The agency has been very active in offering financial assistance under both hire purchase and leasing schemes since 1993. It has disbursed about Rs 42 crore so far under hire purchase and Rs 8 crore under leasing finance scheme, well placed officials told FE.
However, the board has now decided to discontinue with the schemes as there are no takers. The effective rate of interest for a customer is much higher making hire purchase and leasing activities unattractive. For instance, the interest burden on a customer will be more than 20 per cent, as the hire purchase and leasing business attract 5 per cent of service tax besides 10-20 per cent of sales tax (depending upon the product) from last years budget, they said.
Earlier finance was offered under hire purchase schemes at interest rate of about 11-14 per cent. Later the rates were brought down to 7.5 per cent for existing customers and eight per cent for others. Similarly, in the case of leasing finance, the lease rentals were brought down to Rs 22.5 per thousand per month (PTPM) for existing customers and Rs 23 PTPM for others from the earlier charges of Rs 23-26 PTPM, they added.
The agency has also come out with one-time settlement schemes (OTS) for all its defaulters who have been financed under hire purchase and leasing, transport finance and short-term loan schemes. The idea of this initiative is to reduce the growing level of non performing assets (NPAs) of the agency substantially. As of December 31, 2002, the NPA of TIIC was Rs 704 crore, sources said.
Under OTS for hire purchase and lease finance scheme, the agency would waive the entire penal charges booked in the loan amount up to the terminal date and 50 per cent of the penal charges on the account after the expiry of the terminal date up to the date of settlement. For instance, if a customer has taken a loan of Rs 5 lakhs in 1995 with a repayment period of 5 years and has defaulted, the agency would waive entire penal charges booked on the loan amount during the period 1995-2000. Besides, it would also waive 50 per cent of the penal charges from the year 2000 till the date of settlement of the loan amount.
Apart from this, for hire purchase, TIIC would also consider waiver involving any reduction in the flat rate in case of the death of the promoters etc. The overall amount due under hire purchase finance scheme is Rs 34 crore, while it is Rs 6 crore in the case of lease finance.
For transport loans, TIIC would waive penal or penal and compound interest on loans. The agency would also consider waiving a portion of the simple interest in case of emergency. Transport finance has been a major focus segment for the agency over the past couple of years. We have so far sanctioned Rs 565.07 crore under this scheme and the outstanding is close to about Rs 200 crore, sources said.
Similarly, for short-term loans, TIIC would waive penal or penal and compound interest besides a small portion of simple interest in special cases.