The Hindu : Business : Allow corporates to retire high cost debts: Chamber

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Sunday, Jun 06, 2004

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Allow corporates to retire high cost debts: Chamber

By Our Special Correspondent

NEW DELHI, JUNE 5. The Pubjab, Haryana and Delhi Chamber of Commerce and Industry (PHDCCI) has urged the Reserve Bank of India Governor to issue instructions to banks and financial institutions (FIs) to allow corporates to retire their high cost borrowings with minimal charges.

This process would not only reduce the interest burden on industry but would also increase the liquidity of banks and FIs which in turn should enable the corporates to reduce their non-performing assets (NPAs), the chamber said.

It has pointed out that in the last five years many corporates have raised high cost term loans from banks/FIs and since interest rates have softened, corporates are keen to prepay such costly loans, but are faced with a problem of banks/FIs charging them high prepayment charges.

In its representation to the RBI, the PHDCCI has stated that as per the guidelines of various banks and financial institutions, though the institution concerned allows borrowers to reduce rate of interest by allowing a lower interest rate, but borrowers face difficulties on account of reluctance of banks.

At present, banks/FIs demand upfront premium as high as up to 50 per cent of differential interest benefit allowed to the unit concerned. The rates of interest so reduced/offered to be reduced are still on the higher side in comparison to prevailing interest rates on funds available to industry from other institutions.

The PHDCCI has suggested that no premium be demanded from the borrower so that competitiveness of industry is not adversely affected in the global context. In case another institution refinances the funds of the financial institutions, the particular financial institution should deal with the parent financial institution on the same lines.

Furthermore, in case of running/profit making units the concessions with respect to the reduction in interest rates/prepayment incentives should be encouraged. At present, various concessions including the reduction/waiver in interest rates, one time settlement in respect to principal payments are made available to the corporates accounts which have turned bad or have an NPA. It is a matter of concern that industrial units which otherwise are running satisfactorily and are servicing their debts on regular basis are not extended any concession but are put to strict regulations, the PHDCCI has observed.

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