Date:11/10/2004 URL: http://www.thehindubusinessline.com/2004/10/11/stories/2004101101761300.htm

Back TIIC initiative to cut lending rates — Proposes pact with SIDBI, State Govt

Our Bureau

Chennai , Oct. 10

THE Tamil Nadu Industrial Investment Corporation (TIIC) plans to enter into an agreement with SIDBI (Small Industries Development Bank of India) and the State Government to bring down the cost of loans, according to officials.

Through this and other measures, TIIC hopes to bring down its lending rates to small and medium enterprises by about 2 percentage points, sources said.

Its term loans, along with the Central and State subsidy schemes, are effectively around 10.5 per cent and make TIIC the ideal source for capital. The loans taken along with the one- or two-year moratorium offered on principal repayment and the seven to nine years term loan make TIIC competitive, sources said.

Through the agreement with SIDBI and the State Government, TIIC will be able to access SIDBI refinance at 7.5 per cent against the current variable rates of 8 - 10 per cent. This will enable TIIC to bring down its lending rates.

The agreement will also provide for converting about Rs 61 crore of loans from the State Government to equity. This will help improve its capital base, they said.

TIIC has also taken up with banks certain steps to retire some of its high cost debts - about Rs 411 crore that carry an interest of about 14-15 per cent. It has taken up the issue with State Bank of India and Union Bank of India to prepay about Rs 28 crore each.

It has approached Indian Overseas Bank, Punjab National Bank and LIC, which has in principle agreed to the prepayment of Rs 42.5 crore. Strengthened by these measures, TIIC has set for itself a lending target of about Rs 275 crore during the current year against Rs 200 crore last year. Some of the focus areas include windmills for captive power generation, which has emerged as a major area of investment for the textile industry. TIIC has a special rate of 10.5 per cent for windmill projects. Other areas include light engineering, automobile components and textile units, the sources said.

Under the National Equity Fund, the average interest rate is about 8.5 per cent and is ideal for automobile component units.

The last financial year was a turnaround for TIIC which had speeded up loan recovery and clearing bad debts. The total recovery including principal and interest was about Rs 350 crore. In tandem with the internal restructure that has helped significant savings on interest for TIIC, it was able to bring down its cost of funds to 10 per cent from 13.75 per cent, sources said.