Industrial Credit and Investment Corporation of India (ICICI) has approved short-term loans worth Rs 1,000 crore at spreads much better that those maintained on long-term loans, said K V Kamath, chief executive officer, ICICI.
ICICI will disburse this week the short-term loans pegged at the medium term prime rate (MTPR) of 13.5 per cent. Kamath said that the MTPR linked loans will be cash-flow based lendings. All FIs are planning either cash-flow based lending or turnover based lending.
The interest rate on these loans will be within the band of 3.5 per cent over the MTPR and depend on the risk rating. According to an ICICI official, the response to the MTPR linked loan has been very encouraging. ICICI has targetted to disburse 25 per cent of its incremental funds in short-term loans, which amounts to Rs 3,000 crore.
ICICI might even exceed the 25 per cent target but not at the cost of balancing between the short term and project finance business. IDBI executive director P S Subramanyam said: Our entry into working capital financing has evoked a good response and disbursing Rs 3,000 crore will not be difficult. However, working capital financing will not be our thrust area of business like project finance.In fact, the entry of IDBI into working capital financing has been welcomed by chambers of commerce like Assocham and Ficci. The enquiries for IDBI have been overwhelming from the regional centres.
It remains to be seen what action the commercial banks will take with ICICI aggressively entering the short-term market. SBI chairman had stated that he would react appropriately when financial institutions enter his turf.
Sources point out that ICICI has been able to raise funds at rates of around 10.5 to 11 per cent from which it is able to disburse short-term loans. The cost of one-year money for ICICI works out to around 11 per cent. Banks which are flush with funds have been lending short-term money of six months to one year to commercial banks. In fact, the former chairman and managing director of Bank of India said: We borrow large chunks of money from the inter-bank market and lend to FIs for longer duration practically on a daily basis.
