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NEW DELHI : Power distribution companies (discoms), hoping to benefit from the 90,000 crore loans that finance minister Nirmala Sitharaman said Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will provide them to help them combat the covid-19-induced stress, are in for a surprise, according to a copy of the document seen by Mint.

The power sector lenders have set stiff conditions to lend money under the scheme. One of them is that a discom should not be owing money to either at the time of availing the loan. As per the scheme, approved by PFC board on 16 May, the two power sector-focused lenders will give funds in two tranches, each carrying a set of riders. “The primary condition before extending the loan will be that the borrower should not have any overdues to PFC or REC," said an official familiar with the development.

The discoms will have to show that the undertakings given at the time of tranche-I loan are being implemented, if not already done so, the official said.

The loans under the scheme will be co-funded by PFC and REC in equal proportion. The amounts under the two tranches will be equal.

In another twist, aimed at ensuring correct end-use of the funds, PFC and REC will release the amounts directly to the generation or transmission company.

The borrower will have to submit an unconditional and irrevocable state government guarantee before the first disbursement. The guarantee shall cover the loan amount along with interest and any other charges towards the loan. The tenor of the loan will be up to 10 years including a moratorium not exceeding 3 years. The moratorium shall only be on the payment of principal.

Interest shall be serviced regularly on monthly basis, as per the PFC guidelines, also applicable to REC loans. There will also be a 1% pre-payment penalty if the borrower does so by taking fresh loans from a bank or a financial institution.

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