World Bank’s commitment charges on project loans to stay | business-news | Hindustan Times
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World Bank’s commitment charges on project loans to stay

The World Bank will not remove commitment charges it levies on companies and entities when they fail to use the sanctioned loan amount disbursed for Indian projects.

business Updated: Mar 24, 2017 18:46 IST
PTI
File photo of finance minister Arun Jaitley shaking hands with World Bank CEO Kristalina Georgieva at a meeting in New Delhi.
File photo of finance minister Arun Jaitley shaking hands with World Bank CEO Kristalina Georgieva at a meeting in New Delhi.(PTI)

The World Bank will not remove commitment charges it levies on companies and entities when they fail to use the sanctioned loan amount disbursed for Indian projects.

This was communicated to the government during World Bank Group CEO Kristalina Georgieva’s visit to India during February 27 and March 2.

The World Bank Group projects are required to pay commitment charges of 25 basis points (0.25%) even on the part of the loan they have committed to draw only in subsequent years.

Hence, it was requested to lower the effective rate of interest on the World Bank loan by removing commitment charges levied on undisbursed loans, Minister of State for Finance Arjun Ram Meghwal said in a written reply in the Lok Sabha today.

“During the discussions, the World Bank Group acknowledged India’s concern and stated that the removal of commitment charges will be difficult to adopt due to tight cost recovery guidelines of the World Bank Group,” he said.

However, the World Bank appreciated that efficient project structuring helps in minimising the burden on commitment charges.

The World Bank is assisting with loans of over $ 9.43 billion for various projects in the pipeline.

World Bank loans have an average maturity period of up to 20 years. Disbursed in the US dollar, the interest rate is Libor plus spread, which can be variable or fixed in nature.

Among other charges, there is commitment charges of 0.25% per annum and front-end fee of 0.25% on loan agreement amount (applicable on current loans).