Idbi May Disburse Rs 500cr Short-Term Loans

Industrial Development Bank of India (IDBI) is expected to disburse around Rs 500 crore worth short-term loans by the end of this month.

The bank had fixed a target of disbursing around Rs 3,000 crore of working capital loans for the current fiscal. It is said that this target will be met as credit offtake picks up in the second half of the year.

IDBI had recently decided to enter working capital funding, with the dividing line between banks and financial institutions blurring. Industrial Credit and Investment Corporation of India (ICICI) has also entered the short-term loan market.

IDBI has been able to disburse funds for working capital despite the fact that it charges a higher rate of interest than ICICI. The prime rate of IDBI is 15 per cent for both long- and short-term borrowings. However, in the case of ICICI, short-term loans up to three years have a medium-term prime rate of 13.5 per cent, while the prime rate for long-term loans is 15 per cent.

 

The financial institution has used its wholly owned subsidiary, IDBI Bank, to look at lending working capital loans.

ICICI, meanwhile, has already approved over Rs 1,000-crore worth of short-term loans, the disbursement figures of which are likely to be made available soon.

Sources said that IDBI will be able to lend short-term funds out of the proceeds of the 13.5 per cent bond issue. This is expected to result in a positive mismatch, both on the interest rate as well as maturity front.

The five-year bond issue has been able to mop up around Rs 325 crore so far.

Banking sources feel that the issue will garner at least Rs 500 crore by July 4, when it closes. It remains to be seen if there is any oversubscription.

IDBI is expected to take a decision on the interest rate on future five-year issues after the current flotation closes.