Same limit, same bank, ₹1.05 crore less interest: how the shape of your working capital decides what it costs
Most businesses negotiate hard on one number — the size of the limit — and then accept whatever shape the bank puts it in. Usually that shape is a single Cash Credit account. It is the simplest thing to run, and it is almost always the most expensive money in the building. The same sanction, split so that each rupee sits in the facility built for its job, can cost well over a percentage point less every year. On ₹100 crore that is real money, and none of it requires borrowing more.
This note explains the facilities in plain English, shows the arithmetic side by side, gives you a calculator to run your own numbers, and lists the questions to put to your banker. If the abbreviations below are unfamiliar — CC, WCDL, PCINR, PCFC, PIF — that is exactly the point. They are not complicated; they are just badly explained.
First, the words your bank uses — in plain English
Every one of these is simply a loan with a rule about what it may be used for and how it gets repaid. The tighter and more predictable that rule, the less the bank charges you, because the bank can see its money coming back.
| Short form | What it actually is | What it is for |
|---|---|---|
| CC — Cash Credit | A running account you can dip into and repay any time, up to a limit, secured against your stock and receivables. Interest is charged on what you use, day by day. | General day-to-day working capital. Maximum flexibility, highest price. |
| WCDL — Working Capital Demand Loan | A fixed amount drawn for a fixed period (say 30, 60 or 90 days) and repaid at the end. No dipping in and out. | A known, steady core need. Because the bank knows the amount and the date, it usually prices lower than CC. |
| PIF — Purchase Invoice Financing | The bank pays your supplier's invoice; you repay the bank later. The specific invoice is the security. | Paying suppliers. It is "self-liquidating" — meaning the transaction that created the debt also produces the cash to clear it. |
| PCINR — Packing Credit in Indian Rupees | A rupee loan given against a confirmed export order, before you ship, to buy raw material and produce the goods. Repaid out of the export proceeds. | Exporters. This is the one that can carry a government interest subsidy. |
| PCFC — Pre-shipment Credit in Foreign Currency | The same thing as packing credit, but lent to you in dollars or euros instead of rupees, priced off international rates. | Exporters — especially those who also import inputs, because you borrow and repay in the same currency you already deal in. |
Two terms worth knowing before you read on. A basis point (bps) is one hundredth of a percent, so 132 bps means 1.32%. A commitment charge is a small fee some banks levy on the part of your limit you did not use — you pay a little for keeping the door open.
Why one big CC costs more
A Cash Credit limit has to be priced for the worst thing you might do with it, because you can do anything with it, at any time. A packing credit account against a confirmed export order is a much narrower promise: known purpose, known repayment source, known date. Lenders price certainty. So:
- CC carries the highest rate of the group, because it is the most open-ended.
- WCDL prices below CC because the amount and tenor are fixed.
- PIF and bill discounting price below CC because a specific invoice is doing the repaying.
- Export credit can price below all of them, because on top of the commercial rate the government may pay part of your interest.
- Foreign-currency credit is benchmarked abroad — off SOFR rather than the RBI repo rate — which is often a very different number.
SOFR is the American benchmark interest rate (it replaced LIBOR). The repo rate is the RBI's policy rate, currently 5.25%. When those two move apart, borrowing in the other currency can get cheaper — but only if you genuinely have foreign-currency income to repay it with.
The comparison, side by side
Take a business with a ₹100 crore sanction that uses ₹80 crore on average. Everything below uses the same limit, the same bank and the same security. Only the shape changes.
| Scenario A — one Cash Credit | Amount | Rate | Annual cost |
|---|---|---|---|
| Cash Credit, drawn | ₹80.00 cr | 8.00% | ₹6.40 cr |
| Commitment charge on the unused limit | ₹20.00 cr | 0.25% | ₹0.05 cr |
| Total | ₹80.00 cr used | 8.06% effective | ₹6.45 cr |
| Scenario B — matched to purpose | Amount | Rate | Subsidy | Annual cost |
|---|---|---|---|---|
| CC — the buffer | ₹20.00 cr | 8.00% | — | ₹1.60 cr |
| WCDL — the steady core | ₹25.00 cr | 7.50% | — | ₹1.88 cr |
| PCINR — against export orders | ₹18.00 cr | 7.50% | ₹49.5 lakh | ₹0.85 cr |
| PCFC — foreign currency | ₹10.00 cr | 5.60% | — | ₹0.56 cr |
| PIF — supplier invoices | ₹7.00 cr | 7.25% | — | ₹0.51 cr |
| Total | ₹80.00 cr used | 6.75% effective | — | ₹5.40 cr |
The difference is ₹1.05 crore a year — about 132 basis points. And it is not a one-off: it repeats every year the structure stays in place. Even at ₹40 crore of average utilisation the same shape saves roughly ₹65 lakh.
