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May 13, 2002 | 1220 IST
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SBI to advise govt on loan refinancing

Subhomoy Bhattacharjee

The Centre has appointed the State Bank of India as adviser in refinancing part of its commercial loans and also in deciding on the prospects of a fresh loan from the external market.

The SBI had been responsible for mobilising the last two major debt issues of the government, the India Millennium Deposit of $5.5 billion and the earlier Resurgent India Bonds of $4.2 billion.

Hence it was in the best position to advise the government, government sources said.

The SBI is expected to advise the government on refinancing high-cost loans contracted earlier. The report will help the high-powered committee on external debt, set up by the finance ministry, on balancing the external debt portfolio more efficiently.

The external debt on the government account as on March 31, 2002, was about $45.66 billion.

Of this, the highest component is soft loans of $19.2 billion from the International Development Assistance, a World Bank affiliate. A loan from Japan, at over $8.3 billion, comes next.

The SBI has been asked to explore the possibility of refinancing the Japanese loan at a lower spread of 2 per cent above London Inter-Bank Offer Rate from the existing 4-4.5 per cent spread.

The government is keen to retire its high-cost debt by taking advantage of the low-interest rate regime. Several public sector companies have already done so. But the desire to maintain substantial forex reserves was holding the government back and it was left with the only option of refinancing the loans, sources said.

The government expects to utilise the expertise of the SBI to manage the transfers at a favourable price.

While the government has been exploring the possibility of contracting a fresh loan, the report from the SBI will help it to finalise matters. Since the best window period for such a loan is during September-October, a decision has to be taken soon.

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