The Hindu Business Line : IDBI to re-negotiate interest rates on high-cost rupee loans

INDUSTRIAL Development Bank of India (IDBI) has decided to re-negotiate interest rates on high-cost rupee loans for all existing well-performing companies with the aim of bringing them roughly in line with the present lower interest rate regime.

In a significant decision that can have a major impact on its borrowers, the IDBI board approved the re-negotiation proposal with the hope of recording significant gains over the medium term. The proposal is particularly relevant for corporates that have regularly and systematically serviced loans taken from the FI but are yet to benefit from more reasonable rates by taking up restructuring programmes. The IDBI board has okayed what is being described as a "graded reduction in interest rates" for such clients.

Such graded reduction will be typically based on the credit rating assigned to individual corporates, Mr M. Damodaran, Chairman of IDBI, stated here today. The rate for a rupee loan to an existing client, rated between AA+ and AAA, will now be reduced to a floor rate of 8.5 per cent. The other rates are: 9.5 per cent for AA to AA-; 10.25 per cent for A, A+ and A-; and 11 per cent for BBB and lower.

"The decision will help us over the medium term. Good customers, who are demanding a more practical rate, will also appreciate it. Also, some of the accounts that stand to benefit may, in the normal course of business, turn weak," he said while briefing newspersons after meeting the Chief Minister of West Bengal. The FI is weighing several options with regard to its bad assets, some of which will be moved over to the asset reconstructing company that it has co-promoted.

It has decided to pursue its core activities - project finance and term lending - as well as tap new areas. It has proposed to set up retail business in a big way. "We will enter various categories of retail lending and try to compete by way of effective pricing strategies," Mr Damodaran observed.

The FI has further planned to attract more low-cost funds, a task that its 100-odd branches will be expected to take up. Incidentally, it has reduced its PLR, which now stands in line with that fixed by SBI. Elsewhere, IDBI will continue to mobilise funds by issuing `Flexibonds.'The meeting, held in Kolkata after a gap of nine years, took a review of the large accounts and various issues related to asset-liability management. The board also took into account the readiness in relation with the proposed commercial banking activities. IDBI officials also separately met a group of local industrialists.

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