MCLR-(Marginal Cost of Lending Rate)

» A benchmark derived from bank’s cost and other factors which is individually published each month by banks. 

»  It varies from overnight to 12 months.

»  Ideally, interest rate for a corporate should be linked to MCLR

       »  It is important to chose the correct MCLR depending on the         type of loan taken 

Buyer’s/Supplier’s Credit Portfolio Management

»  Buyer’s/ Supplier’s credit provides a cheaper way to finance imports. However it adds to currency risk

»  A smart management of all the costs and currency risk can lead to significant reduction in interest cost

Foreign Currency Term Loan (FCTL)

»  Long term foreign currency Loan

»  Rate of interest varies from bank to bank; possible ranges are L+2% to 5%

»  Provides more flexibility of end use etc.

»  Generally banks do not give for more than 7 years

External Commercial Borrowing (ECB)

»  Foreign currency Long Term Loan from an overseas party though an AD bank in India

»  RBI guidelines restricts overall cost, end use, tenor etc.

»  High on compliance – Monthly filing of return

 Commercial Paper

»  Unsecured borrowing in INR

»  Generally mutual funds invest in CPs

»  Increasingly being used by corporates of rating A and above

»  Interest rate could be significantly lesser than MCLR

Factoring

»  An alternate to bill discounting, generally unsecured and usually more expensive

»  Helps exporter switch working capital when bank limits are over; bank’s not willing to discount bills of certain countries

»  Unlike bank limits, setting of factoring limits with factoring company is less time taking

»  India has few active factoring companies

Export financing

»  Its a tricky choice and each choice has pros and cons

»  An intelligent comparison could save 2-4%

»  Correct timing, structuring and negotiation of terms with bank is important

FCNR/WCDL

»  Form of cash credit with committed usage of funds for certain period- as low as one month to 12 month.

»  Could be taken in INR or in USD. If in USD, it is generally called FCNR loan. If in INR, it is generally called WCDL

»  In case of FCNR generally the rate of interest various between L+2% to 4%

»  In case of WCDL generally the rate of interest is 0.25% to 0.50% lower than Cash Credit