Loans and Advances by the Central Government - Interest rates and other terms and conditions
F.No.5(3)-B(PD)/2016
Government of India
Ministry of Finance
Department of Economic Affairs
New Delhi, the 6th January, 2017
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)2015 dated 3rd February, 2016 on the captioned subject.
2.
The lending rates, categories and conditions prescribed in the
aforesaid Office Memorandum have been reviewed. The revised rates of
interest,categories and conditions as given in the Table below, would be
applicable from 1st April, 2016 and till the time these are reviewed:
TABLE
| Category of borrower & type of loan | Interest rate per cent per annum |
| 1. State Governments (EAP Loan): | 8.00 |
| 2. Union Territory Governments (with Legislature): | |
| (i) Loans upto 1 year and EAP loan | 8.00 |
| (ii) Other Loans | 8.50 |
| 3. Industrial and Commercial Undertakings in the Public Sector and Cooperatives: Loans for implemantation of VRS in sick PSUs | 10.00 |
The
terms and condition and conditions regarding eligibility of loan would
remain the same as that of last year. If any specific request comes in
future from any other financial institution/CPSE/Autonomous
Body/Cooperative, it would be examined by the Budget Division, DEA on
merits of that case.
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
(a)
The loan sanctioning authority should meticulously follow the
instructions contained in General Financial Rules, 2005 (GFR 2005),
particularly, rules framed under Chapter 9 (II-LOANS) of
GFR, 2005, while sanctioning loans to various entities as stipulated therein.
(b) 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 instalments, 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 should be 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.
(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.
(iv)
Any defaults should ab-initio serve as a warning signal to the
Ministries/ Departments for which curative action has to be taken
immediately.
(v) Ministries/Departments need to critically review
the financial position of the borrower, including defaulting CPSUs and
wherever possible, should take immediate action to recover the money due
to the Government.
(vi) In the case of defaulting CPSUs, there
has to be a clear road map for restructuring of these CPSUs, as
prolonged approval results in burgeoning of defaults.
(vii)Ministries/Departments are to ensure that these defaults do not become fiscally unsustainable.
(viii)
Wherever Ministries/Departments are considering restructuring of a
CPSU, it must be ensured that besides equity infusion, funds
mobilisation, rescheduling of loans/interest payments, write off of
dues, etc. should be formulated holistically. 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 for 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
chequ 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.
This issues with the approval of Finance Minister.
sd/-
(Vyasan R)
Deputy Secretary (Budget)
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Authority: www.finmin.nic.in
