India: SBI offers lowest rate of 8.04% under special banking arrangement for fertiliser subsidy payments

India’s largest lender State Bank of India (SBI) has offered an interest rate of 8.04% on a Rs.10,000-crore loan for settlement of pending subsidy claims of domestic fertiliser firms under a special banking arrangement (SBA).

 

The finance ministry has agreed for an SBA of  Rs.10,000 crore to clear pending subsidy claims of fertiliser companies between August 2016 and February 2017. 
 

“An internal committee headed by a senior official from the fertiliser department today (on Thursday) met to negotiate interest rates for the Rs.10,000 crore SBA finalised by the finance ministry for making pending subsidy payments. SBI has offered the lowest interest rate of 8.04% for the entire tranche of Rs.10,000 crore,” said a senior government official on condition of anonymity.

 

He further added that many PSU (public sector units) banks have shown interest for SBA and their rates vary between 8.04-8.40%.

 

Earlier, the government in October 2015, had approved SBA for a loan of  Rs.7,000 crore with a consortium of public sector banks led by SBI and Punjab National Bank for settlement of outstanding indigenous urea subsidy bills.

 

 According to information made available by the department of fertilisers, the pending dues of fertiliser firms currently stands at around  Rs.30,000 crore, and hence some arrangement was needed for making payments.

 

 Another official, who also did not wish to be named, said chances of SBI’s selection for disbursing loan under SBA is maximum, as it is offering the lowest rate.

 

“The government liability on account of interest on borrowings by fertiliser companies would be similar to the 10-year government security rate (around 6.25%), while the rest will be paid by the industry once the disbursal of loan happens,” the second official quoted above said. The fertiliser department would go for post-facto cabinet approval for the SBA, the official added.

 

“It was decided in the meeting that since SBI has offered the lowest rate and is also ready to contribute to the full requirement, there is absolutely no need to go for a consortium and the SBA may go through SBI,” a third official said.Queries emailed to the department of fertilisers and SBI on 19 January remained unanswered.

 

Experts have welcomed the move.“The industry will be in a much better position with the sanction of SBA at lower rates, otherwise it would have been a costly affair,” said Neeru Abrol, former chairman and managing director of National Fertilisers Ltd. Also, the government is likely to allocate  Rs.69,868 crore towards fertiliser subsidy in the upcoming budget.