Vinu: Hey Manu, I’ve been trying to understand the difference between WCDL disbursement and rollover. Can you walk me through it?

Manu: Of course, Vinu! Let’s start from the basics. WCDL stands for Working Capital Demand Loan. It’s a short-term loan facility provided by banks to help companies meet their working capital requirements.

Vinu: So it's not like a regular term loan?

Manu: Correct. A WCDL is different. It’s typically granted for a fixed period — anywhere from 7 days to a year — and comes with a fixed interest rate for that specific period. Once disbursed, the funds are usually used to manage day-to-day business needs like purchasing inventory or paying operational expenses.

Vinu: Got it. Now what exactly is a WCDL disbursement?

Manu: A WCDL disbursement is the initial release of funds under the WCDL facility. Here's how it works:

Vinu: Sounds straightforward. And what about a rollover?

Manu: Good question! A WCDL rollover happens when the company’s existing WCDL matures, and instead of ending the arrangement, they take a new WCDL to replace the old one. It’s like repaying the old loan and taking a new one back-to-back.

Vinu: So it's like extending the WCDL with fresh terms?

Manu: Exactly. The previous loan is repaid, often by debiting the company’s current account or using proceeds from the new disbursement. Then a fresh WCDL is sanctioned with new terms — a new tenor and interest rate.

Vinu: Can you give me an example?

Manu: Sure. Suppose:

Vinu: So the difference lies in the context and timing?

Manu: Precisely!

Vinu: That helps ensure the company doesn’t face a cash crunch, right?

Manu: Absolutely. Rollovers are a part of short-term working capital strategy. They give the borrower uninterrupted access to funds while allowing the bank to manage credit exposure through fresh sanction terms.

Vinu: Very clear now. Thanks, Manu! This really simplifies the concept.

Manu: Happy to help, Vinu. Understanding these nuances is vital when assessing working capital financing.