Loans and Advances by the Central Government – Interest rates and other terms and conditions
F.No.5(3)-B(PD)/2012
Government of India
Ministry of Finance
Department of Economic Affairs
New Delhi, the 7th January, 2013
OFFICE MEMORANDUM
Subject:-
Loans and Advances by the Central Government – Interest rates and other terms and conditions.
Reference this Ministry’s Office Memorandum F.No.5(3)-B(PD)2011 dated 19 th March, 2012 on the captioned subject.
2. The lending rates prescribed in the aforesaid Office Memorandum have
been reviewed. The revised rates of interest applicable from 1st April
2012 are given in the Table below:—
| Category of borrower & type of loan |
Interest rate per cent per annum |
| 1. State Governments: |
|
| (i) Ways and Means Advances (Recoverable within the
year) |
8.50 |
| (ii) Other Loans |
9.00 |
| 2. Union Territory Governments (with Legislature): |
|
| (i) Loans upto 1 year |
8.50 |
| (ii) Other Loans |
9.00 |
| 3. Industrial and Commercial Undertakings in the Public Sector and Cooperatives |
|
| (i) Investment loans |
11.50 |
| (ii) Working Capital loans and loans to meet Cash losses |
13.50 |
| (iii) Loans for implemantation of VRS in sick PSUs |
11.50 |
| 4. Financial institutions in the Public Sector, Port Trusts, KVIC,
NHAI, Municipal Corporation of Delhi,Commodity Boards, Social Service
Institutions, Individuals, etc. |
|
| (i) Rural Electrification Corporation: |
|
| (a) For Minimum Needs Programme (M.N.P.) |
10.00 |
| (b) Others |
10.00 |
| (ii) National Bank for Agriculture and Rural |
|
| Development (NABARD) and National Cooperative Development Corporation (NCDC) |
10.00 |
| (iii) National Highways Authority of India (NHAI) and Port Trusts |
10.00 |
| (iv) Others |
11.50 |
The rate of interest prescribed for “Other Loans” under sub-para 1
(ii) and 2 (ii) above is also applicable for Additional Central
Assistance (ACA) on the un-disbursed amount of the loan/issues for all
disaster Reconstructions and Rehabilitation Programme assisted by World
Bank & ADB.
The loans to State Electricity Boards, Damodar Valley Corporation
under the scheme for renovation and modernisation of thermal power
stations would carry interest at the same rate as applicable to ‘Other
Loans’ to State Governments. Normally, loans should not be given to
Private Sector Companies. In exceptional cases where such loans become necessary
interest should be 1/2% higher than those prescribed for Public Sector.
3. The terms including interest rate of loans to Foreign Governments
may be settled in consultation with Budget Division. Terms for
on-lending of funds under externally aided projects should be in
accordance with the prescribed pattern. In case, deviation is considered
necessary, Budget Division should be consulted.
4. The interest rates prescribed above assume timely repayments and
interest payments and hence no further rebate in rates is to be allowed
for timely payments.
5. OTHER TERMS AND CONDITIONS
The instructions issued from time to time
have been reviewed and are set out in the following paragraphs for
facility of reference.
6.
STATE GOVERNMENTS
In the case of loans to State Governments , the arrangements for
payment of annual instalment of principal and interest will be as
under:-
(a) Block loans for State Plan Schemes and other Plan loans for Centrally Sponsored Schemes:-
These loans when drawn in installments, will be consolidated and deemed to have been drawn
as on 1st October in each year. The maturity period of the loans
sanctioned for State Plans is 20 years, repayments being made in 20
annual equal instalments together with interest on the
outstanding balance commencing from the following year, subject to
consolidation under the award of Twelfth Finance Commission (TFC).
However, fifty per cent of these loans will enjoy a five year initial
grace period, after which repayments of these loans will be effected in
15 annual equal instalments. The amounts annually payable (by way of
principal and interest) would be recovered in 10 equal monthly
instalments commencing 15th June, subject to debt waiver under the award
of TFC.
(b)
Other Loans:-
The terms of repayment of these loans will be as laid down from time to time.
7.
PUBLIC SECTOR PROJECTS
(A)
For new installations or expansion of existing institutions:
(a) The terms and conditions of loans should be fixed with reference to
the financial picture presented in the approved Project Report. (Once
the pattern is settled, there should be no change except with the
specific concurrence of this Department for reasons to be stated in
writing).
(b) The capital requirements of a project should include adequate
provisions for interest payment on borrowings during the period of
construction (as specified in the Project Report). The interest on loans
due during the period of construction will be allowed to be capitalised
to the extent of the provisions made for this purpose in the approved
Project Report. In other words, while interest on loans advanced to an
undertaking during the period of construction will be notionally
recovered by allowing its capitalisation, the payment of interest should
effectively commence after the construction period is over.
