Andhra Pradesh - Vijayawada   

VMC to get Rs. 50-crore loan from consortium of banks

VIJAYAWADA: A consortium of banks, in principle, has agreed to extend a loan of Rs. 50 crores to the Vijayawada Municipal Corporation (VMC), but with a rider: the Corporation would have to escrow some of its revenues apart from providing a “collateral security”.

The consortium includes the SBI, the Indian Bank, the Syndicate Bank, the Axis Bank, the UBI and the Andhra Bank.

Each bank would release Rs. 5 crores to Rs. 10 crores, provided the VMC meets their requirements. The Municipal Corporation officials are now planning to escrow property tax collections.

And, to meet the second condition of collateral security, the VMC is contemplating showing some of its assets.

The Corporation is expecting Rs. 45 crores of revenue under Property Tax collection this year.

But, it had already escrowed “some portion of the property tax” for taking a loan from the Union Bank of India (UBI) some time ago. The officials, however, feel that “it should not be a problem,” as the Corporation has been repaying the loan and the total outstanding dues are only about Rs. 47 crores.

Banks consider only 85 per cent of the total value of the property shown as collateral security for the purpose of sanctioning the loan.

They, generally, look for a property that is of a value of 125 per cent of the loan amount, to deem it as a collateral security.

The Corporation, hence, is supposed to identify a property or properties whose value is above Rs. 100 crores, sources say.

According to a financial statement released by the Corporation a couple of months ago, it has assets of a total value of Rs. 1,500 crores. The book value of these assets would have gone up by 20 per cent already, say officials.

The Corporation requires Rs. 40 crores to Rs.60 crores by the end of April, 2009 for meeting its immediate requirements.

The banks are likely to sanction loan at an interest rate of “14 per cent minus”, which roughly translates to 13.5 per cent to 13.75 per cent.

The Corporation officials feel that a loan at this kind of interest rate would be on the higher side in view of the Corporation’s financial position, but have no other go.

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