Aimed at fulfilling loan-to-value ratio, protect credit exposure
The Uttar Pradesh government has made it mandatory for industrial units seeking credit from state-run financial institutions to provide full collateral thereof.
The units may provide collateral in the form of land/property or bank guarantee of the full value of credit and the payback duration.
The state cabinet meeting presided over by Chief Minister Mayawati approved the amendment to the industrial investment promotion rules last evening.
State-run financial institutions like Pradeshiya Industrial & Investment Corporation of Uttar Pradesh (PICUP) and UP Financial Corporation (UPFC) provide interest-free loans to eligible units for 10 to 15 years.
These additional provisions have been incorporated in rules so that all future lending by these institutions fulfills loan-to-value ratio, which is the relationship between the amount of loan by a financial institution to the collateral value.
The amendment seeks to ensure the timely repayment of credit by units. Since, loans are taken for long duration (up to 15 years), it is difficult for the lender to maintain loan-to-value ratio owing to the depreciation in the value of building and machinery overtime.
Hence, the additional collateral of land/property or bank guarantee would sufficiently secure the credit transaction for PICUP and UPFC without putting any extra burden on the unit. Earlier, PICUP and UPFC could solicit additional security or personal bond from the partners or directors.
Meanwhile, the cabinet approved amendment of UP Nagar Palika Act to facilitate earmarking of 25 per cent of total budget of urban local bodies (ULB) for slum development and improving infrastructure for the poor. The cabinet also decided to directly fund ULBs from the state budget bearing 30 per cent expenses under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) schemes, currently implemented in seven districts.
This will enable cash-strapped ULBs to benefit under JNNURM schemes namely Urban Infrastructure and Governance (UIG) and Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSDMT). This will cause an additional burden of around Rs 400 crore to the exchequer.
However, the ULBs have to ensure compliance with the action plan failing which the state grant would be converted into interest free loan to be recouped in 10 annual installments by deducting it from their annual grant.
