| The government has allowed the FCI to borrow Rs 5000 crore from the market in the first phase. |
| The first tranche of Rs 1,000 crore of this maiden market borrowing was formally presented by the FCI officials to food minister Sharad Pawar here today. These bonds of five to 10-year tenure carry an average interest rate of 7.12 per cent. |
| The FCI Bond issue of Rs 1,000 crore was oversubscribed to the extent of Rs 9,000 crore in the first day of the float itself. It was well received by all segments of institutional investors, particularly banks, financial Institutions, insurance companies, mutual funds and provident funds. |
| The FCI has been borrowing an average of Rs 25,000 crore as food credit annually from a consortium of 61 banks led by the State Bank of India (SBI). |
| The interest charged on this amount, based on an average of prime lending rates of five major banks in the consortium, worked out to around 10.95 per cent. |
| In a bid to bring down the interest cost, the FCI has already managed, through negotiations, to force the SBI-led consortium to reduce the interest rate to 9.35 per cent from 1 January, 2004 and further down to 9.1 per cent from April 2004. |
| The consortium has also agreed to reduce it further to 8.15 per cent from 11 August, 2004. This would enable the FCI to save around Rs 700 crore a year on the interest cost. |
| Every reduction of one per cent in interest rate translates into a saving of Rs 250 crore a year on the average annual borrowing of Rs 25,000 crore. |
| The FCI also has plans to explore interest rate swaps, external commercial borrowings and other market friendly instruments for meeting its funds requirement with the help of merchant bankers and fund manager. |
| Besides, it expects the bonds issue to facilitate price discovery, which would serve as the benchmark in pricing the term loans and cash credit facility currently being availed of from the consortium of banks, according to FCI sources. |
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