Term loans are either medium term i.e. repayable within 1-5 years or long term i.e. of duration 6-10 years and may be either in Indian Rupees or in foreign currency.
India has been following a restrictive monetary policy with high interest rates in order to reduce aggregate demand in the economy and control inflation. These rates are being progressively reviewed and lowered as the rate of inflation comes down. As of December 1994, the base lending rate for project loan of FIs stood at 14%. Institutions are free to charge interest above the base rate depending on their perception of credit risk. Repayment of the principal amount of long term loans is normally allowed to be made over 6 to 8 years after an initial moratorium of 1 to 2 years.
Centre for Monitoring Indian Economy, Bombay
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Last updated: May 1995.