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Thursday, Jun 05, 2003

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CIDC, SIDBI sign agreement for loans to small contractors

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THE Construction Industry Development Council (CIDC) and the Small Industry Development Bank of India (SIDBI) today announced a new bills discounting scheme for contractors engaged in construction activity.

"We will discount bills raised by a sub-contractor on the main contractor. That would enable the sub-contractors to get instant payment for their work and take care of their working capital needs. All they would need will be an approval for their bill from the main contractor. The bigger contractor would then pay back the amount with interest to us," said a senior SIDBI official, explaining the scheme.

While making the payments, SIDBI would take into consideration the rating awarded to the contractor by CIDC and his standing in the industry, apart from the tenure of the bridge loan being sought. "The facility would be available at an interest rate that would be in the band of 2 per cent plus or minus our prime lending rate, which for such short-term loans, is about 10.5 per cent as of now," the SIDBI official said.

The facility would also be available for purchase of equipment, in which case the supplier would get the discounted payment and the purchaser would settle the loan with the financial institution, he added.

Speaking to presspersons at a ceremony to sign a memorandum of understanding to work out the exact contours of the scheme, the CIDC Executive Director, Mr P.R. Swarup, said that the council had been discussing the concept with the Indian Banks Association and hoped to have similar tie-ups with commercial banks after the SIDBI model gets established.

"The finance scheme will get greater transparency and efficiency in the construction industry. It would also encourage contractors to get rated in order to avail bridge loans at lower interest rates, which in turn will ensure a certain standard of service," Mr Swarup said.

According to the MoU signed today, a joint working committee of SIDBI and CIDC would work out the exact lending mechanism in the next couple of weeks and look into the implementation of the scheme.

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