The rates above are illustrative and deliberately conservative. Spreads are negotiated borrower by borrower and move with your rating, security and relationship — treat them as a template to fill in with your own sanction letter, which is exactly what the calculator below is for.
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Defaults use the repo rate at 5.25% and the Export Promotion Mission subsidy at 2.75% capped at ₹50 lakh per IEC per year. Replace every figure with the ones on your own sanction letter.
The export subsidy — and the ceiling most people miss
If you export, part of your interest on rupee export credit can be paid by the government. This used to run under the Interest Equalisation Scheme. That scheme has been replaced by the interest subvention component of the Export Promotion Mission (branded Niryat Protsahan), and the change matters because the old registrations do not carry over.
- The benefit: 2.75% a year off the interest you actually bear on pre- and post-shipment rupee export credit, with additional support for exports to notified emerging markets.
- Only for listed goods: it applies to a notified "positive list" of HS codes (the international product classification on your shipping documents), covering roughly three-quarters of tariff lines. Waste, scrap, restricted items and goods already covered by an overlapping incentive are excluded.
- You need a new UIN: a unique identification number issued under the Export Promotion Mission. Numbers issued under the old Interest Equalisation Scheme are not valid for this.
- It stops if the account goes bad: no subvention from the date an account is classified as an NPA (a loan the bank has formally recognised as non-performing).
- It is capped: ₹50 lakh per IEC (your Importer Exporter Code) per financial year.
Do the division and the cap bites early. ₹50 lakh ÷ 2.75% ≈ ₹18.2 crore. That is roughly the most packing credit you can hold for a full year and still be earning subsidy on all of it. Past that point, extra packing credit is just ordinary borrowing — so the subsidy should not be the reason you build a structure larger than that.
Rates under the scheme are reviewed twice a year, in March and September, so confirm the current rate before you build a twelve-month budget on it.
Questions to ask before you sign
If you are negotiating or renewing a facility, these are the questions that actually move the number. Take them to your banker in this order.
- "Can this sanction be structured as sub-limits instead of one CC?" — the single most valuable question here. Everything else follows from the answer.
- "Are the sub-limits interchangeable, and is that in writing?" Interchangeable means you can move headroom between facilities as your needs shift, without going back for a fresh approval.
- "What is the all-in rate on each facility?" Ask for the benchmark, the spread over it, and the reset frequency — separately. "Around 9%" is not an answer you can plan with.
- "Is there a commitment charge on unused limits, and can it be waived?" If you routinely use only 60% of a limit, this is a live cost.
- "What are the processing, renewal, stock-audit and inspection charges?" These sit outside the interest rate and are frequently negotiable.
- "Are my products on the export subsidy positive list, and do you have my Export Promotion Mission UIN on file?" Banks claim the subsidy on your behalf — if the paperwork is missing, you simply do not get it.
- "What is the margin on each facility?" Margin is the share you must fund yourself — 25% margin on stock means the bank lends against only 75% of it.
- "What triggers a repricing, and can I prepay without penalty?"
- "If I move export orders to packing credit, does my CC limit reduce?" Sometimes yes — and that changes the whole calculation.
Where to read the rules yourself
- RBI Master Directions — the binding rules banks work to, including credit facilities and export credit
- Reserve Bank of India — current policy repo rate and monetary policy statements
- Directorate General of Foreign Trade — the Export Promotion Mission, the positive list and UIN application
- Ministry of Commerce & Industry — scheme notifications and trade notices
- CGTMSE — credit guarantee cover, relevant if collateral is the constraint rather than price
Takeaway: The size of your limit is negotiated once a year and everyone focuses on it. The shape of it is barely discussed, costs nothing to change at renewal, and is worth more than most rate negotiations achieve. Ask for sub-limits, match every rupee to the cash cycle that repays it, and claim what you are already entitled to.
Want us to look at your sanction letter and model your actual structure? Talk to us — send us the limits and rates you have now and we will show you what the same money would cost in a better shape.
AI-assisted note, reviewed by Chartford Consultancy. Rules and figures can change with government notifications — talk to us to confirm exactly what applies to your business.
