A senior company official told The Financial Express: "Last year we capitalised Rs 1,300 crore of interest which has begun to take effect now. We will definitely retire at least half the amount that we are to get from the cement division sale to prepay some of our domestic debt."

The official added that, in the process, Tata Steel hopes to save between Rs 20-30 crore of interest charges in the second half of the current financial year. In the first half, its interest payout has increased 19 per cent to Rs 173.88 crore.

The company has already begun negotiations with financial institutions in this regard, but has been sounded out on high penalty for the prepayment. Industry sources said that as the institutions are now flushed with funds, they have resorted to demanding higher penalties.

Tata Steel's average cost of funds is around 11 per cent, primarily on account of the cheaper Steel Development Fund loans. The company presently has a debt burden of over Rs 5,000 crore. After considerable delay, all clearances for the sale of the cement division has now been received and it is expected to take effect from the third quarter. The proceeds from the sale will, hence, flow in in the second half. The debt retirement programme is part of an overall cost-reduction plan implemented by the company.