IFCI launches benchmark rate of 12.70%; will not lend below it

MUMBAI: Term lending institution, IFCI, has launched a benchmark rate of 12.70%, below which, it said it they will not lend. IFCI's new benchmark rate is similar to the base rate of commercial banks, which is the lowest rate below which they do not lend to any individual or corporate.

IFCI has said that henceforth all new loans will be priced over IFCI Benchmark Rate (IBR) which would be effective from January 7. In a statement to the exchange, IFCI has said, "IBR is exclusive of risk premium to be charged to the borrowers based on credit rating, tenor premium and additional interest to be charged for exposures to certain sectors."

So far IFCI charged customers either a fixed rate of interest or floating rate pegged to base rate of State Bank of India, which stands at 10%. "We did not have our own benchmark rate. Now, the lending rate will be based on our operational cost and our cost of funds," said Malay Mukherjee, MD & CEO of IFCI.

While Reserve Bank of India ( RBI) had prohibited banks from lending below base rate, it had not placed any such restrictions on finance companies. Among other term lenders, IIFCI too has a benchmark rate similar to base rate. IIFCI benchmark rate stands at 9.90% and it is reviewed every quarter.

IFCI has further stated that all future fresh loans would be at floating rates, linked to IBR and the existing borrowers with interest rate linked to external benchmark rate would also be given an option to shift to interest rate linked to IBR, at the time of next reset of interest rate.