Idbi Alters Rates Under Refinance Scheme For Medium Sector
In line with the general reduction in interest rates in the economy, the Industrial Development Bank of India (IDBI) has revised the rate of interest under its refinance scheme for the medium (non-SSI) sector. IDBI has also revised the rates of interest under its bills rediscounting scheme. Both these revisions will be effective from May 1, 1997.
Under the refinance scheme for the medium sector, the all-India financial institution has reduced the interest rate charged to 16 per cent. Further, it has specified that there will be no ceiling on the interest rate to be charged by banks to industrial concerns. The banks would be free to charge any rate of interest depending upon their perception of the risk involved in the project under consideration.
The new refinance rate would be applicable to all loans sanctioned after May 1, 1997. It would also be applicable in all cases where the relative loan agreement between the bank and the borrower had been executed on or after May 1, 1997, even if the loan/refinance was sanctioned before this date.
Also, in all those cases where the relative loan agreement between the banks and the borrower have been executed on or before May 1, 1997 but no disbursement has been made before May 1, the new rates will be applicable. In those cases, where disbursements have partly been made, the refinance would continue at the existing rates.
The interest rate structure of IDBIs bills discounting and rediscounting scheme has also been revised with effect from May 1, 1997. For sets of bills with usance period of three years (that is above three months and up to 36 months), the rate of rediscount has been revised to 15 per cent per annum and the rate of discount has been revised to 15.9 per cent per annum. For sets of bills with usance period up to five-and-a-half years (that is above three months and up to 66 months), the rate of rediscount has been revised to 13.30 per cent and the rate of discount has been revised to 14.20 per cent. The maximum period of usance under the second set of bills category, has also been revised upwards to 66 months from 60 months. All bills of exchange and promissory notes drawn or made on or after May 1, 1997 will be rediscounted at the revised rates.
Both these requirements were conveyed to the chief executives of all eligible institutions and banks by separate circulars by the financial institution. These reductions in interest rates have been affected in the wake of the slack season credit policy of the Reserve Bank of India which sent a strong signal to the banking and finance institution that interest rates should begin their journey downwards. With banks already announcing reductions in their prime lending rates, this policy initiative of the IDBI will help in reducing the banks cost of funds.