India likely to extend another $1b loan

India is likely to extend another $1 billion-line of credit (LoC) to Bangladesh, aiming to deepen bilateral relations.

“They are thinking about a second LoC in continuation of the same type of loan given earlier,” Finance Minister AMA Muhith told reporters after a meeting with Sujata Mehta, secretary (multilateral and economic relations) of India's external affairs ministry.

During the meeting, Mehta wanted to know in which sector the country wanted to use the credit, and Muhith informed her that the education and health sectors, both of which have been given the priority sector billing, would be the beneficiaries.

The transport sector, which received most of the funds under the previous LoC, would be left out this time.

The loan amount is yet to be finalised, but a finance ministry official said it is likely to be about $1 billion. India's move to extend a fresh LoC comes after Foreign Minister AH Mahmood Ali sought for one during his visit to the neighbouring country in September last year.

The Economic Relations Division (ERD) has already asked the various ministries and divisions to pitch ideas on how to utilise the forthcoming loan from India, said the finance ministry official.

The final loan amount would depend on the probable expenditures of the projects proposed by the ministries and divisions.

Muhith said the final announcement about the LoC would be made during Indian Prime Minister Narendra Modi's upcoming visit to Bangladesh.

The first LoC -- $1 billion -- was signed during former Indian Prime Minister Manmohan Singh's tenure, ushering in a new era in relations between the neighbours.

Of the amount, $200 million was grant, which the Indian government has already disbursed. The amount has been earmarked for the Padma bridge project.

The remaining $800 million of the credit has been allocated to 15 projects, mostly railway, roads and bridges. As of March, $188 million of the amount has been disbursed.

Mehta also met with Mohammad Mejbahuddin, senior secretary at ERD, yesterday during which Bangladesh sought $68 million more under the first LoC as project costs increased. The Indian side agreed to give the money, said an ERD official.

The terms and conditions of the first LoC include a 1.75 percent interest per year and 0.5 percent commitment fees on funds not utilised after 12 months of the contract approval. The loan has to be repaid in 20 years with a grace period of five years. The ERD official expects the terms and conditions of the new LoC to be similar to the previous one.