| Section: Notifications |
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| Date: Aug 10, 1998 |
IECD.NO. 6/08.12.01/98-99
The Chairmen/Chief Executives
of all commercial banks
Dear Sir,
As banks are aware, Government of India on May 22,1998 constituted a "National Task Force on Information Technology and Software Development" to recommend steps to remove bottlenecks in the path of rapid development of information technology and to give a boost to Information technology and software industry. Recognising the potential of information technology for rapid and all round national development, the abovereferred Task Force has drawn "Information Technology Action Plan" for initiating action encompassing various aspects of development of the industry. Bank credit has been identified by it as an essential input for IT and software industry development and it has recommended issuing guidelines to banks for extending working capital finance to the said industry.
2. It may be recalled that in the Monetary and Credit Policy for the first half of 1997-98 announced in April 1997, Reserve Bank had, as a measure of bestowing operational freedom on banks and as a part of deregulation process, withdrawn its earlier laid down prescription of Maximum Permissible Bank Finance (MPBF) in the matter of arriving at quantum of working capital finance to be extended to various categories of borrowers, and permitted banks to decide on their own the loan policy and the manner of estimating the working capital finance based on MPBF method or any other method to be approved by their Board of Directors. The stance of Reserve Bank policy towards operational freedom to banks remains unchanged. At the same time Reserve Bank recognises the fact that the banks are not comfortable with extending aggressive credit support to a relatively new area of software industry unlike other traditional industries, due to several factors which make the assessment of credit needs and follow up thereof difficult, if not unsurmountable. It is, therefore, felt desirable to formulate guidelines to bring about uniformity in approach, for information of banks, on various aspects of lending to information technology and software industry to facilitate free flow of credit. Banks are, however, free to modify the guidelines based on their own experience without reference to Reserve Bank to achieve the purpose of the guidelines in letter and spirit. The guidelines framed by Reserve Bank are spelt out in the enclosed memorandum.
3. It may be stated that these guidelines have been framed based on the recommendations made by a study group appointed by Reserve Bank to study the modalities of credit extension to software industry as also taking into account the suggestions made by the industry associations.
Please acknowledge receipt.
( V.G.Damle )
Addl.Chief General Manager
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| Date: Aug 10, 1998 |