(c) The repayment of principal should ordinarily commence one year
after the project commences production, the number of instalments being
determined with reference to the financial projections and repaying
capacity specified in the Project Report. Requests for further
moratorium will be considered only in exceptional cases where the
Project Report has
specified any special circumstances that may necessitate a longer period
of moratorium and has indicated clearly what staggering of repayment
would be needed over the necessary break period. The period of loans
sanctioned against capitalised interest during the period of
construction may also be on the same terms and conditions as are
applicable to loans provided for financing the project costs.
(d) A suitable period of moratorium subject to a maximum of five
years from the date of drawal of the loans may be allowed for the
repayment of instalments of principal, having regard to the
nature of the project, the stage of construction etc. The period of
moratorium should not, however, extend in any case, beyond two years
from the date of project going into production, or in the case of
programmes of expansion, beyond two years from the date of expanded
project coming into operation.
(B) For meeting working capital requirements:
The undertakings are expected to obtain their cash credit
requirements from the State Bank of India/Nationalised Banks by
hypothecating their current assets (such as stock of stores, raw
materials, finished goods, work in progress, etc.) and where the entire
working capital requirements cannot be raised in this manner by seeking a
guarantee from Government. Accordingly, requests from Public Sector
Undertakings for funds for meeting working capital requirements should be considered only to the extent the same cannot be had from the State Bank of India/Nationalised Banks.
8. GENERAL REPAYMENT PERIOD
(A) (i) The period for repayment of loans for all parties other than
State Governments should be fixed with due regard to the purpose for
which they are advanced and it should be restricted to the minimum
possible. Normally, no loan shouldbe granted for a period exceeding 10
years.
Where a longer period for repayment is sought, prior concurrence of the
Budget Division in this Department will be necessary for fixing the
period.
(ii) The repayment of a loan should normally commence from the first
anniversary date of its drawal or on expiry of the period of
moratorium, as the case may be. The recovery should ordinarily be
effected in annual equal instalments of principal.
(iii) The period of repayment of working capital loans should preferably
be restricted to two or three years. In no case, however, the period of
these loans should exceed 5 years.
(B)
Moratorium : Subject to exceptions made in respect
of pubic sector projects, a suitable period of moratorium towards
repayment might be agreed to in individual cases having regard to the
project for which the loans are to be utilised. However, no moratorium
should ordinarily be allowed in respect of interest payment on loans.
Ministries/Departments may with the approval of their Financial Advisers
allow moratorium on repayment of principal wherever considered necessary upto a maximum period of 2 years.
(C)
(i) Repayment before due date: Any instalment
paid before its due date may be taken entirely towards the principal
provided it is accompanied by payment towards interest due upto date of
actual payment of instalment; if not, the amount of the instalment will
first be adjusted towards the interest due for the preceding and current
periods and the balance, if any, will alone be applied towards the
principal. Where the payment of the instalment is in advance of the due
date by 14 days or less, interest for the full period (half year or full
year as the case may be) will be payable. If any State Government
repays an instalment of a loan which is consolidated as on 1st October,
in advance of the due date by more than 14 days the interest will be
payable with reference to the actual date of repayment.
(ii)
Pre-payment premium: Prepayment premium of
0.25% on the loans with residual maturity of less than 10 years and
0.50% for the loans with residual maturity of 10 years and
above, shall be charged. The provision does not apply to the loans to State/UT Governments.
(D)
Penalty Clause: The loan sanctions/agreements
should invariably include a penalty clause providing for levy of a penal
rate of interest in the event of default in repayment of instalment(s)
of principal and/or interest. The penal rate of interest should not be
less than 2.50% above the normal rate of interest at which a loan is
sanctioned.
(E)
Defaults in repayment/interest payment: (i) In
the event of a default in repayment of loan/interest payment, the
recovery of interest at penal rate may not be waived unless there are
special reasons justifying a waiver. However, a decision in this regard
will be taken by the Ministry of Finance (Budget Division) on the advise
of Financial Adviser. Even in such cases, a minimum of 0.25% should be
recovered from the defaulting party as penalty.
(ii) The penal rate of interest is chargeable on the overdue
instalments of principal and/or interest from the due date of their
payment to the date preceding the date of actual payment.
(iii) Whenever a fresh loan is to be sanctioned to a borrower who has
earlier defaulted, the loan sanctioning authority must consider the
question of recovery of defaulted dues. All releases to Public Sector
Undertakings against budgeted outlays should be made only after
adjusting the defaults, if any, pertaining to repayment of loans and interest. If for
special and exceptional reasons such adjustments are not possible,
specific orders of Secretary (Expenditure) should be obtained through
Budget Division, before release of fresh loans, in relaxation of extant
orders, in conformity with this Division circular No.F.2 (190)-B(SD)/91,
dated 15.10.1991.
However, no request for waiver/postponement of instalments on any
ground whatsoever will be accepted,except in cases of companies referred
to BIFR or in respect of those companies which have incurred cash
losses for last three years, in conformity with this Division circular
No.F.2(165)-B(SD)/94, dated 06.10.1994.
