The central bank has set the interest rate for Green Transformation Fund (GTF) loans at 5%, a move that is expected to boost green financing for export-oriented industries.
Export-oriented industries can avail of these loans to import green or environment-friendly capital machinery.
The central bank issued a circular to all authorised dealers of foreign exchange in the country in this regard on Tuesday.
Banks will collect this fund from the central bank at a 2% interest rate.
A central bank official told The Business Standard (TBS) that the London Interbank Offer Rate (LIBOR) has not been published since July this year. Currently, the Secured Overnight Financing Rate (SOFR) rate is effective internationally.
This rate is currently much higher. If banks charge 5% interest along with this, it will hinder loans at the customer level. Therefore, the rate has been fixed.
He further said that the aim of this loan is to boost the import of green capital machinery for export-oriented industries. Now customers will be interested in taking loans.
According to Bloomberg, the SOFR rate was 5.30% on 22 September. If loans are to be distributed according to SOFR, another 5% will be added. In other words, the interest rate of loans at the customer level will be more than 10%.
Earlier, in 2016, the central bank formed a fund of $200 million under the GTF to import capital machinery and accessories for implementing green or environment-friendly initiatives for export-oriented textile and textile products and leather manufacturing industries.
At that time, banks would take this fund at 2.5% interest along with LIBOR. In January 2016, the LIBOR rate was 0.36%. In other words, the fund cost for banks was less than 3% at that time. They could give loans to customers with another 1-2.5% interest. In other words, the interest rate would be a maximum of 5.5%.
Sectors such as water use efficiency in wet processing, water conservation and management, waste management, resource efficiency and recycling, renewable energy, energy efficiency, heat and temperature management, air ventilation and circulation efficiency, can avail of the loans.
The tenure of the loan will be five to 10 years with a one-year grace period. Interest accrued for the grace period will be repaid in equal quarterly repayments without compounding.