Indian govt to prematurely prepay World Bank, ADB loans

New Delhi: The Indian government has decided to prematurely repay its loans from the World Bank and the Asian Development Bank (ADB) aggregating $2.8 billion. This has become possible on account of the country's swelling foreign exchange (forex) reserves. The proposed repayment will take place during the current financial year itself.

The prepayment process would basically involve the government borrowing from the domestic market through fresh auction of dated securities and using the rupee proceeds therefrom to buy dollars from the Reserve Bank of India.

In the process, not only would the central bank's forex reserve holdings come down from the existing level of $72.4 billion as on 17 January 2003 but there would also be a corresponding sucking up of rupee resources worth over Rs 13,600 crore from the market.

“This premature repayment will be financed entirely through domestic market borrowings. This swapping of fixed rate foreign currency debt with fixed rate rupee debt will be advantageous for the country,“ according to a finance ministry communiqué.

As on 31 March 2002, the total outstanding loans on the government account owed to the World Bank stood at $5,740 million, and $2,829 million in respect of ADB. ADB loans prior to July 2001 were contracted at dollar-denominated interest rates of around 6.7 per cent.