The Life Insurance Corporation of India (LIC) has extended a Rs 2,000 crore loan to Rural Electrification Corporation Ltd (REC). | |
| This is the largest single installment loan extended by the state life insurance corporation. |
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| With interest rates firming up, LIC has taken a conscious decision to increase its earnings by extending long-term loans to financial institutions and state governments. |
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| The Rs 2,000-crore REC loan will yield an interest of 7.25 per cent per annum over a 15-year period. LIC has given REC a five-year moratorium in the payment of the principle, which would be repaid over the next 10 years. |
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| "We are cash-rich, and can afford to offer institutions moratoriums as long as our funds are not left idle," said S C Bhargava, executive director (investment), LIC. |
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| On Friday yield on the benchmark 10-year paper has moved up to 6.28 per cent. Lending to institutions or state governments, where return of capital is assured, helps LIC enhance its return on capital. |
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| Earlier this year, LIC sanctioned Rs 6,500 crore line of credit to National Hydro Power Corporation, thereby taking its total exposure in the company to Rs 9,000 crore. |
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| The interest rate on the loan was linked to 13-year government papers, which then worked out to an effective rate of 6.8 per cent. |
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| REC proposes to disburse over Rs 8,000 crore during the current fiscal, and has plans to tap the capital market for priority sector bonds, said the company director (finance), H D Khunteta. |
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