The Life Insurance Corporation of India (LIC) has decided to slap a one per cent commitment charge on corporates for long-term lendings. This charge will be payable upfront by corporates and public sector entities seeking funding.
This is for the first time that LIC is slapping commitment charges on the line of banks. The move is aimed at offsetting the arrangement costs that LIC face in keeping funds ready for disbursement. LIC has already collected Rs 2.5 crore from the National Hydro Power Corporation (NHPC) as commitment charge payable annually towards a Rs 2,500 crore five-year loan sanctioned. This represents 0.5 per cent of the loan amount to be disbursed in five years.
LIC chairman S B Mathur said that the rationale behind imposing such a penalty is because LIC is seen as the last resort for funding. Many core sector public sector undertakings (PSUs) tend to get loans sanctioned but fail to draw the funds as they get better terms and conditions elsewhere. But LIC needs to keep the funds ready and make the necessary arrangements. This commitment charge
