[sbinews] 3 banks chosen to channelise govt credit (Economic Times)

  • From: "Rajendra S. Pai" <rs.pai@xxxxxxxxx>
  • To: <sbinews@xxxxxxxxxxxxx>
  • Date: Fri, 12 Mar 2004 09:01:18 +0530

3 banks chosen to channelise govt credit
(Economic Times)
NEW DELHI : The government has chosen State Bank of India (SBI), Bank of
Baroda (BoB) and Indian Overseas Bank (IOB) for channelising government
credit to other countries which runs into billions of dollars.

Till now, Exim Bank had virtual monopoly in establishing credit facilities
in the form of line of credit either to assist a certain country or boost
Indian exports to the country.

According to decisions finalised by the finance ministry on the basis of
proposals forwarded by the external affairs ministry, the rate of interest
on any such line of credit (LoC) will be decided on the basis of four slabs,
depending upon the economic health and indebtedness of the country

Till now, the rate of interest on such LoCs was decided virtually on a
case-to-case basis. With the country's foreign exchange reserves topping
$100bn, there is ample scope to boost Indian exports and also provide relief
to select countries through such credit facilities, government officials

India has a large number of credit facilities established with various
countries, especially those from the African, south American, CIS and Asian
region. Nearly $700m has been committed to African countries under the New
Pact for African Development (NEPAD) and Team-9 initiatives.

SBI, BoB and IOB will get to operate part of these credit facilities under
the new policy, they added. The commerce department has also supported the
policy, shortlisting project exports, healthcare, agriculture and
infrastructure as the target areas which should get bulk of the credit
support. The department of economic affairs (DEA) has given final shape to
the strategy and informed the other departments concerned, they added.

The rate of interest applicable under the credit facility will differ from
country to country and four categories have been created for this purpose.
This comprises highly indebted poor countries (HIPC), low income high debt
(LIHD), middle income high debt (MIHD) and middle income low debt (MILD)
segments. Countries grouped the first category, HIPC, will get interest at a
fixed rate of 1.75% for a period of 20 years, with a grace period of five
years. This indicates a grant, in terms of interest saved, of 41.25% as per
current interest rates. This grant element has been worked out on the basis
of average interest rate in the global market which is around 6% and the
current Libor level of 1.24%, the officials said.

For LIHD countries, the interest rate will be 0.5% above Libor for a period
of 15 years, with a grace period of five years. The subsidy for this segment
works out to 35.11% and officials feel that Indian industry should make use
of this facility to boost exports. The same interest rate will apply to MIHD
countries too but the term of loan will be 12 years with a grace period of
four years and the grant in this case works out to 28.75%. For MILD
countries too the interest rate has been fixed at 0.5% above Libor but the
credit period would be eight to 10 years, with a grace period of two or
three years. The subsidy in this case ranges from 17.11% to 24.56%,
depending on the period of repayment.

Apart from the first category, the interest rate in all other cases is
floating, linked to Libor. By giving an edge to Indian industry, these
credit facilities will help both sides. The win-win situation also creates
goodwill for India in the beneficiary countries, the officials said.

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