India asks ADB to reduce fees/charges

New Delhi: India has made a strong case to the Asian Development Bank to reduce costs of borrowing, including processing fee and commitment charges.

In this connection, it asked the Manila-based bank to make its pilot multi-tranche financing facility a regular programme so that commitment fee is reduced in proportion to phased system of loans, a Finance Ministry official told PTI.

Commitment charge is the fee for holding on to the un-disbursed balance of a loan commitment. It is a fixed rate charge calculated on the basis of un-disbursed balance.

A multi-tranche financing facility now allows ADB to finance long term investment programme or lines of credit on a framework basis. Depending on the demand or readiness of the borrower, various tranches may be requested over the facility period.

As such, the borrower will benefit in the sense that commitment fee will not be charged on the facility amount but on the smaller individual tranche.

India also asked ADB to review upfront or processing fee. "Our contention is that why are you (ADB) charging upfront money for, what is it for?"

Moreover, upfront fee should be linked with a delay in processing loans, he said.

Pointing out that the delay is not caused by India alone, the official said upfront money should be paid by the one who is responsible for the delay. "If blame is on us, we should pay the upfront fee and if the ADB which takes time to process a loan, the fee should be paid by it," he said.

Making a case for reducing interest rates on loans by ADB as well, the official said it should not be a problem since the Manila-based bank had lowered interest rates in past.

At its annual general meeting in Hyderabad earlier this month, ADB had virtually rejected fiannce minister P Chidambaram's demand to reduce its lending rates to pre-2000 level, saying the interest rates on its loans are already extremely low.

"We lend at about libor+10, which is extremely low when explained in the long term nature of these loans," ADB President Haruhiko Kuroda had said.

Chidambaram had asked the Manila-based ADB to reduce its loan charges to the levels prevailing before year 2000, saying financial parameters of the bank had been robust and cost of funds were critical to its business.

The official said India has also raised objection to various kinds of questions put by ADB like corruption, pollution since the country already has such safeguards due to the presence of democracy and various related institutions.