granted to an applicant.
The RBI guidelines require banks to renew the advances within 6 months of the expiry of the limit. Hence no working capital limit can remain without reviewed for more than 18 months. It should be ensured that the latest audited balance sheet, various compliance proofs should be on bank’s record. Further the various monitoring reports such as inspections, stock audit and operations in the account should be taken cognisance of during renewal.
Non-renewal sometimes may appear to be administrative delay but it may not be so. Hence stricter compliances should be ensured.