The State Bank of India (SBI) is charging around 11.5 per cent on the six-month facility being extended to Unit Trust of India (UTI).
The Rs 1,500 crore line of credit will be utilised by UTI to meet the redemption requirements of its flagship US-64 scheme.
The Life Insurance Corporation of India (LIC) is yet to receive any formal proposal from the UTI for buying its equity holdings.
As repurchases of US-64 will start in August, LIC sources said that there was no immediate need of funds at this point of time.
"Our role will be limited to that of purchasing the equity that UTI chooses to sell so that the same is not offloaded in the secondary market," said LIC sources.
According to banking sources, loans to institutions such as UTI -- which is classified as a mutual fund -- will only be for a short-term tenure of six months.
"We would not be looking at a maturity period longer than that," sources said.
The short term lending rate of SBI is now pegged at 10.5 per cent. While lending to UTI, a loading of one percentage point is expected "considering the credit rating of the Trust," sources pointed out. The lending rate would not be below 10.5 per cent or above 11.5 per cent, sources said.
Earlier in March this year SBI had advanced an amount of around Rs 400 to 500 crore to UTI and this will be repayable in September this year.
The loans will be made against government securities as collateral, officials said, ruling out loans against the block equities held by UTI as banks are prohibited from lending to mutual funds against shares.
"We are very sure we will be lending only against government securities and not against shares or anything else," sources said.
LIC does not feel that such an exercise will impact its performance as the decision to pick up the shares from UTI will be scrutinised by the investment committee.
General Insurance Corporation of India (GIC) is also part of the revival programme and would be picking up the shares from UTI's portfolio of equity holding.
However, its role would be limited in keeping with its capacity, said sources. "LIC's resources are far higher and the ratio of our taking up equity offloaded by UTI would be in the ratio of our annual accretion," he added.
