Kerala Financial Corporation (KFC) has announced a special interest rate cut for manufacturing and service sector loans.

The interest rates of the service sector loans will come down by up to 1 per cent from the existing rates, according to Sanjeev Kaushik, Chairman and Managing Director, KFC.

The revised rates will be applicable for new customers from December, and for existing base rate customers, the rate will be applicable from their next reset dates.

“This is the biggest cut in interest rates yet announced by the KFC, and is an excellent opportunity for units in the MSME sector. The reduction in rates will benefit thousands of manufacturing, industrial and service sector units in the State,” Kaushik added.

Kaushik said that the corporation has been able to reduce its cost of funds by mobilising low-cost money from the market, financial institutions, and banks. The benefit is now being passed on to customers.

Currently, the corporation’s loan products are linked to a base rate of 9.5 per cent. Each loan is placed in one of the seven bands of interest structure, based on their credit rating of customers.

The corporation has observed that even after the introduction of the base rate system, some of its customers have not been able to reap benefits because of the higher spreads.

A few others, who follow the erstwhile prime lending rate (PLR) regime, have not switched over to the base rate system, as they were not getting the interest benefit if they had opted for the new base rate system.

Also, the rates for the service sector were higher by 0.5 per cent than the manufacturing sector. These anomalies are sought to be corrected with the simplification of the interest rate structure by reducing the bands from seven to five.

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