Interest rates
In a news conference on August 5, 2010, Mr. M. K. Anwar stated that he would not have objected to the loan had it been obtained from an international bank, namely, ADB, or WB where the interest rate on similar loan could be obtained at 0.25% with no fees added where the Indian loan has an interest rate of 1.75% with an initiation fee of 0.5%. It has to be paid within 25 years, and has a penalty of 2% per year there after. As per Mr. M. K. Anwar, the loans from the international banks do not have any such penalty. The fact is, all loans from ADB or WB are based on LIBOR rate, plus an add-on fee. The LIBOR rate is a composite interest rate on a basket of bonds. The current WB lending rate is 6-month LIBOR + a fee of minimum of 2.00%. On the top of this lending rate, there is a one-time fee of 1% of the loan amount. For the loan amount $1 billion, the one-time fee will be $10 million. If the loan needs to be renewed after its original maturity, there is a renewal fee of 0.5%. In a recent loan from the ADB for fixing natural gas distribution problem, the government of Bangladesh obtained a loan of $266 million at an interest rate of LIBOR rate + 0.60%, plus a commitment fee of 0.15%. For the current loan amount of such a large size ($1 billion), the add-on could be much higher than 2.00% that the WB charges on normal size loans. The point is, it is wrong and misleading to claim that the lending rates on loans from international banks, such as ADB and WB are lower than the interest rate secured in the Indian loan.
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