IDFC says long-term loans being locked in

Expecting long-term interest rates to harden, corporates are locking in their loans at the prevailing low interest rates.

This has been reflected in the jump in sanctions and actual disbursements by Infrastructure Development Finance Company Ltd's (IDFC) in the first half of 2003-04.

"People want to lock in at these rates and we will see flow in demand for funds. I believe long-term interest rates will harden," said IDFC managing director & CEO Nasser Munjee.

Last year sanctions and disbursements were low as corporates chose to repay old loans since interest rates fell by 300 basis points, he added, stating that companies were not taking fresh loans.

Sanctions in the first six months soared by over 230 per cent to Rs 2,817 crore, and disbursement rose by 95 per cent to Rs 1,069 crore, with majority of funds flowing into the energy sector.

"What we could not do last year is spilling into this year, and we expect to close the fiscal with a disbursal figure of Rs 2,500-3,000 crore as sanctions to date have already touched Rs 3,500 crore," said Munjee.

In the energy sector, IDFC has approved funding to Reliance Utility (Rs 200 crore), Ahmedabad Electricity (disbursement) Company, Surate Electricity (disbursement) Company and a hydel power project promoted by Pioneer Genco in Karnataka.

"We have also approved funds to small-sized power projects where investment is to the tune of Rs 50-60 crore," said company officials.

Following the introduction of the Electricity Bill, tariff has become the most critical factor in determining the financing of projects.

IDFC officials stated that most of the new power generation projects are offering power at Rs 2.2-2.4 per unit.