The Hindu : National : "Banks should retire high-cost loans"

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Monday, Jun 20, 2005

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National

"Banks should retire high-cost loans"

Special Correspondent

It will reduce interest burden on industry and increase bank liquidity: chamber

NEW DELHI: : In a representation, the PHDCCI on Sunday asked the Reserve Bank of India to instruct banks and financial institutions to permit advance payment for retirement of high-cost debts with minimum charges.

This, the chamber said, would not only reduce the interest burden on industry but would also increase the liquidity of banks and FIs, besides reducing the non-performing assets of corporates.

Following softening of interest, corporates, which raised high-cost term loans, were keen to prepay such loans, but the banks and FIs were charging heavily for the repayment. Though the guidelines of the banks and FIs allow lowering of interest rates, the borrowers faced difficulty on account of the reluctance of banks.

Banks and FIs were demanding upfront premium as high as 50 per cent of differential interest benefit allowed to the concerned unit, it said.

"The rates of interest so reduced or 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 said.

The chamber suggested that no premium be demanded from the borrower.It said concessions, including reduction or waiver in interest rates and one-time settlement in respect to principal payment were available to corporate accounts, which had turned bad or had NPA.

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