Coal India standardizes interest rates on delayed payments to boost demand

State-run Coal India Ltd (CIL) is set to implement uniform interest rates on delayed payments under its fuel supply agreements (FSA) starting Tuesday, a move aimed at boosting coal demand amid rising competition from private players.

Effective 1 October, CIL will apply a standard interest rate on overdue payments, adjustments, and recoverable sums that remain unpaid after the due date. Previously, interest rates varied widely, even for the same generating companies with different fuel supply agreements. 

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The policy change aims to streamline rates across various FSAs and schemes, the company said in a statement.

The shift comes at a time when private sector players are expanding following the opening of commercial coal mines in 2020. The board of Coal India had approved the rate parity in July, amending the interest rate definition within FSAs. The new uniform rate will be linked to the Reserve Bank of India’s (RBI) repo rate, reflecting a significant reduction in customer financial burden.

"CIL’s revised interest rate will be the RBI repo rate on the due date of payment plus 3%, which is notably lower than previous rates," the company stated. Earlier, rates ranged from 9.5% to 14.85% across various agreements. The new interest structure will apply to payments delayed beyond 30 September 2024, while prior outstanding amounts will still follow the old terms.

This move follows requests from coal consumers who had raised concerns over the uneven interest rates. The use of different bank lending rates was also flagged as a potential area of dispute, prompting the adoption of a uniform rate linked to the RBI’s benchmark repo rate, which is periodically reviewed.

Coal India, which supplies the fossil fuel under long-term FSAs, has an annual contracted quantity of 705.7 million tonnes for FY25.

The introduction of this policy is part of a broader effort by the public sector giant to support its customer base. In August, CIL agreed to supply more coal to power plants than their annual contracted quantities. In July, it relaxed rules for e-auctions and urged its subsidiaries to boost auction sales over the next two quarters.

At 0215pm, Coal India shares traded at ₹509 apiece on the BSE, down 1.4% from previous close.