(F)
Requests for modification of terms of loans: (i)
Borrowers are required to adhere strictly to the terms settled for
loans made to them and modifications of these terms in their favour can
be made subsequently only for very special reasons. Requests for
modification of terms may relate to increase in the period of a loan or
of initial moratorium period towards repayment, or waiver of penal
interest or reduction in or waiver of normal rate of interest. The
procedure of dealing with requests for waiver of penal interest has
already been dealt with in paragraph 8. Cases involving other
modifications in repayment terms should be considered in consultation with the Budget Division in this Ministry.
In referring such cases, the impact of the modifications on the
estimates of repayment/interest which have gone into the Budget and
Government’s resources position should be succinctly brought out by the
administrative Ministry.
(ii) In examining proposals for modification of the period of the
loan, the interest rate at which the loan was sanctioned should also be
reviewed. In the case of a loan of which repayment has already commenced
the revised rate of interest should be applied ab initio only to the
residuary portion of the loan outstanding on the date of extension of
its period.
(iii) Requests for waiver of recovery of normal interest (either) or a
specified period or for the entire period) on a loan which originally
sanctioned at normal rate of interest,will attract the provisions of
Rule 223 (1) of G.F.R. 2005 and should be dealt with accordingly.
(G)
Loans sanctioned at concessional rates:
(i) In cases where loans are to be sanctioned at a concessional rate,
the instructions contained in Rule 223 (1) of G.F.R. 2005 have to be
observed. In such cases, payment of subsidy (to cover the concession
viz. difference between normal rate and concessional rate) should be
made conditional upon prompt repayment of principal and payment of
interest thereon by the borrower.
(ii) In cases where loans are sanctioned interest free (e.g. loans to
technical educational institutions for construction of hostels) prompt
repayment should be made a condition for the grant of interest free
loans. That is to say, the sanction letter in such cases should provide
that in the event of any default in repayment, interest at rates
prescribed by Government from time to time will be chargeable on the
loans.
(iii) Similarly, in the case of interest free loans to departmental
canteens where subsidy is also provided to meet running expenses, the
sanction letter should stipulate that in the event
of any default in repayment, the defaulted dues would be recovered out of the subsidy payable.
(H)
Miscellaneous: A standard form prescribed for issue of loan sanctions (Appendix-I) should ordinarily be followed.
(i) The date of drawal of a loan by the borrower will be date on
which he received cash, cheque or bank draft from the Drawing and
Disbursing Officer. It should be ensured that the time lag between the
date of obtaining the cash/cheque/ bank draft and its
disbursement/delivery despatch to the payee is reduced to the minimum.
Where the cheque or bank draft is sent through post, the date of posting
should be treated as the date of disbursement of the loan. The Drawing
and Disbursing Officer should invariably intimate the date of payment
to his Accounts Office to enable the latter to make a suitable note in
his records.
(ii) In the case of loans sanctioned to parties other than State and
Union Territory and Foreign Governments and Government Servants, the
borrower should tender the amounts due on or before the due date, at the
New Delhi Office/Main Office of the public sector bank accredited to
the Ministry/ Department which sanctions the loan, in cash or by cheque
or draft drawn on any scheduled bank in Delhi/New Delhi in favour of the
said PSB Branch. The payment should be accompanied by a memorandum or
challan in duplicate indicating (a) name of the loan sanctioning
Ministry/Department; (b) No. and date of the loan sanction letter and
the loan amount sanctioned;
(c) amount due for payment separately for interest and principal and
the head(s) of account to which the dues are to be credited in the
Government Accounts; and (d) due date of payment. The borrower should be
asked to tender separate cheques/drafts and challans for payment of
principal and interest.Outstation loanees are required to arrange the
dues through their bank ensuring that the memorandum/challan and the
cheque/draft reaches the aforesaid PSB Branch in New Delhi by the due
date.
(iii) Ministries/Departments are required to keep close watch on
timely repayments of loans advanced by them and recovery of interest
thereon. Rule 220 (1) (viii) of G.F.R. 2005 provides for a notice to be
given to the borrowers a month in advance of the due date of payment of
instalment of the principal and/or interest thereon. Such notices may
be sent in the form given in Appendix II. The borrower should not
however be given any advantage in the event of non-receipt of such a
notice. Repayments/interest payments due from the loanees should also be
reviewed at least quarterly, and where any default has occurred, a
fresh notice should be served on the borrower to arrange payment with
penal/higher rate of interest in the form set out in Appendix III.
(iv) Individual cases relating to terms and conditions of loans need
not be referred to the Department of Economic Affairs (Budget Division)
unless it is proposed to deviate from those laid down in this Office
Memorandum.
(Peeyush Kumar)
Director (Budget)
Tel. No. 23092744
Source: finmin
